Insurers' award against chiropractic clinic for fraud reversed.

Allstate Ins. Co. v. Receivable Fin. Co. L.L.C.,

No. 05-10265 (5th Cir. Sept. 20, 2007)

The Fifth U.S. Circuit Court of Appeals reversed a jury verdict and damages award in favor of insurers as to their fraud and conspiracy claims against chiropractic clinics, finding the evidence was insufficient to support either the jury verdict or the damages award.

Accident & Injury Pain Centers Inc. (A&I), a Texas-based group of chiropractic clinics, specialized in treating patients who suffered trauma in automobile accidents or through on-the-job injuries. Robert Smith owned A&I, which consisted of 20 clinics. There were also other entities, some of which were also established by Smith or were in some way associated with A&I. They included chiropractors, A&I employees, physicians and diagnostic entities.

Subsequently, Allstate Insurance Company, Allstate Indemnity Company, Allstate Property & Casualty Insurance Company, Boston Old Colony Insurance Company and Glens Falls Insurance Company brought fraud and conspiracy claims against A&I and the chiropractors, A&I employees, physicians and diagnostic entities associated with A&I. the plaintiffs alleged the defendants grossly and knowingly billed for unnecessary and excessive chiropractic and/or medical diagnoses, treatments, procedures, services and consultations.

The jury returned a verdict finding the defendants committed fraud against the insurers. The district court entered judgment awarding damages in the insurers' favor. the plaintiffs appealed.

Jury fraud verdict in favor of insurers is unsustainable. The Fifth Circuit reversed the trial court's judgment and rendered judgment in the defendants' favor. The jury verdict for fraud was unsustainable as the insurers failed to introduce sufficient evidence of actual reliance on an A&I representation. Because A&I could not be held liable for fraud, the chiropractors, A&I employees, physicians and diagnostic entities could not be held liable for conspiracy to commit fraud.

Further, the Fifth Circuit said, even if it could otherwise uphold the verdict for fraud and conspiracy to commit fraud, the damages award was based on conjecture and speculation as to what amount the defendants obtained trough A&I's fraud. Therefore it, too, could not be sustained.

Texas Insurance Law & Litigation Alert

November 15, 2007