Allstate Insurance has won a judgment of nearly $4 million against a NY lawyer and Calif. consultant who guided a NJ chiropractor in structuring a medical practice designed to appear to meet the requirements of the state Insurance Fraud Protection Act (Act) while actually violating them.

The defendants owned a company modestly titled Practice Perfect. Through seminars the company promoted a plan design that on its face complied with the requirement that a NJ medical practice that employs a physician must be owned by a physician. In reality, though, the design kept complete control of the practice in the hands of a chiropractor, with the physician “owner” a mere figurehead.

After attending a seminar, the NJ chiropractor signed up as a Practice Perfect client and established a medical practice using the Practice Perfect-recommended model. He paid $2,600 for fill-in-the-blank legal forms. The forms had been prepared by the NY lawyer and were being copied and distributed, without his knowledge, by a firm owned by the consultant. The physician “owner” was a NY physician the chiropractor had never met. That physician “owned” about two dozen other practices in NY and NJ.

Allstate paid $91,000 in medical claims submitted by the practice. Then, after investigating the practice, declined to pay $330,000 in further claims.

Allstate sued the practice, chiropractor, consultant, lawyer, and others on the theory that the medical practice violated the Act, rendering its insurance claims invalid. The chiropractor settled with Allstate and testified on its behalf.

The trial court awarded Allstate $3.9 million, including $1.3 million in trebled attorneys’ fees, finding the lawyer and consultant liable for assisting and conspiring with the chiropractor in violating the Act. The Appellate Division reversed, finding the evidence insufficient to support a finding that the defendants’ violations of the Act were knowing violations.

On May 4 the NJ Supreme Court reversed the decision of the Appellate Division, finding plenty of evidence that the defendants’ violations were knowing violations.

There is no truth to the rumor that the defendants have changed the name of their company to Practice Imperfect.

The case is Allstate Insurance Co. v. Northfield Medical Center, Nos. A-27 Sept. Term 2015, 076069 (NJ, May 4, 2017).