N.J. Supreme Court to Decide Breadth of Insurance Fraud Act

January 11, 2015 | Appeals | Commercial Litigation | Insurance Coverage | Insurance Fraud

The New Jersey Supreme Court has agreed to hear Allstate Ins. Co. v. Northfield Medical Center,1 which has consequences for insurers across the country seeking to deter insurance fraud schemes intended to avoid the prohibition on the corporate practice of medicine. The issue before the court is whether a health-care lawyer (who was not admitted to practice in New Jersey) and a California chiropractor violated New Jersey’s Insurance Fraud Prevention Act (IFPA)2 by allegedly devising and marketing a multidisciplinary medical and chiropractic practice format in New Jersey that violated the corporate practice of medicine doctrine and, thus, that improperly billed an automobile insurance company under the state’s personal injury protection (PIP) statute.3 Although insurers vigorously pursue people who participate in fraudulent schemes, this case raises the important issue of the liability of those who devise a fraudulent scheme, and market it to practitioners, but who never actually participate in the enterprise themselves.

A trial court found that the defendants—including attorney Robert P. Borsody and chiropractor Daniel H. Dahan—had violated the IFPA, and it granted judgment in favor of Allstate Insurance Company and two affiliates. The trial court’s award included $1.32 million in counsel fees and costs, which it trebled under Section 17:33A-7(b) of the IFPA.

In May, the Appellate Division reversed, finding that Allstate had not proven, by a preponderance of the evidence, that the defendants had “knowingly” violated the IFPA.

New Jersey Law

The New Jersey Legislature enacted the IFPA in 1983 to “confront aggressively the problem of insurance fraud in New Jersey” by, among other things, “requiring the restitution of fraudulently obtained insurance benefits.”4 In addition to actions by insurance carriers, the IFPA authorized the Commissioner of Banking and Insurance to bring civil actions, and the Attorney General to bring criminal actions, for violations of the law.5 Courts have recognized that, as a remedial statute, the IFPA should be construed liberally.6

The IFPA provides that a person or practitioner violates the law if he or she “knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of this act.” In addition, a person or practitioner violates the law if, “due to the assistance, conspiracy or urging of any person or practitioner he [or she] knowingly benefits, directly or indirectly, from the proceeds derived from a violation of this act.”7

Put differently, a defendant may be found to have violated the law by knowingly assisting, conspiring with, or urging any person to violate the law or by knowingly submitting false or misleading information to an insurer. The IFPA does not define “knowing” or “knowingly.”

Like many states, New Jersey prohibits the corporate practice of medicine. The New Jersey Board of Medical Examiners requires that a medical practice be conducted in a business form consistent with the principles set forth in N.J.A.C. 13:35-6.16(b). Among the acceptable forms, as provided in N.J.A.C. 13:35-6.16(f), are a partnership, professional association, or limited liability company. Moreover, the regulation provides, such entities “shall be composed solely of health care professionals, each of whom is duly licensed or otherwise authorized to render the same or closely allied professional service within this State.”

Another acceptable form of practice is an associational relationship with another practitioner or professional entity. In this instance, however, a practitioner with a “plenary license” such as a medical doctor “shall not be employed by a practitioner with a limited scope of license.” The regulation provides that, by way of example, an “M.D. or D.O. may not be employed by a podiatrist or chiropractor.”

The Allstate Case

This is the context in which Allstate arose.

As the Appellate Division explained in its decision, in the mid-1990s, Dahan, through his company, Practice Perfect, provided information to chiropractors on how to create multidisciplinary practices. Dahan also sold corporate kits and documents to assist in the structuring of multidisciplinary practices among chiropractors and physicians.

Borsody gave a lecture at a Practice Perfect seminar that was attended by J. Scott Neuner, a New Jersey chiropractor, at which Borsody described a multidisciplinary corporate structure he was discussing as a “doc in the box arrangement” created by contracts that enabled a non-physician management company to control a medical practice. In Borsody’s vision, a medical doctor had control of the stock and owned the practice, but a chiropractor had control of the assets through the use of contracts, including a rental lease, equipment lease, and a management agreement.

Borsody’s stated goal was to prevent the medical doctor from “walk[ing] off with the practice,” causing the chiropractor to lose his or her original investment. In his lectures, he recommended “terminator” agreements allowing the non-physician practitioner to protect his or her investment by replacing the medical doctor as the owner, officer, and director of the practice with another physician. The terminator documents included presigned stock certificates and resignations. By implementing the terminator agreements, the management company would be able to replace the physician-owner with another doctor if necessary.

Neuner purchased a corporate kit, and someone in his office filled in the blanks on the paperwork, setting up the medical practice and the management company (JSM Management Company, Inc.), as well as the terminator agreements. Neuner incorporated Northfield Medical Center, P.C., a multidisciplinary medical practice, and JSM in early June 1997. A medical doctor was designated as the sole shareholder, director, and incorporator of Northfield, and Neuner was the sole owner of JSM. Under the agreements, Northfield delegated to JSM the authority to manage the non-professional aspects of its business.

Benjamin Hickey, a fraud analyst with Allstate, investigated Northfield to determine whether it was improperly submitting bills to Allstate. Hickey concluded that Northfield should not have been billing Allstate under the PIP law because Neuner tried to make it appear as though a medical doctor owned Northfield when in fact it was he who owned and controlled it.

