Allstate Insurance v. Mun, 2014 U.S. App. LEXIS 8525

Background

New York no-fault law requires insurers to pay up to $50,000 in first-party medical benefits and to process claims promptly; claimants may assign benefits to medical providers who bill insurers directly.
Defendants (Dr. Mun and Nara Rehab) submitted roughly $500,000 in electrodiagnostic testing claims to Allstate between 2007–2011; Allstate paid those claims within the statutory 30-day processing period relying on provider documentation.
After discovering alleged fraud, Allstate sued the providers in 2012 seeking recovery for fraud, unjust enrichment, and RICO violations.
Defendants moved to compel arbitration under the Federal Arbitration Act and the arbitration option required by N.Y. Ins. Law § 5106(b) and its implementing regulation, which appear in Allstate’s policies.
The district court denied the motion, reasoning that the statutory/regulatory arbitration option applies to disputes arising in the initial 30-day claims process (unpaid claims), not to later insurer suits to recover amounts already paid.
The Second Circuit affirmed, holding § 5106(b) and the policy provision do not grant providers the right to arbitrate post-payment fraud-recovery suits.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether providers can compel arbitration of insurer's post-payment fraud/recovery suit under FAA and § 5106(b)/policy	Allstate: § 5106(b) and the policy arbitration option apply only to disputes about unpaid or timely disputed claims, not to later fraud-recovery suits	Mun: The policy language and § 5106(b) broadly permit arbitration of “any matter relating to the claim,” so providers may elect arbitration of Allstate’s suit	Held for Allstate: arbitration option applies to disputes between insurer and a person "making a claim for first‑party benefits" during the § 5106(a) 30‑day process; it does not cover later fraud/recovery actions
Whether FAA presumption in favor of arbitration requires broader reading of policy/statute	Allstate: FAA does not expand rights beyond what state law and the policy, construed under state law, grant	Mun: FAA’s pro-arbitration presumption favors resolving ambiguities in favor of arbitration	Held for Allstate: FAA presumption applies only if parties intended to arbitrate dispute; here state statute/policy do not manifest such intent for post-payment fraud claims
Whether § 5106(b)’s reference to disputes includes matters arising after payment (e.g., fraud recovery)	Allstate: § 5106(b) is limited by its reference to § 5106(a) and the 30‑day claims process	Mun: § 5106(b) is broad—"any dispute involving the insurer’s liability"—and thus covers later disputes about the claim	Held for Allstate: reading § 5106(b) in context confines arbitration to disputes arising from the § 5106(a) claims/30‑day process, not subsequent fraud suits
Whether allowing arbitration here would frustrate anti‑fraud enforcement and statutory scheme	Allstate: permitting arbitration would undermine statutory anti‑fraud measures and insurer ability to pursue civil fraud recovery	Mun: arbitration is an available remedy and policy term intended to be broad	Held for Allstate: permitting arbitration would conflict with statutory purpose of prompt claims processing and with state policy encouraging civil actions to recover fraudulently obtained benefits

Key Cases Cited

Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52 (1995) (ambiguities in arbitration clauses ordinarily resolved in favor of arbitration)
Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (2010) (arbitration presumption applies only when parties intended to arbitrate the particular dispute)
Harrington v. Atlantic Sounding Co., 602 F.3d 113 (2d Cir. 2010) (standard of review for denial of motion to compel arbitration is de novo)
State Farm Mut. Auto. Ins. Co. v. Mallela, 372 F.3d 500 (2d Cir. 2004) (describing New York no‑fault scheme aims: prompt compensation, reduced court burden, lower premiums)
Med. Soc’y of State of N.Y. v. Serio, 100 N.Y.2d 854 (2003) (no‑fault system aims and legislative purpose explained)
Ryder Truck Lines, Inc. v. Maiorano, 44 N.Y.2d 364 (1978) (distinguishing overpayment claims from independent fraud claims)