State Farm Mutual Automobile Insurance Company v. Reidy Williams

Citation: Not availableDocket: 12-15331

Court: Court of Appeals for the Eleventh Circuit; April 15, 2014; Federal Appellate Court

Original Court Document: View Document

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The United States Court of Appeals for the Eleventh Circuit is reviewing a case involving State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (collectively, State Farm) against intervenors Reidy Williams, Earl Byers, and Jerlean Reed regarding fraudulent insurance claims submitted by Physicians Injury Care Center, Inc. (PICC). State Farm had previously alleged that PICC unlawfully obtained personal injury protection (PIP) benefits by subjecting car accident victims to unnecessary treatments designed to exhaust their insurance benefits. 

A jury found PICC liable for fraud and determined that State Farm was not responsible for any unpaid claims related to PICC’s services. The intervenors, who were State Farm policyholders treated at PICC, assigned their rights to PIP benefits to PICC. After State Farm's lawsuit against PICC, the company stopped payments and sent letters to the intervenors indicating it would accept liability for any amounts owed to them for PICC’s services. Following this, the intervenors revoked their assignments of benefits and intervened in the case against PICC, claiming State Farm breached its contract by withdrawing their PIP benefits. The district court allowed their intervention, but the jury ultimately ruled that State Farm was not liable for the unpaid claims associated with the intervenors. The appellate court, however, has reinstated the jury verdict in light of a change in controlling legal authority.

The first appeal affirmed the district court's judgment, except for the Intervenors' breach-of-contract counterclaims and the declaratory judgment against them. The court found that State Farm violated section 627.736(7)(a) of the Florida Statutes by withdrawing payment to PICC without obtaining prior consent or an independent medical report to confirm that the Intervenors were receiving appropriate treatment. The case was remanded for damages calculation, resulting in an award of $15,741 plus interest for unpaid bills related to the Intervenors and $11,000 in attorneys' fees.

In this appeal, State Farm seeks to challenge the previous determination regarding the violation of subsection 7(a), arguing that the Intervenors lack standing, that the damages calculation was incorrect, and that the damages awarded should be offset against those awarded to State Farm from PICC. The Intervenors assert that the law-of-the-case doctrine prevents reconsideration of previously decided issues and cross-appeal for at least $2.4 million in attorneys' fees.

The law-of-the-case doctrine establishes that decisions on legal issues are typically binding in subsequent proceedings unless new evidence emerges, controlling authority contradicts the prior decision, or the earlier ruling is clearly erroneous. State Farm's arguments regarding standing and violation of subsection 7(a) were already decided, and the court found no basis to revisit these issues since State Farm did not provide justification under the exceptions to the doctrine. However, a recent Florida appellate decision has raised doubts about the earlier ruling, prompting the court to reevaluate whether State Farm was required to obtain a medical report before withholding payment for claims deemed fraudulent by PICC.

The denial of a motion for judgment as a matter of law is reviewed de novo, applying the same standard as the district court. The interpretation of statutory provisions is a legal issue determined by the court. Florida’s No-Fault Law imposes restrictions on claims and insurers' ability to deny or withdraw benefits. The key distinction lies in that withdrawal occurs after an insurer has made a payment, while denial does not. Subsection 7(a) governs the withdrawal of Personal Injury Protection (PIP) benefits, requiring insurers to obtain a valid report from a Florida physician indicating that treatment was not reasonable, related, or necessary before withdrawal. Conversely, subsection 4(b) mandates insurers to pay valid claims within 30 days or incur penalties, allowing denial based on reasonable proof of non-responsibility. Insurers can also assert claims under subsection 5(b) against those who submit false or misleading statements, which does not require a report under subsection 7(a). In Viles, an insurer withdrew PIP benefits after initially paying some bills, arguing they were fraudulent and unrelated to the accident. The jury found only part of the bills to be reasonable, but the appellate court ruled that the insurer failed to obtain the necessary medical report as per subsection 7(a) before withdrawal, thus making it liable for the full amount of unpaid bills.

An interpretation of the case Viles established that insurers are required to obtain a report to discontinue payment if they pay part of a claim. However, Viles did not differentiate between claims withdrawn for reasons of reasonableness or necessity and those involving claimant fraud. Subsequently, the case Chiropractic One, Inc. v. State Farm addressed fraudulent claims specifically, where a provider submitted known fraudulent claims. The Florida appellate court ruled that insurers are not obligated to investigate each claim and provide written denials when pervasive fraud is involved, as per subsection 4(b). Instead, subsection 5(b)1.c protects insurers from paying any fraudulent claims, stating that fraud in a single charge can invalidate an entire claim. This subsection was a part of the 2003 amendment to the No-Fault Law, aimed at combating fraud in medical billing. The court reinforced that the legislative intent was to invalidate claims associated with knowingly false statements. Consequently, the interpretation of section 627.736(5)(b)1.c suggests that the obligations imposed by Viles are not applicable in cases of significant billing fraud, as Viles predates the 2003 amendments. Therefore, insurers are not required to follow the investigative or reporting requirements when dealing with claims from fraudulent providers. The current case is distinguished from traditional withdrawal scenarios, as payments made by State Farm were influenced by the provider's fraudulent submissions.

Knowingly fraudulent Personal Injury Protection (PIP) claims are invalidated under subsection 5(b)1.c, rendering initial payments ineffective and classifying this as a case of denied PIP benefits. Denial cases fall under subsection 4(b), which does not necessitate a report unlike withdrawals under subsection 7(a). State Farm needed only to provide "reasonable proof" of non-responsibility for payments since obligations tied to other parts of subsection 4(b) are negated by fraud. The fraudulent submissions by PICC invalidated the Intervenors’ claims, and their later revocation of the assignment of PIP benefits did not remedy the fraud that voided the claims. It is unreasonable to require insurers to obtain individual medical assessments for each claim when the denial stems from systemic billing fraud. Intervenors had the option to seek treatment with other providers and were indemnified by State Farm from claims related to unpaid bills from PICC, thus suffering no detriment from the denial. The case, characterized by widespread and intentional billing fraud, indicates that Florida's No-Fault Law offers strong procedural protections, but the submission of fraudulent claims by PICC rendered them unpayable. The court reverses its prior judgment, reinstates the jury verdict, vacates Intervenors' damages and attorneys' fees, and remands with instructions to enter judgment in favor of State Farm on all claims.