Toward the end of 1998, after paying Northfield approximately $91,000, Allstate stopped paying the practice’s claims altogether. Approximately $330,000 in additional claims submitted by Northfield were not paid.

Allstate sued Dahan and Borsody for breach of the IFPA. Allstate’s theory of the case was that they had promoted the creation by chiropractors of rehabilitation centers with “sham ownership by medical doctors” and had introduced their chiropractor clients to “plenary licensed physicians who [we]re willing to ‘lease’ their names and degrees and to pose as the shareholder of the chiropractor client’s new corporation.”8

The Trial Court’s Decision

The trial judge found that Borsody was well aware that, in every state, chiropractors were prohibited from employing medical doctors. He stated that Borsody’s models were intended to teach chiropractors to manipulate corporations so as to “break the law without being caught.”

The trial judge found that Borsody and Dahan “promoted what they knew was essentially a lie. The business model they promoted was intended to appear to be one way, and yet in reality, be another way.” The trial judge decided that the defendants had violated the IFPA and rejected their challenge to Allstate’s requested counsel fees and costs, explaining that Allstate was entitled to its counsel fees and costs because it was attempting to vindicate an important societal interest—the need to battle insurance fraud—in its IFPA action. He trebled counsel fees and costs under the IFPA and ruled that, because Borsody and Dahan had together “conspired, urged[,] and assisted in violations of the IFPA[,]” they were jointly and severally liable.

Appellate Division’s Decision

The Appellate Division’s opinion focused on the issue of liability under the IFPA. In particular, because neither Dahan nor Borsody had submitted any information directly to Allstate, the appellate court examined whether Allstate had demonstrated that they had knowingly assisted, conspired with, or urged Neuner to violate the IFPA.

It found that the insurer had not done so.

The Appellate Division pointed out that Dahan and Borsody had never been informed by any state regulatory agency that the model they were advocating was contrary to New Jersey law.

It found that, at the seminar Neuner had attended, Borsody had “unequivocally told the attendees that the practice of medicine was restricted to physicians and that a medical corporation could not be owned by a chiropractor or any other non-physician.” The main goal of Borsody’s model, the appellate court continued, was to protect the chiropractor-investor from the medical doctor leaving the practice and taking the client base. Borsody did not see anything unlawful in the arrangement he discussed “because the model was similar to others used in business between corporations to enable the exercise of economic control” and the model did not interfere with the physician’s actual practice of medicine and interaction with patients, according to the Appellate Division.

With respect to Dahan, the appellate court found “insufficient evidence” that he had known that the corporate model he was helping Neuner implement was contrary to New Jersey law. In the appellate court’s opinion, the laws and regulations governing multidisciplinary practices in the mid-1990s were not so settled as to warrant imputing to Dahan knowledge that the arrangement he advocated was, in fact, contrary to New Jersey law. Therefore, it decided, Allstate had not proven by a preponderance of the evidence—the standard that Allstate had to meet in a civil IFPA case9—that Dahan had knowledge that the business model he proposed had violated the IFPA.


As the New Jersey Supreme Court itself has noted, the IFPA “interdicts” a broad range of fraudulent conduct.10 Moreover, the sanctions provided by the IFPA are remedial in nature, intended to compensate insurance companies when they pursue IFPA violators for costs incurred as a result of investigation and prosecution.11

Now, the New Jersey Supreme Court has the opportunity to rule that both Dahan and Borsody—who, as the Appellate Division stated, were fully aware that what they proposed gave the limited license holder (i.e., Neuner) control that was not affirmatively authorized by any medical board—violated the IFPA, as the trial court had determined. The promotion of a “doc in the box arrangement” that was “essentially a lie,” as the trial court had stated, should be sufficient in the circumstances of this case to find that Allstate had demonstrated by a preponderance of the evidence that Borsody and Dahan had together “conspired, urged[,] and assisted in violations of the IFPA.”

Of course, the specific legal question at the heart of this case is quite important. Beyond that, however, the New Jersey Supreme Court has the opportunity to confirm the broad reach of the IFPA and to declare that New Jersey is a state where insurance fraud is not tolerated. Other states are likely to pay great attention to the court’s decision in this case.

Stay tuned.


1. Allstate Ins. Co. v. Northfield Medical Center, No. A-0636-12T4, A-0964-12T4 (N.J. App. Div. May 4, 2015), certification granted, Nov. 20, 2015 (A-27-15, No. 076069).

2. N.J.S.A. 17:33A-1 to -30.

3. N.J.S.A. 39:6A-1 to -35.

4. N.J.S.A. 17:33A-2.

5. See, N.J.S.A. 17:33A-7, 17:33A-5, and 17:33A-8.

6. See, e.g., Allstate N.J. Ins. Co. v. Lajara, 77 A.3d 491 (N.J. App. Div. 2013).

7. N.J.S.A. 17:33A-4(b), (c).

8. In addition to the alleged IFPA violations at issue before the New Jersey Supreme Court, Allstate contended that the scheme involved impermissible fee splitting, billing for unnecessary services, and illegal self-referrals.

9. Liberty Mut. Ins. Co. v. Land, 892 A.2d 1240 (N.J. 2006).

10. Id.

11. Id.

Copyright 2015. ALM Media Properties, LLC. All rights reserved.


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