Courts to determine allowable evidence for suits involving insurance claims

Americans often jest about the differences between our right (East) and left (West) coasts and their differing impacts on American culture, lifestyles and politics. Civil cases pending in California and New York could have lasting impact on automobile personal-injury litigation if the decisions percolate into other jurisdictions, often called fly-over states.

In New York, radiologist Andrew Carothers filed 20,000 lawsuits against auto-insurance carriers. Carothers formed a professional services corporation that leased three MRI clinics in the New York City-area. Like many states, New York law prohibits the corporate practice of medicine. Simply put, only licensed physicians may own a medical practice.

Carothers’ clinics focused almost exclusively on MRI scans of PIP claimants. His clinics claimed 38,000 scans in 2005-06 alone. Patients assigned their PIP insurance rights to payment to the clinics, which billed insurers $900 per scan.

Suspicious insurers investigated. Carothers was an illegal straw owner, they believed. The real clinic owners were two laymen who installed Carothers to hide their illegal ownership. The evidence piled up: Lease payments were grossly inflated. Fund transfers to the unlicensed, real clinic owners exceeded $12 million while Carothers received little more than $100,000. Carothers couldn’t even provide investigators with basic information such as employee names, hiring practices and clinic finances.

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Insurers not responsible for fraudulent claims   

New York law relieves no-fault insurers of any duty to pay fraudulent medical providers and fraudulently incorporated providers. So the insurers refused to pay Carothers. He then flooded the state’s courts with more than 20,000 lawsuits seeking collection for unpaid “services.”

The civil cases were consolidated, and the jury agreed Carothers was fraudulently engaged in the corporate practice of medicine. The Appellate Division affirmed, so Carothers went to the state’s highest court — the New York Court of Appeals — where the case awaits decision.

This case is important for New Yorkers and auto insurers across the U.S. New York is a leading jurisdiction, and its court decisions are often cited in other states. A favorable decision can deter scams like Carothers’ in other states that forbid the corporate practice of medicine.

In addition, fraudsters often quickly expand operations to line their pockets in other states they see as soft touches. Such plots also could be deterred. A decision is expected in 2019.

The Coalition Against Insurance Fraud will file an amicus or “friend of the court” brief in this case. We will support state laws that protect consumers from scams by corporate medical entities, and unlicensed laymen who disguise their illegal ownership of medical facilities. The brief also will address the need to uphold laws that allow both the investigation of insurance fraud, and support insurer rights to stop payment when evidence of fraudulent practices is uncovered.

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Trial evidence & personal injury cases

On the California coast, a case may change how trial evidence is presented in personal-injury actions across the nation. The California Supreme Court may decide whether such actions are good courtroom strategy, or tantamount to fraud.

Dave Pebley was involved in a serious vehicle accident. He sought medical care and filed suit. He had health coverage, yet decided not to submit his bills for payment. Why? Under California law, the jury would only hear about the amount paid by his health insurer as the measure of his medical expense. By refusing to use his health insurance, Pebley was billed at the top rate for medical services. This allowed his attorney to “blackboard” much higher medical expenses, to be paid by the tortfeaser’s insurer.

The insurer cried foul. Such actions mislead the jury, and are fraudulent because medical providers never expect to receive such high payments, the insurer asserted. Not true, countered those who claim this is simply good trial strategy. Plaintiffs who do not prevail risk being personally obliged to pay the full medical bills.

Juries should be allowed to decide, the California Second District Court of Appeal reasoned. The jury could not be told about the available but unused health insurance, the court ruled. A plaintiff electing this course should be deemed “uninsured” for trial purposes.

Whether medical providers expect full payment or not, the plaintiff may present the higher medical bills — but must provide expert testimony to prove the charges are fair and reasonable. In contrast, the defendant (or their insurer) may present counter-evidence as to what the health providers normally accept for payment of those services.

Parties are now lining up to support appeal of the case to the state Supreme Court. An appeal is not automatic and the court could say “no.”  Those seeking change may face challenges. They must show the trial court abused its discretion in allowing the jury to hear about the full amount charged by the healthcare providers but not hearing that Pebley refused to use his own health insurance.

Part of the appellate argument is expected to center upon the allegedly fraudulent practice of medical providers asserting liens for top-rate billing while never expecting to actually be paid those amounts. Insurers are asserting medical providers are acting in collusion with personal injury attorneys seeking to not share the full story of insurance and medical billing practices with juries in hopes of higher verdicts.

Attorneys in other states are closely watching. If Pebley succeeds in California — and wins the $3.6 million he seeks — the strategy of refusing to use health insurance will spread rapidly to other states. The result? Perhaps markedly larger verdicts, and certainly a windfall to medical experts who testify. Both sides then would need to present testimony about both the value of the medical services and what lower amount the medical providers likely would accept as payment for those services. We will know later this year, or early in 2019, if the California Supreme Court accepts the case.

So we have cases on two coasts with differing facts, insurance systems and legal issues. What unites them is how these important cases are decided will have potentially far-ranging impact on American citizens, insurers and personal-injury litigation from coast to coast.

Matthew J. Smith, Esq. is director of government affairs and general counsel to the Coalition Against Insurance Fraud. Contact him at matthew@InsuranceFraud.org.