18 Fla. L. Weekly Supp. 537a

Online Reference: FLWSUPP 1806

ALLSTorts — Insurance — Personal injury protection — Action by PIP insurers against medical providers alleging fraudulent billing practices — Common law fraud — No merit to argument that reliance is lacking as matter of law as of date that insurer first denied claim based on misrepresentations, date insurer issued letter indicating that insurer was investigating claims and anticipating litigation, or date of filing of complaint alleging fraud — Economic loss rule bars insurers from claim of common law fraud against providers where insurers’ obligations to providers arose from assignment of benefits to providers, and assignments created privity between insurers and providers — Florida Deceptive and Unfair Trade Practices Act — Claims for fraudulent billing practices does not fall within exclusion from FDUTPA of activities regulated by Office of Insurance Regulation

ALLSTATE INSURANCE COMPANY, et al., Plaintiff(s), vs. TOTAL REHABILITATION AND MEDICAL CENTER, INC., et al., Defendant(s). Circuit Court, 15th Judicial Circuit in and for Palm Beach County. Case No. 502004CA002497, “DIV. AA.” April 1, 2011. Glenn D. Kelley, Judge.

ORDER ON PENDING MOTIONSFOR SUMMARY JUDGMENT

This matter came before the Court on the following motions: 1) Motion For Partial Summary Judgment With Respect To Plaintiffs’ Count I (Fraud); 2) Defendants’ Motion For Partial Summary Judgment With Respect To Payments Made By Plaintiffs to Defendants After March 8, 2004; 3) Defendants’ Renewed Motion For Partial Summary Judgment With Respect To Plaintiffs’ Count I (Fraud); 4) Defendants’ Motion For Reconsideration Based On Newly Discovered Evidence And For Sanctions; 5) Defendants’ Motion For Partial Summary Judgment With Respect To Count IV Of The Complaint; 6) Defendants’ Motion For Partial Summary Judgment With Respect To Plaintiffs’ Count I (Fraud)¹. A hearing was conducted on the pending motions on April 8, 2011. The Court has reviewed the submissions of the parties, and has heard the argument of counsel. Upon consideration, the Court makes the following findings.

Simply stated, the Plaintiffs in this action are insurance companies. The Plaintiffs have issued to Florida drivers automobile insurance policies that provide PIP (personal injury protection) coverage. The Defendants are medical centers that provide, inter alia, medical treatment to injured drivers. Defendants bill the Plaintiffs for such services under an assignment of PIP benefits.

The gravamen of the Plaintiffs’ complaint in this case is that the Defendants engaged in various fraudulent billing practices. While prior rulings of the Court have reduced the number of individual files or claims at issue, the Plaintiffs are seeking to challenge the billings and treatment in hundreds of individual insurance claims.

Rather than litigate individual patient claims submitted by the Defendants, the Plaintiffs essentially seek to recover damages — on an aggregate basis — for alleged fraudulent practices by the Defendants. The motions now before the Court challenge two of the claims asserted by the Plaintiffs — common law fraud and violation of the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”).

Count I Common Law Fraud

Reliance

Four of the five motions before the Court deal with the issue of reliance. Defendants assert that, with respect to certain paid claims, the Plaintiffs cannot, as a matter of law, prove reliance. The Defendants argue that once the Plaintiffs are on notice of the alleged fraudulent practices at issue, Plaintiffs cannot thereafter rely on the fraud in paying a claim. In other words, Plaintiffs cannot seek to recover for payments made after they knew, or should have known, of the alleged fraudulent practices of the Defendants.

In the various motions before the Court, the Defendants have alleged three separate dates as lines of demarcation. The dates are: September 10, 2001, October 2002 and March 8, 2004. Each date is tied to a specific event which, according to the Defendants, triggers notice and forecloses reliance.

The earliest date, September 10, 2001, is the date the Plaintiffs issued an Explanation of Benefits denying a claim based on misrepresentations. The October 2002 date is tied to statements (and a letter) by Carol LaDuke, a claims processor for the Plaintiffs. Ms. LaDuke indicated that she was investigating claims as early as October 2002 and thus “anticipated litigation.” The last date, March 8, 2004, is the date of the filing of the complaint.

The Defendants’ argument is logical and has some merit. However, given the interplay of Florida’s PIP statute, and the need to consider on an individual basis why a particular claim was paid, the Court cannot find as a matter of law that reliance is lacking as of the dates proffered by the Defendants.

Economic Loss Rule

Defendants also move for summary judgment asserting that the Plaintiffs’ common law fraud claim is barred by the economic loss rule. The Court agrees.

The Supreme Court discussed at length the origins and application of the economic loss rule in Indemnity Insurance Company of North America v. American Aviation, Inc., 891 So.2d 532 (Fla. 2004) [29 Fla. L. Weekly S815b]. The economic loss rule is a limitation on tort claims where the damages suffered are economic losses. Economic losses are defined as damages for inadequate value, costs of repair and replacement of defective products, or loss of profits. Id. at 536; see also, Casa Clara Condominium Association, Inc. v. Charley Toppino & Sons, Inc., 620 So.2d 1244 (Fla. 1993). These damages are also described as the loss of the “benefit of the bargain” or “disappointed economic expectations.” Indemnity Insurance, id at 536.

