Zalma’s Insurance Fraud Letter – April 15, 2019

The Essential Resource for The Insurance Fraud Professional

Insurance Fraud Is Epidemic

The following was adapted from the Introduction to my book, “Insurance Fraud & Weapons to Defeat Insurance Fraud” available in two volumes as a Kindle book or a paperback from Amazon.com with Volume One available as a Kindle book and a paperback and Volume Two Available as a Kindle book and a paperback.

Insurance Fraud is Expensive

Insurance fraud continually takes more money each year than it did the last from the insurance buying public. There is no certain number because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Read the full article here.

The Insurance Frauds Prevention Acts Give Public Right to Sue Fraud Perpetrators on Behalf of State

Illinois and California enacted an Insurance Frauds Prevention Act that allows the public to file qui tam suits on behalf of the state against fraud perpetrators. In The State of Illinois ex rel. David P. Leibowitz, as Trustee of the Bankruptcy Estate of Marie A. Cahill v. Family Vision Care, LLC, Novamed Management Service, LLC, Surgery Partners, Inc., and Jennifer Gula, No. 1-18-0697, 2019 IL App (1st) 180697 Appellate Court of Illinois First District Second Division (March 12, 2019) a bankruptcy trustee, on behalf of the bankrupt and the state filed a qui tam action against a health care provider accused of defrauding the public.

ISSUES

The Illinois Court of Appeal was asked to determine (i) whether the State can assign to a third party an injury to its sovereignty and (ii) whether the third party can derive standing from that injury absent monetary damages to the State. Both questions were answered for the first time in Illinois.

The trial court found the plaintiff, trustee for the bankruptcy estate of Marie Cahill, lacked standing because the State only suffered an injury to its sovereignty, not a pecuniary loss, and the State cannot assign an injury to its sovereignty to a private citizen. The court also found the plaintiff was not an “interested person” under the Act, as Cahill did not suffer an injury related to the claim and did not allege how determination of the controversy would affect a claim or right personal to her.

ANALYSIS

The appellate court differed with the trial court’s standing analysis. Under the plain language of the Act and its purpose in combating insurance fraud, the State need not have suffered monetary damages to confer standing on a relator in a qui tam or whistleblower action. Moreover, in the qui tam context, a whistleblower employee like Cahill, who has personal, nonpublic information of possible wrongdoing, is an “interested person” under the statute and need not have a personal injury to have standing.

The court of appeal agreed with the trial court that dismissal was not warranted by the separation agreement or for failure to state a claim. Thus, we affirm in part, reverse in part, and remand for further proceedings.

Background

Family Vision Care, LLC, is an optometrist practice in LaGrange, Illinois. NovaMed Management Service, LLC, a medical practice management company, purchased Family Vision Care, LLC, and merged with Surgery Partners, Inc. (Surgery Partners), a publicly traded company. Dr. Jennifer Gula is an optometrist at Family Vision Care, LLC, with no ownership interest in the practice.

Cahill worked for Family Vision Care from October 2012 through January 2016. As an office administrator, Cahill handled insurance billing practices. According to Cahill, about 90% of Family Vision Care’s revenue came from claims it submitted to Vision Service Plan (VSP), a vision care health insurance company.

VSP only covers claims from optometrists who have “majority ownership and complete control” of their medical practices. Cahill alleges Family Vision Care engaged in fraud by knowingly and falsely certifying their eligibility for VSP insurance payments and accepting payments to which they were not entitled.

In February 2016, after Cahill left Family Vision Care, she signed a separation agreement and general release “fully and unconditionally” releasing and discharging her employer from liability, claims, and causes of action “arising *** out of or in connection with Employee’s employment or separation from employment with Employer, and all claims for any act or failure to act that occurred up to the time that Employee signs this Agreement.”
Cahill filed for bankruptcy in January 2016. More than a year later, the trustee of the bankruptcy estate (Estate) filed a one-count complaint against Family Vision Care for fraudulently submitting false claims to VSP, which is not a party. The record indicates that David P. Leibowitz is the bankruptcy estate’s trustee. Section 15(a) of the Act is a qui tam enforcement provision, allowing private whistleblowers with undisclosed information about insurance fraud to sue for civil penalties.

Family Vision Care filed a combined motion to dismiss. The trial court denied Family Vision Care’s section 2-615 motion finding Cahill alleged fraudulent conduct with sufficient specificity. The court also denied Family Vision Care’s request for dismissal based on the separation agreement, finding questions of fact exist as to whether Cahill could have released the bankruptcy estate’s claim, as well as whether Cahill’s claim falls under the release. As to standing, the trial court dismissed the complaint, finding the Estate failed to allege or explain how it has standing to bring a claim under the Act. Noting that the Act does not define “interested person,” the court decided that a claimant must hold some legal interest in the cause of action. Thus, the Estate lacked standing.
Further, the trial court stated that even if the Estate could bring a qui tam action, the Estate did not allege an “injury in fact” the State could assign to it.

The Act, which the Illinois General Assembly adopted in 2001, added civil penalties to existing criminal remedies for fraud against private insurance companies. Relevant to this case, subsection 5(b) creates a private cause of action against any entity that violates the Illinois criminal code relating to insurance fraud. A person commits insurance fraud “when he or she knowingly obtains, attempts to obtain, or causes to be obtained, by deception, control over the property of an insurance company *** by the making of a false claim or by causing a false claim to be made on any policy of insurance issued by an insurance company *** intending to deprive an insurance company or self-insured entity permanently of the use and benefit of that property.” 720 ILCS 5/17-10.5(a)(1) (West 2016).

