An insolvent commercial auto liability insurer has filed a federal lawsuit against healthcare providers, alleging they conspired to submit fraudulent accident claims to the company.
American Transit Insurance Co., a New York-based insurer that covered taxis, traditional livery vehicles and vehicles used in connection with ride-sharing apps like Uber and Lyft alleged in a news release that the more than 180 defendants named in the action "engaged both individually and as part of a conspiracy to submit thousands of fraudulent insurance claims."
American Transit is seeking $153 million in compensatory damages, as well as punitive damages. The lawsuit was filed on Dec. 17 in the Eastern District of New York under New York State common law and the federal Racketeer Influenced and Corrupt Organizations, or RICO, Act, which could triple potential compensatory damages awarded.
The defendants allegedly took advantage of New York's no-fault auto insurance law, which requires insurers to reimburse policyholders for "the cost of necessary and documented medical care," according to the news release. Those reimbursements can be as high as $50,000 for personal or private passenger vehicles, and $200,000 for taxis and for-hire vehicles in New York City, for injuries sustained from the accident, regardless of who is at fault.
William Natbony of Cadwalader Wickersham & Taft LLP, one of the law firms representing American Transit, said in an emailed statement that "no-fault fraud is a huge problem in New York," and American Transit filed the suit because of its "statutory responsibility to fight such fraud."
"The allegations in the complaint speak for themselves," Natbony said.
The taxi and for-hire auto insurance market has become "a magnet for staged accidents, fraudulent medical billing, and shady lawsuits underwritten by predatory litigation funders," Tom Stebbins, executive director of the Lawsuit Reform Alliance of New York, said in an email to S&P Global Market Intelligence.
Stebbins said city and state lawmakers need to step up and crack down on "fraudsters" and fix insurance-related laws that "attract criminal activity, make our roads less safe, and undermine trust in our institutions."
"Eliminating the 'bad actors' isn't enough to fix a fundamentally broken tort system," Uber spokesman Josh Gold said in an email. "New York policymakers need to act to protect hardworking drivers and working families who can no longer afford skyrocketing costs."
Uber filed a lawsuit against American Transit on Feb. 16, alleging that the insurer had "systematically failed its named insureds" by "failing to adhere to reasonable claims-handling practices and failing to reasonably resolve claims." American Transit has rejected those allegations.
Q2 net loss wipes out surplus
State regulators declared American Transit insolvent after it reported a net loss of $705 million in the second quarter. The company said in a second-quarter financial statement that, upon the recommendation of an independent actuary, it had increased its provisions for loss reserves and loss adjustment expenses to $769.6 million and $159.1 million, respectively.
The changes led to incurred losses of $698.9 million, a net underwriting loss of $731.2 million and a net loss of $705.1 million for the first half of 2024. The net loss reduced the company's surplus to a negative $677.9 million, compared to a surplus of $26 million on Dec. 31, 2023.
Prior to that, in 2023, Ronald Kuehn, an independent actuary with Huggins Actuarial Services, said in a statement of actuarial opinion included in American Transit's 2023 annual report filed Dec. 31, 2023, that the insurer's $187 million provision for unpaid losses and loss adjustment expenses was $690.7 million less than the minimum amount he considered to be a reasonable estimate.
Kuehn said his opinion was based on an estimate of both the net of reinsurance reserves for losses and loss adjustment expenses and gross of reinsurance reserves for losses and loss adjustment expenses. He concluded that those reserves were "deficient on an undiscounted basis" and that the company's statutory policyholders surplus would come to a negative $664.7 million and fall below the mandatory control level of risk-based capital.
The New York State Department of Financial Services and the New York City Taxi and Limousine Commission did not respond to requests for comment.