Allstate’s $4.7 million fraud suit against a Houston emergency center is back on, after a federal appeals court revived the case on January 14, 2026.
The case, Allstate Indem Co v. Bhagat, arises from Allstate’s allegations that defendants associated with Memorial Heights Emergency Center in Houston carried out a multi‑year scheme to inflate motor‑vehicle injury claims.
According to the complaint, defendants own, manage and operate Memorial Heights Emergency Center. In 2018, they began entering into agreements with personal injury attorneys to refer clients to Memorial Heights under letters of protection guaranteeing payment from future insurance settlements. At the same time, one defendant, Dr. Akash Bhagat, created two corporate entities to bill facility and physician fees to car accident patients referred by the attorneys. Through those entities, defendants charged patients using emergency billing codes, sometimes at rates nearly triple those normally charged.
Allstate alleged that visits from car accident patients to Memorial Heights doubled. Patients regularly sought treatment days or weeks after their accidents. Some traveled from as far as 92 miles, bypassing other medical centers to reach what the court described as an inconspicuous facility in a modest shopping center far from major thoroughfares.
At Memorial Heights, patients typically received several expensive diagnostic tests, including multiple CT scans, without properly documenting the need for those tests. They were then discharged without further treatment. Treating physicians often prescribed ibuprofen and other drugs, but no records exist showing any prescriptions were sent to a pharmacy. The services were billed using standard medical billing codes reserved for severe and life‑threatening emergencies.
After these visits, Memorial Heights forwarded the bills to the attorneys with whom it had agreements. Those attorneys, in turn, presented the bills to Allstate as part of settlement demands. Between August 2018 and November 2022, Allstate settled with 635 claimants. Allstate then sued to recover about $4.7 million in settlement money, as well as treble damages and attorney fees under 18 U.S.C. § 1964(c).
The district court dismissed all claims with prejudice and denied Allstate leave to amend. It held that Allstate did not adequately allege that it relied on the allegedly fraudulent bills when settling the claims, and that this lack of reliance defeated the RICO claims, common‑law fraud, conspiracy, unjust enrichment, and money‑had‑and‑received claims. The court also ruled that Allstate had not sufficiently pleaded that the bills directly or proximately caused injury, found Allstate “complicit” because it allegedly knew about the fraud but continued to negotiate settlements, and concluded that the settlements were an intervening cause separating the fraud from the injury. Finally, it stated that a lawsuit involving 635 separate claims “cannot be judiciously managed or tried as a single lawsuit.”
On appeal, the Fifth Circuit reversed and remanded. The court said the district court "began on the wrong foot" by treating "fraud" as the predicate offense when the relevant predicate under 18 U.S.C. § 1962(c) is mail fraud. Citing the Supreme Court's decision in Bridge v. Phoenix Bond & Indemnity Co., the court emphasized that Congress defined the predicate act as mail fraud, a statutory offense, not "fraud simpliciter." Because of that, reliance – an element of common‑law fraud – is not automatically an element of a civil RICO claim premised on mail fraud. The panel also cited the Fifth Circuit's own decision in Allstate Ins. Co. v. Plambeck, which held that reliance is not necessary in cases predicated on mail fraud.
On causation, the court rejected the district court’s conclusions on both proximate cause and intervening cause. The panel described proximate cause as a “flexible concept” focused on a “direct relation” between the injury and the alleged conduct, and pointed to Bridge and Plambeck as examples where insurers and other parties were foreseeable targets of fraud schemes. Here, it held that Allstate adequately alleged that the Memorial Heights scheme proximately caused it to pay for fraudulently billed services as part of settlements. The court also ruled that the settlements did not break the causal chain, noting that in Plambeck the causal chain was not severed merely because settlements were based partially on fraudulent medical bills. On but‑for causation, the panel found Allstate met its burden by alleging that, but for the allegedly fraudulent bills, it would not have paid the settlement amounts tied to those bills.
The Fifth Circuit further held that Allstate satisfied Rule 9(b)’s requirement to plead fraud with particularity. It noted that Allstate’s complaint included a detailed appendix listing the specifics of each allegedly fraudulent billing, covering the “who, what, when, where, and how” of the scheme. The court also rejected arguments that Allstate’s damages were speculative, finding that Allstate pleaded as damages the specific amounts it paid on the allegedly fraudulent claims.
The panel revived Allstate’s Texas common‑law fraud and conspiracy‑to‑defraud claims, finding the elements, including reliance and injury, were adequately pleaded. It concluded that Allstate alleged it actually relied on the medical bills and made payments based on those bills, and that defendants had cited no authority suggesting an insurer cannot reasonably rely on medical information presented as fact in settlement negotiations. The court also reinstated Allstate’s unjust enrichment and money‑had‑and‑received claims, holding that Allstate sufficiently alleged that defendants wrongfully secured a benefit and received money which, in equity and justice, belongs to Allstate.
For insurers, the decision signals that settling claims does not bar later civil RICO and fraud actions where medical billing is alleged to be part of an organized scheme, and confirms that mail‑fraud‑based RICO claims do not require proof of reliance. The case now returns to the Southern District of Texas for further proceedings consistent with the Fifth Circuit’s opinion.