The Illinois statute includes a qui tam enforcement provision allowing private whistleblowers with information about insurance fraud to sue for civil penalties. An interested person, including an insurer, may bring a civil action for a violation of this Act for the person and for the State of Illinois.

A plaintiff need not allege facts establishing standing. Wexler v. Wirtz Corp., 211 Ill. 2d 18, 22 (2004). Rather, the defendant bears the burden to plead and prove lack of standing.
By definition, qui tam suits involve claims brought by private parties to assist the executive branch in enforcing the law, the violation of which affects the interest of the government, not the individual relator, whose only motivation in bringing the suit is to recover a piece of the action given by statute. Of course, the State suffers an injury to its sovereignty when its laws are violated. Standing in qui tam litigation under the False Claims Act has been addressed by the Illinois Supreme Court in Scachitti v. UBS Financial Services, 215 Ill. 2d 484, 508 (2005), where the court acknowledged that in a qui tam case there is no cognizable injury in fact suffered by the relator. The Illinois Supreme Court held that a qui tam claim constitutes a partial assignment of the State’s claim under the qui tam provisions of the Act, permitting a private person to bring a civil action for a violation of the Act for the person and for the State.

The Estate asserts that, like the False Claims Act, the Act allows a relator to bring a civil action for the person and for the State of Illinois.

The plain language of the Act and its purpose support a finding that the State need not have suffered monetary damages to confer standing on a relator.

Family Vision Care’s contention that allowing a citizen to sue on behalf of the State will open the proverbial floodgates to litigants seeking a finding that a fee is without merit. A plaintiff may bring a qui tam claim only if (i) the State authorizes the relator to sue on behalf of the State and the relator and (ii) the State retains control of the litigation. The Act requires both. Further, for the Act—a statute designed for the purpose of deterring insurance fraud—to have an effect, witnesses of potentially fraudulent insurance claims, like Cahill, must be able to bring a complaint.

The statute fails to define the term “interested person,” so the court must give effect to the intent of the legislature and give the statutory language its plain, ordinary, and popularly understood meaning. Looking at the plain language of section 15(a) in light of other provisions of the statute and the statute’s purpose, reveals that “interested person” includes whistleblowers like Cahill. Allowing whistleblowers, like Cahill, who have evidence of potential fraud to bring a claim, also advances the Act’s purpose—protection of the public from insurance fraud. Statutes must be interpreted with a view toward “the reason for the law, the problems sought to be remedied, the purposes to be achieved, and the consequences of construing the statute one way or another. The goals of the Act include disgorging unlawful profit, restitution, compensating the State for the costs of investigation and prosecution, and alleviating the social costs of increased insurance rates due to fraud. Permitting parties who have information about possible insurance fraud to bring the claim on the State’s behalf satisfies these goals.

A California appellate court, applying a statute identical to the Illinois statute, held that as a true qui tam provision, Insurance Code section 1871.7 does not mandate that the relator has suffered his or her own injury. The court further noted that the lawsuit under section 1871.7 was based on an injury allegedly suffered by the People of the State of California, and was not filed for the purpose of remedying an injury suffered by the relator.
In the qui tam context, an employee like Cahill is an “interested person” as she has nonpublic information of possible wrongdoing and, as a whistleblower, does not need to have a personal injury to have standing.

Even if Cahill is an interested person by virtue of her whistleblower status, Family Vision Care maintains that the bankruptcy estate does not possess material information of potential wrongdoing by Family Vision Care, only Cahill. But, once a bankruptcy action is instituted, all unliquidated lawsuits become part of the bankruptcy estate and only the bankruptcy trustee has standing to pursue them.

Moreover, the State is the real party in interest, and a relator filing on behalf of the State cannot waive the State’s claim. As a result, the appellate court affirmed the trial court’s decision not to dismiss.

SUFFICIENCY OF PLEADINGS

Dismissal requires finding no set of facts that would permit the plaintiff to recover. Fraud claims must be pleaded with sufficient specificity, particularity, and certainty to apprise the opposing party of what he is called upon to answer. A plaintiff must allege with specificity and particularity, facts from which fraud is the necessary or probable inference, including the misrepresentations, when they were made, who made them, and to whom they were made.

The Estate alleged Dr. Gula signed the VSP provider agreements since 2014, certifying she had a majority ownership of Family Vision Care and complied with VSP’s requirements for insurance reimbursement. The Estate attached a copy of a provider agreement as an exhibit with Dr. Gula’s signature. The complaint also alleged Family Vision Care knew of VSP’s ownership requirements but, at the direction of Surgery Partners, Dr. Gula and Family Vision Care continued to make false representations to VSP throughout Surgery Partners’ ownership of Family Vision Care. And that Frank Soppy, a vice president at Surgery Partners, instructed Cahill to tell VSP that Family Vision Care was a sole proprietorship owned by Dr. Gula. These allegations satisfy the heightened standard for common law fraud, and invoke the what, when, and who of Family Vision Care’s misrepresentations.

ZIFL OPINION

Since Illinois and California seem to be the only states with this statute insurers who have evidence that they were defrauded by an insured, by a service provider like Family Vision, by a body shop, by a group of chiropractors, by a group of lawyers, or other professionals claimed to be defrauding the insurer may bring a qui tam action to stop the fraud. These statutes – considering that insurance fraud is rampant in both Illinois and California, my find this a method to defeat insurance fraud since many prosecutors are loathe to prosecute insurance fraud.


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Books

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 Zalma on Insurance

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I have completed a video blog called
Zalma’s Insurance 101 that consists of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.
If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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