GEICO won federal court approval to block more than 600 collection lawsuits while it fights a $3.4 million no-fault fraud scheme.
The decision from the US Court of Appeals for the Second Circuit, issued February 3, gives other insurers a potential playbook for tackling systematic fraud in New York's no-fault insurance system without getting buried under an avalanche of individual collection cases.
At the heart of the dispute is a medical practice in Queens that GEICO says exists not to treat patients but to defraud auto insurers through phony or unnecessary treatments.
According to GEICO, Dr. Bhargav Patel and his company, Patel Medical Care, submitted approximately $3.4 million in fraudulent claims between August 2019 and April 2023. The insurer alleges third-party brokers steered accident victims to one of four Patel clinics in exchange for kickbacks. Patients would get a brief consultation, rarely lasting longer than 30 minutes, then be pushed through a predetermined treatment plan regardless of what they actually needed.
GEICO claims some treatments were medically unnecessary or even experimental. In other cases, services were never provided at all. The company alleges that claim forms listed Dr. Patel as the treating provider when the work was actually done by contractors, some of whom were unlicensed. In some instances, patient signatures were forged.
When GEICO filed a federal racketeering lawsuit in April 2023 seeking to recover at least $711,000 in payments and a declaration that it need not pay $2.2 million in pending claims, the defendants responded by flooding New York courts with collection suits. Between April and November 2023, they filed approximately 605 separate cases seeking sums totaling over $2.675 million.
District Judge Kiyo Matsumoto issued a preliminary injunction stopping the state cases. The defendants appealed, but the Second Circuit, in an opinion by Circuit Judge Carney, upheld the lower court's decision.
The appeals court said GEICO faced real harm if forced to defend hundreds of cases simultaneously. The outcomes could be inconsistent, but more important, the fraud would be nearly impossible to prove when each case involved just a single claim for a single patient.
New York's no-fault arbitrations are designed to be fast and simple. There is usually no discovery, no meaningful cross-examination, and cases are often decided in minutes. A state judge or arbitrator looking at one isolated claim might find the treatment reasonable. But GEICO, viewing all the claims together in federal court, could potentially show a pattern of predetermined treatment plans and fraudulent billing.
The court explained that by reviewing aggregated claims, the district court would be able to identify patterns and determine whether defendants adhered to predetermined treatment protocols regardless of individual medical necessity. By comparing claims submitted by all four clinics, the court could also assess whether Dr. Patel could possibly have provided all the treatments claimed in his name.
The court also noted that once state judges or arbitrators rule, those decisions can bind the federal court. The No-Fault Act specifically provides that an award by an arbitrator shall be binding. If the collection cases wrapped up first, GEICO might win its racketeering claim but still be stuck with adverse state court judgments.
The legal hurdle involved the Anti-Injunction Act, a law from 1793 that generally bars federal courts from stopping state court cases. But there are exceptions, including one for injunctions expressly authorized by Congress. GEICO argued that the federal racketeering law, known as RICO, provides such authorization. The Second Circuit agreed, relying on its 2024 decision in a similar case involving State Farm.
Judge Park, while voting to uphold the injunction, wrote separately to express concern that the State Farm decision stretched the law too far, and noted that New York law requires insurers to report fraud to state regulators who have the power to prohibit fraudulent providers from demanding payment.
The ruling does not resolve GEICO's fraud allegations. The case returns to the district court, where GEICO will have to prove its claims. But the preliminary injunction stays in place, meaning the defendants cannot pursue their collection suits until the federal case is decided.
The decision comes as no-fault fraud remains a persistent problem for auto insurers, particularly in New York. The state's system was designed to get accident victims compensated quickly without having to prove who was at fault. Insurers have 30 days to pay or deny a claim. Miss that deadline, and the insurer loses the right to raise most defenses, including fraud and lack of medical necessity.
That tight timeline can make it hard to investigate complex schemes, and providers who do not get paid can quickly file suit. The GEICO ruling suggests that when insurers can show a systematic fraud operation, federal courts may step in to prevent the scheme from being obscured by hundreds of individual state cases.
For the insurance industry, the decision offers a strategic option when confronting organized fraud rather than isolated bad claims.