The Supreme Court made clear in Indemnity Insurance that the economic loss rule applies in two distinct circumstances. First, the rule applies to parties in contractual privity for matters arising out of the contract. Second, the rule applies to liability for a defective product that causes damage to the product, but causes no personal injury or damage to other property. Contractual privity is the only possible application here.

The Supreme Court in Indemnity Insurance explained the rational for application of the contractual privity economic loss rule as follows:

A party to a contract who attempts to circumvent the contractual agreement by making a claim for economic loss in tort is, in effect, seeking to obtain a better bargain than originally made. Thus, when the parties are in privity, contract principles are generally more appropriate for determining remedies for consequential damages that the parties have, or could have, addressed through their contractual agreement. Accordingly, courts have held that a tort action is barred where a defendant has not committed a breach of duty apart from a breach of contract. Indemnity Insurance, id at 536-537.

There are recognized exceptions to application of the contractual privity economic loss rule. Independent torts such as fraud in the inducement are not barred by the economic loss rule. HTP, Ltd. v. Lineas Aereas Costarrricenses, S.A., 685 So.2d 1238 (Fla. 1996) [21 Fla. L. Weekly S447a]. Claims for negligence in rendering professional services are not barred. Moransais v. Heathman, 744 So.2d 973 (Fla. 1999) [24 Fla. L. Weekly S527a]. Likewise, statutory claims are not barred by the economic loss rule. Comptech Intern, Inc. v. Milam Commerce Park, Ltd., 753 So.2d 1219 (Fla. 1999) [24 Fla. L. Weekly S507a]. None of the recognized exceptions apply here.

Plaintiffs assert that the economic loss rule does not apply because they are not in privity with the Defendants. While admitting the Defendants are acting under an assignment from individuals in privity with the Plaintiffs — the named insured automobile owners — the Plaintiffs assert that only the right to receive payments has been assigned. This is a distinction without a difference.²

The assignment of PIP benefits creates privity between the Plaintiffs and the Defendants. The Court agrees with the analysis and conclusions of United States District Court in Nationwide Mutual Company v. Ft. Myers Total Rehab. Center, Inc., 657 F.Supp. 2d 1279 (M.D. Fla. 2009).

Nationwide Mutual Company involved the precise claims that are presented here. Nationwide Mutual sued Ft. Myers Total Rehab Center alleging fraudulent billing practices in connection with fifteen PIP claims. The District Court held that the assignment of PIP benefits creates privity and that the economic loss rule barred Nationwide Mutual’s common law fraud claim. Id. at 1288-89.

Count IV Deceptive and Unfair Trade Practices Act

Defendants also move for summary judgment on Count IV of the Third Amended Complaint. Count IV is a claim under Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”). Defendants assert that the statute does not apply to activities regulated by the Office of Insurance Regulation.

Florida Statute §501.212(4)(d) provides that FDUTPA does not apply to “any person or activity regulated under the laws administered by the former Department of Insurance which are now administered by the Department of Financial Services.” Plaintiffs assert that this exclusion does not apply as the Defendants were not regulated by the former Department of Insurance and are not regulated by the Department of Financial Services.

The issue here is whether the word “activities” includes the processing and payment of PIP claims. In the context of this case, the Court concludes that the activities exclusion does not apply. The activities at issue here are alleged improper medical billing practices, not insurance practices. While the processing of PIP claims certainly is a regulated activity, the Court does not believe the current claims fall within this exclusion. The Court has considered the other arguments advanced by the Defendants and finds that they do not support the dismissal of Count IV.

Based on the foregoing, it is hereby,

ORDERED AND ADJUDGED as follows:

1) Defendants’ Motion For Partial Summary Judgment With Respect To Plaintiffs’ Count I (Fraud) is DENIED.

2) Defendants’ Motion For Partial Summary Judgment With Respect To Payments Made By Plaintiffs to Defendants After March 8, 2004 is DENIED.

3) Defendants’ Renewed Motion For Partial Summary Judgment With Respect To Plaintiffs’ Count I (Fraud) is DENIED.

4) Defendants’ Motion For Reconsideration Based On Newly Discovered Evidence And For Sanctions is DENIED.

5) Defendants’ Motion For Partial Summary Judgment With Respect To Count IV Of The Complaint is DENIED.

6) Defendants’ Motion For Partial Summary Judgment With Respect To Plaintiffs’ Count I (Fraud) is GRANTED.

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¹The last motion is based on the economic loss rule or doctrine. The titles used by the Defendants for the pending motions are redundant and confusing. Five of the six pending motions deal with a single count in the complaint.

²The Court is cognizant of the holding in Shaw v. State Farm Fire and Casualty Company, 37 So.3d 329 (3rd DCA 2010) [35 Fla. L. Weekly D1020a]. The holding in Shaw does not change the Court’s view that the Plaintiffs’ claim is in contract not tort.