Gov't Emps. Ins. Co. v. Tolmasov

602 F.Supp.3d 380

GOVERNMENT EMPLOYEES INSURANCE COMPANY, GEICO Indemnity Company, GEICO General Insurance Company, GEICO Casualty Company, Plaintiffs,

v.Igor TOLMASOV, Benessere Services, Inc., Gysaka Services, Inc., Franklin Square Med Services, Inc., Maksym Fesler, and John Does Nos. "1" Through "10", Defendants.

21-CV-07058 (KAM)

United States District Court, E.D. New York.

Signed May 3, 2022

Barry I. Levy, Michael A. Sirignano, Michael Vanunu, Philip P. Nash, Allison Nicole Stapleton, Rivkin Radler, LLP Insurance Fraud, Uniondale, NY, for Plaintiffs.

AMENDED MEMORANDUM & ORDER

KIYO A. MATSUMOTO, United States District Judge:

Plaintiffs Government Employees Insurance Company, GEICO Indemnity Company and GEICO Casualty Company (together, "Plaintiffs" or "GEICO") commenced this action on December 22, 2021, against Igor Tolmasov, Benessere Services, Inc. ("Benessere"), Gysaka Services, Inc. ("Gysaka"), Franklin Square Med Services, Inc. ("Franklin Square"), Maksym Fesler, and John Doe Defendants Nos. 1-10 (collectively, "Defendants"), seeking declaratory relief and damages, alleging that Defendants submitted thousands of fraudulent No-Fault insurance charges relating to "medically unnecessary, illusory, and otherwise non-reimbursable" medical equipment and devices. (ECF No. 1, Complaint ("Compl.").) On April 11, 2022, GEICO moved for injunctive relief, seeking: (1) a stay of all collection arbitrations arising under New York's No-Fault insurance laws that are pending before the American Arbitration Association ("AAA") and of all insurance collection lawsuits in state court brought by Defendants against GEICO pending disposition of this federal action; and (2) a preliminary injunction prohibiting Benessere, Gysaka, Franklin Square, and anyone acting on their behalf, from commencing any new No-Fault collection arbitrations or state collection lawsuits against GEICO pending disposition of this federal action. (ECF No. 27-2, Memorandum of Law in Support of Plaintiffs’ Motion ("Pl. Mem."), at 1.) For the reasons set forth below, Plaintiffs’ motion for injunctive relief is granted.

BACKGROUND

I. New York's No-Fault Insurance Laws

New York enacted the Comprehensive Automobile Insurance Reparations Act, New York Insurance Law ("N.Y. Ins. Law") §§ 5101 – 5109, to "ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists." Med. Soc'y of State of N.Y. v. Serio , 100 N.Y.2d 854, 768 N.Y.S.2d 423, 800 N.E.2d 728, 731 (2003) (citing Governor's Mem. approving L. 1973, ch. 13, 1973 McKinney's Session Laws of N.Y., at 2335). Under those No-Fault insurance laws, No-Fault insurers like GEICO may reimburse patients without requiring proof of the other driver's fault in an amount up to $50,000, including for necessary expenses incurred for medical or other professional health services. See N.Y. Ins. Law § 5102(a)(1), (b). Insurers must verify an insured's claim for benefits and then pay or deny the claim within 30 days. See N.Y. Ins. Law § 5106(a) ; N.Y. Comp. Codes R. & Regs. ("NYCRR") tit. 11 § 65-3.8(a), (c). In certain circumstances, an insured may also assign his or her benefits "directly to providers of health care services" so that the provider may receive direct payment from the insurer. 11 NYCRR § 65-3.11(b).

Section 5106 of the New York Insurance Law creates a "[f]air claims settlement" procedure for all No-Fault claims. No-Fault insurance benefits are deemed overdue if they are not paid or denied within 30 calendar days after the insured submits a proof of claim. See N.Y. Ins. L. § 5106(a) ; 11 NYCRR § 65-3.8(c). If an insurer fails to comply with this timeframe, it is precluded from asserting many (but not all) defenses to coverage, including most fraud-based defenses. See Fair Price Med. Supply Corp. v. Travelers Indem. Co. , 10 N.Y.3d 556, 860 N.Y.S.2d 471, 890 N.E.2d 233, 236 (2008) ; Cent. Gen. Hosp. v. Chubb Grp. of Ins. Cos. , 90 N.Y.2d 195, 659 N.Y.S.2d 246, 681 N.E.2d 413, 415 (1997). A claimant may bring a civil collection action in state court to recover overdue No-Fault benefits, and in that action the claimant need only show that the prescribed statutory billing forms were mailed and received and that the claimed benefits are overdue. See Viviane Etienne Med. Care, P.C. v. Country-Wide Ins. Co. , 25 N.Y.3d 498, 14 N.Y.S.3d 283, 35 N.E.3d 451, 457 (2015).

