Allstate's Qui Tam Actions Work to Take the Profit Out of Fraud

Man Bites Dog Story = Allstate May Sue on Behalf of State for Insurance Fraud
Qui Tam Actions May Proceed to Trial

Allstate Insurance Company and several of its affiliates (collectively, Allstate) brought qui tam actions on behalf of the State of California alleging insurance fraud under the California Insurance Frauds Prevention Act (IFPA) (Ins. Code, § 1871 et seq.) and the Unfair Competition Law (UCL) (Bus. &Prof. Code, § 17000 et seq.) against three medical corporations, a medical management company and its parent company, four physicians, and Sattar Mir, an individual.

In the People ex rel. Allstate Insurance Company et al. v.  Discovery Radiology Physicians, P.C., et al., and v. Onesource Medical Diagnostics, LLC, et al., B315264, California Court of Appeals, Second District, Third Division (August 15, 2023) the operative complaints allege that while the medical corporations hold themselves out as providers of radiology services, they in fact act as radiology "brokers," sending patients to radiology facilities and radiologists with which the purported medical corporations have contracted.

The trial court found the complaints failed to state causes of action under the IFPA and the UCL because they were not pled with requisite specificity.

FACTUAL BACKGROUND
Allstate's Fraud Actions; The Initial Demurrers.

Allstate Insurance Company is an insurance company licensed to issue automobile insurance policies in California. In 2020, Allstate filed two qui tam actions alleging insurance fraud in violation of the IFPA and the UCL.

The complaints alleged that the three medical corporations were formed and controlled by Mir, who is not a physician, to broker radiology services. The resulting bills falsely identified the technical and professional services as having been provided by one of the three defendant medical corporations and grossly inflated the fees for the services provided. Allstate alleged it would not have paid the claims for services purportedly rendered by the three professional corporations had it known of the false statements and fraudulent markups.

The trial court sustained the demurrer to the first amended complaints. The trial court entered judgments of dismissal in the Discovery and OneSource actions on August 16, 2021. Allstate timely appealed.

DISCUSSION

This appeal presents four basic issues:

Are the business models alleged in the amended complaints unlawful?
If the alleged business models are unlawful, do they give rise to causes of action under the IFPA and the UCL?
Do the amended complaints plead fraud with sufficient particularity?
Does the Discovery action adequately allege delayed discovery to survive demurrer on statute of limitations grounds?

The Court of Appeals answered each question in the affirmative.

ANALYSIS

A nonlicensed individual need not examine a patient or render a medical diagnosis to engage in the unlicensed practice of medicine-to the contrary, a non-physician unlawfully practices medicine if he or she exercises undue control over a medical practice. A non-physician undoubtedly exercises undue control by owning a medical practice but may also exercise such control in a variety of other ways, including by choosing physicians to provide medical services, selecting medical equipment, determining the parameters of physicians' employment, including case load and compensation, and making billing decisions.

Overview of the IFPA.

The IFPA was enacted to prevent automobile and workers' compensation insurance fraud in order to, among other things, "significantly reduce the incidence or severity and automobile insurance claim payments and . . . therefore produce a commensurate reduction in automobile insurance premiums."

A claim need not contain an express misstatement of fact to be actionable under Penal Code section 550 and Insurance Code section 1871.7, subdivision (b).  Instead, these sections require only that a person knowingly, and with intent to defraud:

present a claim that is false or fraudulent in some respect,
present, prepare, or make a statement containing false or misleading information about a material fact, or
conceal an event that affects a person's right or entitlement to insurance benefits.

In other words, "[a]n insurance claim is fraudulent under [Penal Code] section 550 and [Insurance Code] section 1871.7, subdivision (b), when it is characterized in any way by deceit or results from deceit or conduct that is done with an intention to gain unfair or dishonest advantage."

ANALYSIS.

The present case is a fraud action brought in the name of, and on behalf of, the state of California. Nor does Allstate seek to "avoid paying for" services rendered under an insurance contract, as defendants suggest; Allstate has already paid for those services and seeks through this action to recover a statutory penalty that, if recovered, will be shared by the state. For all of these reasons, the Court of Appeals concluded that the complaints allege claims under the IFPA.

The Operative Complaints State Claims Under The UCL.

The UCL prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." (§ 17200.)"  All parties agree that Allstate's UCL claims are derivative of its IFPA claims, and thus that the UCL claims rise or fall with the IFPA claims. Because the complaints adequately plead violations of the IFPA, they also adequately plead violations of the UCL.

The Amended Complaints Were Pled With Adequate Specificity.

Because Allstate has not only pled an allegedly fraudulent practice, but also identified each of the allegedly false claims submitted as a result of that practice it has adequately pled its complaint with adequate specificity.

DISPOSITION

The judgments of dismissal were reversed with directions to the trial court to vacate the orders sustaining the demurrers, enter new orders overruling the demurrers, and reinstate the amended complaints. Allstate shall recover its appellate costs.

ZALMA OPINION

The qui tam provision of the IFPA is an effective means of reducing insurance fraud by taking the profit out of the procedure without taking on the need for proof beyond a reasonable doubt in a criminal proceeding. If there is no profit in fraud and because the IFPA can assess serious damages on the perpetrators Allstate, and all the Amici who supported it on this appeal, should be honored in the work to defeat fraud and should be emulated by other insurers who are the victims of fraud providers, whether medical, auto body shops, contractors, roofers, public insurance adjusters and lawyers.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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