Allstate Files Suit to Recover $2 Million From Alleged Fraud Scam

Allstate Insurance Co. has filed an insurance fraud lawsuit naming 27 defendants in New York. The suit is seeking to recover $2 million from companies which allegedly set up fraudulent medical businesses in connection with no-fault automobile insurance claims.

The medical companies include St. John Medical Care, P.C., Lenox Wellcare Medical, P.C., CB Chiropractic LLC, and six others, which were allegedly owned and controlled by nonphysicians. The lawsuit also named 18 individual defendants.

This is the first insurance fraud lawsuit filed by Allstate this year, Allstate senior manager of corporate relations for the New York region, Jaclyn Darrohn said in an email. Last year, the company filed nine different lawsuits to recover nearly $24 million dollars from no-fault fraud cases in New York.

Michael Barry, vice president of media relations for the Insurance Information Institute, said some of the organizations are set up for the sole purpose of committing fraud. "What they will do is date 10 different claims forms two weeks apart, say they will have delivered various medical services for this person involved in an accident over a period of weeks or months, when in fact they may not have." It's a potentially lucrative business for these organizations because personal injury protection in New York's no-fault insurance covers the first $50,000 of expenses related to an auto accident.

A recent study of PIP claims by the Insurance Research Council showed that claimed losses for medical expenses, lost wages and other expenses related to injuries from auto accidents in the New York City area have risen 70% in the past decade. The average claimed loss per PIP claimant in the New York City area was more than double the average loss among other claimants from the rest of the state — $15,085 compared to $6,870.

"The insurance companies have become quite aggressive on this issue," Barry said. "It is not only cutting in to their bottom line but increasing premiums for the honest policyholder. The government has really stepped up its game in terms of combatting this problem."

Last week, New York Attorney General Eric Schneiderman announced the arrest of 16 people for their roles in staging nine car accidents in Brooklyn from 2009 to 2011 to allegedly fraudulently collect more than $400,000 in insurance payouts. The arrests came about as a result of a joint investigation into staged accidents and no-fault insurance fraud by the Office of the Attorney General and the New York City Police Department working with the New York State Department of Financial Services.

Also last week, an initiative was announced to begin cracking down on no-fault fraud in New York that will decertify medical providers found to be committing fraud. Gov. Andrew M. Cuomo and Superintendent of Financial Services Benjamin M. Lawsky said they would attack the crux of the problem by targeting "unscrupulous medical mills and crooked doctors," according to the Property Casualty Insurers of America (Best's News Service, March 9, 2012).

Shares of Allstate Insurance Group (NYSE: ALL) were trading the afternoon of March 15 at $32.59 a share, up 0.28% from the previous close.

Allstate currently has a Best's Financial Strength Rating of A+ (Superior).

The top five private passenger auto no-fault writers in New York are Berkshire Hathaway Insurance, with 27.68% of the market; Allstate Insurance, with 20.2%; State Farm, with 11.73%; Progressive Insurance Group, with 6.56%; and Liberty Mutual Insurance Cos., with 5.24%.

(By David Hodes, associate editor, BestWeek: David. [email protected])