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RICO double standard: Favors insurance companies, hurts crash victims

State Farm Mutual Automobile Insurance Company v. Physiomatrix: Insurance companies can use RICO to attack doctors & lawyers, but injured accident victims can’t use it to stop insurance company abuse

Yesterday, I wrote about the Jackson v. Sedgwick Claims Management Services case, where U.S. Court of Appeals for the 6th Circuit has most likely “cut off” all chances of holding “cut off” doctors (and the insurance companies that deliberately use them) accountable under the federal RICO Law for their schemes to hurt innocent accident victims by fraudulently denying No Fault insurance benefits.

For those of you who are unfamiliar with RICO, it stands for the Racketeer Influenced and Corrupt Organizations Act.

The Jackson ruling is also another painful reminder of the all-too-frequent double standard that auto accident victims and personal injury victims are saddled with in their attempts seek justice from auto insurance companies.

Unlike Jackson, where the federal appeals court stopped injured workers from using RICO to hold their employer, the employer’s third-party claims administrator and a “cut off” doctor accountable for their fraudulent activities, another federal court is currently allowing an auto insurance giant to use RICO to beat up on doctors and physical therapy facilities who regularly treat auto accident victims.

In State Farm Mutual Automobile Insurance Company v. Physiomatrix, Inc., et al., which is pending in the U.S. District Court for the Eastern District of Michigan, State Farm is suing two physical therapy facilities and four doctors for money damages, cost and attorney fees under the federal RICO law. The lawsuit names several large Michigan personal injury law firms and lawyers by name.

State Farm claims medical services “were not performed” as the facilities and doctors claimed or they “were performed pursuant to a fraudulent predetermined protocol of treatment …,” regardless of what each patient’s individual needs may have been.

The goal, according to State Farm’s complaint, was to load up the medical services, which would increase the medical expenses that had to be paid by State Farm, thereby increasing the income for the doctors and facilities and “inflat[ing] the value of the [patients’] personal injury claims in order to curry favor with a small group of personal injury attorneys … with whom the [facilities and doctors] appear to have substantial quid pro quo cross-referral relationships.”

Anyone taking bets on whether the federal courts will deem State Farm’s “injuries” to be RICO “friendly” – unlike the injuries claimed by the accident victims in Jackson – and, thus, compensable?

But the double standard forced onto accident victims is NOT limited to just RICO cases: Consider the fraud decisions from the Michigan Supreme Court and the Michigan Court of Appeals.

For instance, if an auto insurance policy holder wishes to sue her auto insurer for having fraudulently denied her claim for No Fault benefits, then Michigan courts have said she must prove not only that her reliance on misrepresentations from her auto insurer was “reasonable,” but that she had no “means to determine that a representation is not true.”

In other words, if the insured could have hired a lawyer (but didn’t) and, thus, could have learned the truth about her insurer’s misrepresentations, then the insured has no case for fraud against the insurer.

Not surprisingly, the rules are a lot different when it’s the insurer accusing the insured of fraud.

Indeed, the Michigan Supreme Court has effectively ruled that whereas the insured must exercise extreme due diligence in justifying her fraud claim against an insurer, the insurer need exercise no diligence in its fraud claim against its insured (see Titan Insurance Company v. Hyten):

“To hold an insurer to a different and higher standard, one that would require it affirmatively to investigate the veracity of all representations made by it contracting partners before it could [avoid liability under an insurance policy on the ground of fraud in the application for insurance], would represent a substantial departure from the well-established understanding of fraud.”

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“[T]here is no common-law duty to attempt to acquire such knowledge.”

For more about the double standard imposed on auto accident victims, please check out Michigan Auto Law’s blog post, “Activist Michigan Supreme Court justice bends law to favor auto insurance companies in fraud cases.”


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Blog Author Steven M. Gursten
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