Fraud/Special Investigation

The ongoing battle over whether disputes under the Insurance Fraud Prevention Act (the Fraud Act) and the New Jersey Anti-Racketeering Act (RICO) can be litigated in court recently resulted in a favorable determination for insurance carriers in the New Jersey Appellate Division case of Allstate v. Carteret Comprehensive Care, PC, et al., No. A-4605-91 (App. Div. January 9, 2025). 

In March 2023, Allstate Insurance filed a complaint against more than 30 defendants, alleging violations of the Fraud Act and RICO, among other claims. A group of defendants moved to dismiss the complaint and compel arbitration. On October 27, 2023, the trial court issued three orders granting the moving defendants’ request, compelling all claims asserted by Allstate to arbitration under the Automobile Insurance Cost Reduction Act (AICRA). The trial court ruled that AICRA’s language mandated arbitration for all disputes concerning the recovery of Personal Injury Protection (PIP) benefits, that any party to the dispute could invoke arbitration, and that the arbitration provision covered a broad range of legal disputes related to PIP benefits. 

Allstate appealed the order dismissing the complaint and compelling arbitration, arguing the trial court erred because: (1) AICRA could not strip the right to a jury trial as guaranteed by the Fraud Act and RICO; (2) AICRA only mandates arbitration for disputes regarding the recovery of medical expense benefits under PIP; (3) AICRA, the Fraud Act, and RICO do not support the conclusion that fraud claims can be subject to PIP arbitration; and (4) statutory interpretation does not support the notion that claims under the Fraud Act and RICO should be arbitrated.

The Appellate Division distinguished the objectives of the PIP arbitration process from those of the Fraud Act and RICO. The court emphasized that PIP arbitrators have limited discovery enforcement powers and discovery in PIP arbitration is confined to assessing the nature, extent, and validity of a PIP claim. Furthermore, PIP benefits are statutory in origin, and remedies for their denial are restricted to interest and attorneys’ fees. 

In contrast, the Fraud Act and RICO serve broader purposes, such as combating insurance fraud and addressing serious threats to New Jersey’s political, social, and economic institutions. The Fraud Act allows for the recovery of compensatory damages, investigative expenses, costs, attorneys’ fees, and, when a pattern of fraud is established, treble damages. RICO provides both civil and criminal sanctions. The court astutely noted that PIP arbitration regulations do not expressly provide for injunctive relief, compensatory damages, treble damages, or attorneys’ fees for an insurance carrier. 

Additionally, the court highlighted that PIP arbitration rules do not allow for (1) broad discovery, (2) discovery from third parties, or (3) the joinder of third parties. Ultimately, the court concluded that AICRA’s history demonstrated that PIP arbitration was intended as an expedited and streamlined process strictly for resolving PIP benefit disputes.

The court also rejected the defendants’ argument that they had a right to arbitration under Allstate’s Decision Point Review Plan (DPRP). It determined that by referencing N.J.A.C. 11:3, Allstate had made clear that arbitration under its DPRP was no broader than PIP arbitration under AICRA. Since the plan’s scope was identical to AICRA, the defendants had no independent right to arbitration under the DPRP.

Additionally, Allstate argued that interpreting AICRA to require arbitration for insurance fraud claims would violate its constitutional right to a jury trial under the Fraud Act and RICO. The New Jersey Constitution guarantees the right to a jury trial for statutory causes of action sounding in law, as affirmed in Lajara. While private parties may waive this right through arbitration agreements, the Legislature cannot mandate such waivers without allowing for a de novo jury trial, per Jersey Central Power & Light. 

The court noted that arbitration for PIP claims is permissible because there is no constitutional right to a jury trial for determining PIP entitlements, as established in Endo Surgi Center. By limiting AICRA’s arbitration provision to PIP claims and excluding fraud claims, the court avoided potential constitutional conflicts, adhering to the principle of statutory interpretation that preserves constitutionality.

A key issue was the conflicting decision from the Third Circuit in Government Employees Insurance Co. v. Mount Prospect Chiropractic Center, 98 F.4th 463 (3d Cir. 2024). In GEICO, the Third Circuit held that Fraud Act claims are arbitrable under AICRA. However, the Appellate Division noted that this decision was not binding on the case before it and disagreed with the Third Circuit’s interpretation of New Jersey law. 

The Appellate Division found that the Third Circuit had reasoned that AICRA’s arbitration provisions implicitly encompassed fraud claims but had overlooked the distinct legislative purposes of AICRA and the Fraud Act. The Third Circuit also relied on arbitration agreements in GEICO’s DPRP and assignment forms, but the Appellate Division had already determined that these were limited by AICRA’s regulations to PIP arbitration. Ultimately, the Appellate Division rejected the Third Circuit’s conclusions as unpersuasive.

Given the impracticalities of litigating Fraud Act and RICO claims through arbitration, the Appellate Division correctly distinguished between PIP claims involving medical providers—intended for arbitration—and claims brought by insurance carriers under the Fraud Act and RICO, which were meant to be litigated in court. 

After a series of setbacks in federal court on these issues, this decision by the Appellate Division strengthens insurance carriers’ ability to investigate and litigate Fraud Act and RICO claims in the appropriate judicial forum rather than through limited arbitration proceedings.

*Ari is a shareholder in our Mount Laurel, NJ office and a member of the Insurance Fraud/SIU Practice Group. (856) 414.6075 | ACBrownstein@mdwcg.com 

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