Insurers must also include a clause in their policies allowing the insured to seek arbitration of their claims for No-Fault benefits. See N.Y. Ins. L. § 5106(b) ; 11 NYCRR § 65-1.1(a), (d). New York's No-Fault insurance laws establish the procedures for arbitration of any disputed claims. See 11 NYCRR § 65–4.5. By statute, the New York Department of Financial Services Superintendent has designated AAA as the body responsible for administering the No-Fault arbitration process. Id. § 65-4.2(a)(2). Insurers generally bear the costs associated with the arbitration process in direct proportion to the frequency with which they are named as respondents. Id. § 65-4.2(c)(1). That "arbitration process for No-Fault coverage is an expedited, simplified affair meant to work as quickly and efficiently as possible" where "[d]iscovery is limited or non-existent." Allstate Ins. Co. v. Mun , 751 F.3d 94, 99 (2d Cir. 2014) (citing 11 NYCRR § 65-4.5 ). "Complex fraud and racketeering claims, maturing years after the initial claimants were fully reimbursed, cannot be shoehorned into this system." Id.

An insurer who pays No-Fault benefits and subsequently discovers fraud may bring an action for damages. See State Farm Mut. Auto. Ins. Co. v. James M. Liguori, M.D., P.C. , 589 F. Supp. 2d 221, 229-35 (E.D.N.Y. 2008) ; State Farm Mut. Auto. Ins. Co. v. CPT Med. Servs., P.C. , No. 04-cv-5045, 2008 WL 4146190, at *6-7 (E.D.N.Y. Sept. 5, 2008). Where the insurer has not paid, the insurer may bring an action for a declaratory judgment that it is not liable for any unpaid claims because the provider has committed fraud or breached applicable No-Fault regulations. See 28 U.S.C. § 2201 ; Gov't Emps. Ins. Co. v. Jacques , No. 14-cv-5299, 2017 WL 9487191, at *9-*11 (E.D.N.Y. Feb. 13, 2017), report & recommendation adopted , 2017 WL 1214460 (E.D.N.Y. Mar. 31, 2017) ; State Farm Mut. Auto. Ins. Co. v. Cohan , No. 09-cv-2990, 2009 WL 10449036, at *4 (E.D.N.Y. Dec. 30, 2009), report & recommendation adopted , 2010 WL 890975 (E.D.N.Y. Mar. 8, 2010). If an insurer is precluded from asserting a defense to coverage (such as provider fraud) due to its noncompliance with the 30-day rule, however, it will also be precluded from obtaining a declaratory judgment on those same grounds. See Allstate Ins. Co. v. Williams , No. 13-cv-2893, 2015 WL 5560543, at *7 (E.D.N.Y. Aug. 28, 2015), report & recommendation adopted , 2015 WL 5560546 (E.D.N.Y. Sept. 21, 2015) ; Gov't Emps. Ins. Co. v. AMD Chiropractic, P.C. , No. 12-cv-4295, 2013 WL 5131057, at *8 (E.D.N.Y. Sept. 12, 2013).

II. GEICO's Allegations

Plaintiffs allege that, since 2019, Defendants are medical equipment suppliers and those suppliers’ owners who have submitted more than $545,000 in fraudulent bills to GEICO for unnecessary medical equipment and rental medical equipment as part of a scheme designed to exploit New York's No-Fault insurance laws. (Compl. ¶¶ 5, 13, 490.) Those charges were purportedly medically unnecessary, illusory, and otherwise not reimbursable. Defendants allegedly perpetrated a fraudulent scheme by paying referring physicians to issue Defendants unnecessary prescriptions for medical equipment, and Defendants then billed GEICO under the company's No-Fault insurance policies for supplying that equipment. (Id. ¶ 2.) Though the prescriptions were ostensibly on behalf of actual patients, Tolmasov, Fesler, and John Doe Defendants allegedly accessed a network of various healthcare providers to issue prescriptions to New York-based patients. (Id. ¶¶ 2, 3-7, 44.)

Plaintiffs seek to recover more than $545,000 that Defendants obtained from GEICO, a declaration from the Court that GEICO is not legally obligated to reimburse Defendants for over $2,450,000 in pending No-Fault claims that Defendants have submitted, and a preliminary injunction precluding certain Defendants from commencing new arbitrations and state collection actions and staying pending collection arbitrations and actions against GEICO. (Compl. ¶ 5.) GEICO asserts causes of action based on the Racketeering Influenced and Corrupt Organizations Act ("RICO"), common law fraud, and unjust enrichment. (Id. ¶¶ 504-84.)

III. Collection Proceedings

In support of its motion, GEICO submitted the declaration of GEICO's Claims Manager Kathleen Asmus that details the process for collecting No-Fault claims through arbitration, the individual AAA arbitrations against GEICO brought by the Defendants, the process for collecting No-Fault claims within the New York City civil courts, and the state collection lawsuits the Defendants are currently prosecuting against GEICO. (ECF No. 27-4, Declaration of Kathleen Asmus ("Asmus Decl.").)

According to Asmus, Defendants are currently prosecuting (i) 196 collection arbitrations against GEICO before the AAA, seeking to recover more than $315,000; and (ii) 656 lawsuits against GEICO in various New York civil courts, seeking to recover more than $1.185 million. (Asmus Decl. ¶ 20.) In addition to the bills that are presently subject to state court lawsuits or arbitrations, Defendants have submitted over 2,100 additional bills to GEICO (totaling more than $1.1 million) that are the subject of GEICO's present declaratory judgment claim and can be the subject of new No-Fault collection arbitrations or lawsuits in New York civil court. (Id. ¶ 21.) GEICO seeks to stay these pending arbitrations and state lawsuits and to enjoin Defendants from commencing any new collection arbitrations or state collection actions. (Pl....