United States: Important Court Decision For No-Fault Insurers -- Federal Court Rejects Argument To Limit Insurers' Right To Seek Judicial Relief From Fraud Schemes

Last Updated: April 11 2016
Article by Jared L. Facher and William J. Natbony

Most Read Contributor in United States, September 2017

We are pleased to inform you of a very favorable recent caselaw development in the no-fault insurance area, in which our firm played a significant role. Specifically, on March 24, 2016, in the case of Liberty Mutual Fire Insurance Company, et al. v. Shapson, et al., the United States District Court for the Eastern District of New York (Honorable Eric N. Vitaliano) rejected certain defendants' attempt to stay or dismiss an insurer's federal lawsuit seeking declaratory relief stemming from a major no-fault fraudulent scheme involving the fraudulent incorporation of providers, unlawful fee-splitting and other improper conduct. The decision is significant because it is the first time that a federal court in New York has been faced with the issue of whether the doctrine of "primary jurisdiction" would prevent insurers from bringing or prosecuting such lawsuits unless and until State regulatory authorities determine the impropriety of the fraudulent conduct alleged. Judge Vitaliano specifically rejected the application of the "primary jurisdiction" doctrine, denied the defendants' motion to dismiss, and refused to stay the action pending State regulatory actions. Cadwalader represented Allstate Insurance Company, GEICO, Progressive Northeastern Insurance Company and the Property Casualty Insurers Association of America ("PCIAA") as amici curiae before the Court on the primary jurisdiction issue.

In Shapson, Liberty Mutual sought a judgment declaring there was no duty to pay certain pending and future no-fault reimbursement claims because the defendants had wrongfully represented they were solely owned by licensed healthcare professionals, and were also engaged in unlawful fee-splitting with unlicensed individuals and referral kickback schemes. A number of the defendants moved to dismiss the action or alternatively stay the action pending referral of the claims to New York State no-fault insurance regulatory authorities. Defendants' application argued, as is often argued in these cases, that the insurer plaintiff had failed to allege certain elements of a RICO cause of action, that certain fraud-based claims were not alleged with the requisite degree of particularity, and that the case was not an appropriate RICO case as opposed to a simpler breach of contract case.

The application also raised, however, a unique (but misguided, in our view) argument that the case should be stayed pursuant to the doctrine of "primary jurisdiction" because the questions of whether the providers were fraudulently incorporated or engaged in unlawful fee-splitting with non-professionals must be determined by the New York State Departments of Financial Services, Health and Education rather than the judicial system. In essence, the defendants argued that because New York Insurance Law Section 5109 permitted investigations by the State authorities and de-authorization of medical providers from the no-fault system by the State regulators, the judicial system should not be permitted to address such issues until any State investigation is concluded.

On behalf of Allstate, GEICO, Progressive and the PCIAA, Cadwalader submitted a brief to the Court addressing specifically the issue of primary jurisdiction. In particular, the brief (1) provided the Court with background information concerning the rampant level of no-fault fraud plaguing New York State, (2) detailed for the Court how the position of the defendants, if adopted, would promote no-fault fraud and abuse and further increase the costs to insurers and consumers alike, (3) described the absurd results that the application of such doctrine would create, including the gutting of the New York Court of Appeals decision in State Farm v. Mallela, which held that insurers may seek relief through affirmative litigation when entities fail to comply with licensing requirements, and (4) explained why courts have the competence and ability to examine and determine fraudulent no-fault activity. Citing extensively to the brief Cadwalader submitted, the Court soundly rejected application of the primary jurisdiction doctrine, denied the stay application, and upheld the co-extensive authority of the State regulatory authorities and the judiciary to address these types of issues. In doing so, the Court issued a number of legal holdings that no-fault insurers and their counsel will find useful in future cases. These include the following:

  • "[Nowhere] is there any indication in the plain language of the statute [Insurance Law Section 5109] or the intent the words implicate, that the designated state agencies' investigatory power be anything other than co-extensive with properly commenced litigation."
  • "No-fault insurance fraud is rampant and pervasive in New York, skyrocketing 1700% in the period between 1992 and 2000."
  • "[T]here is no indication that there is any particular discretion that courts would intrude upon by considering claims of the sort brought by Liberty Mutual. Such a finding is in no way intended, nor could it be, to diminish the reality that state agencies have laudably endeavored to combat this epidemic through increased investigations and regulatory action. These activities, however, have never restrained courts from examining allegations, on behalf of insurers, that they were entitled to damages because medical providers had been fraudulently incorporated and received reimbursements to which they were not entitled."
  • "[T]he Court agrees with amici that the Department of Financial Services was never designed, nor has it been equipped, to be the sole gladiator fighting against tens of thousands of noxii each year. Try as it might, it cannot be reasonably expected to litigate the flood of claims and fully protect the rights of insurers, and the motoring public they serve, who have been defrauded by such racketeering activity."

This decision is critically important to no-fault insurers as providers and others who are engaged in no-fault fraud continue to seek ways to delay or prevent judicial review of their fraudulent activities. The decision should prove helpful to insurers and their counsel in continuing to fight to curb the proliferation of no-fault fraud and to do so in a manner that ensures a fair, prompt and full hearing of the merits of insurers' properly brought legal claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.