Calif. Court of Appeal Allows 2 Insurers To Pursue Fraud Suits Against Pain Doctor

By Jim Sams | January 5, 2022

A decision by a California appellate court last month allows both Allstate and State Farm to pursue lawsuits seeking penalties against an Orange County pain-management doctor who is accused of over-billing insurers.

California’s Insurance Fraud Prevention Act allows insurers or other parties to file whistleblower lawsuits — called qui tam actions — that can result in awards of three times the amount charged plus penalties of $5,000 to $10,000 for each fraudulent bill. The law includes a first-to-file rule, which generally means no other actions can follow after an initial lawsuit is filed.

A panel of the 4th District Court of Appeal decided Dec. 14 that the first-to-file rule does not prevent two insurers from filing separate actions seeking penalties for separate sets of false claims. The panel reversed a decision by the Orange County Superior court that dismissed a lawsuit filed by State Farm because Allstate had already filed a lawsuit alleging the same fraudulent scheme.

Allstate Northbrook Indemnity Co. in September 2019 filed a qui tam suit against Dr. Sonny Rubin of Newport Beach, seeking penalties for false claims made against it after treating auto-accident claimants. A month later, State Farm Mutual Insurance Co. filed an action against Rubin describing a similar over-billing scheme and seeking penalties for all false claims made to any insurer.

Dr. Sonny Rubin

The 4th District panel noted that the two lawsuits involve separate pools of victims.

“Allstate is the only overlapping victim,” the published opinion says. “Thus, even if the two complaints allege the same fraud, State Farm is only precluded from pursuing IFPA penalties for the false claims that defendants billed to Allstate.”

Even though the IFPA was enacted by the state legislature in 1993, the court said State Farm’s appeal marked the first time it was asked to consider the question of whether two insurers can pursue separate qui tam actions for the same fraud scheme.

Barry Zalma, a former attorney who now runs an insurance consulting firm, noted the significance of the decision in his insurance fraud newsletter.

“It’s just a great thing that insurers are being proactive since the state is lethargic in prosecution of frauds,” he said in an email to the Claims Journal.

Both lawsuits allege that Rubin over-billed for procedures purportedly performed at the Newport Institute for Minimally Invasive Surgery.

The Allstate lawsuit says “Rubin orchestrates fraudulent conduct in which he routinely recommends predetermined ‘one-size-fits-all’ treatment plans without regard to medical necessity or patient safety, to fraudulently increase the value of the patients’ claims and to maximize his own revenue, profit, and income.”

The insurer said when treating patients referred to him by lawyers and chiropractors, Rubin would “unbundle” Current Procedural Codes to make it appear more treatment was rendered than actually occurred.

State Farm’s lawsuit describes a similar scheme and gives greater detail. The suit says Rubin collected up to $4,095 in professional fees for each procedure and the ambulatory surgery center he owns an extra $2,000 in facility fees by fraudulently billing for diagnostic procedures and magnetic-resonance imaging scan interpretations that were either not performed or not medically necessary.

Allstate is asking the court to award it at least $34,110,000 for violations of the Insurance Code. State Farm alleges that it paid $6 million for Rubin’s fraudulent billings, but it is also seeking damages for fraudulent claims made to other insurers, other than Allstate.

Attorneys with the Khouri law firm, who represent Rubin, did not respond to requests for comment.

Rubin’s lawyers persuaded Orange County Superior Court Judge William Claster to dismiss State Farm’s lawsuit, called a demurrer in California, based on the first-to-file rule. After State Farm appealed, both the state Department of Insurance and Allstate filed briefs supporting State Farm’s effort to pursue its own lawsuit.

Interestingly, State Farm and Allstate argued different theories before the appellate court. Allstate argued in an amicus brief that the State Farm lawsuit should not have been dismissed because it involved a different set of victims, while State Farm argued that the identity of the victims was irrelevant.

The appellate panel said that it usually does not allow arguments to be made on appeal if they weren’t made at trial, but it decided to consider Allstate’s brief because of “important policy issues.” The court ruled that Allstate was correct: “The identity of the specific victims underlying a relator’s request for penalties is material in an IFPA action,” the opinion says.

Because the purpose of the IFPA is to disgorge unlawful profits, a separate lawsuit that alleges the same fraudulent scheme but a different set of victims should be allowed, the panel decided.

“The additional funds recovered from such lawsuits will assist the government’s efforts in fighting insurance fraud,” the opinion says.

The California Department of Insurance also filed a brief in support of State Farm’s position.

“The law enhances our ability to protect the public given limited investigative resources. The Department of Insurance filed a statement of interest in the Court of Appeal after the case was dismissed by a lower court because the commissioner has an interest in ensuring that the statute is applied in a consistent manner, true to its text and legislative intent, and we believe this suit should be allowed to move forward in the public interest,” Deputy Insurance Commissioner Michael Soller said in a statement.

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