When the insurer Geico started selling auto policies in Massachusetts in 2009, it used low prices, a big Internet presence, and ubiquitous advertising to grab business from competitors. But it ran head-on into a local problem: rampant insurance fraud.
Insurers here have fought back against staged car accidents, faked injuries, and bogus medical bills mostly by referring cases to law enforcement. But Geico took a different — and more controversial — tack, suing local chiropractors and physical therapists and forcing them into expensive legal battles.
Most of the cases end up settling, with the practices agreeing to no longer accept Geico clients, according to court documents, defense lawyers, and defendants.
The number of cases isn’t big: at least seven filed in state or federal court since 2012. But Geico’s use of civil courts, rather than criminal, has some defense lawyers complaining that the company is aggressively trying to avoid medical claims from clinics in lower-income communities.
“These kinds of general fraud lawsuits can have a significant chilling effect on clinics,” said Jeffrey Coniaris, a Weston lawyer, “and could easily be used to get all the clinics in any neighborhood to stop seeing patients with a certain brand of car insurance.’’
Coniaris represented Boston Therapy, an East Boston clinic that Geico took to court in 2013 over claims of about $78,000. The case was subsequently dismissed.
Geico declined to comment, but both insurance and chiropractic industry trade groups say the nation’s second-largest auto insurer uses the civil courts more aggressively than almost any other insurance company to attack potential fraud.
Geico, owned by Warren Buffett’s Berkshire Hathaway Inc., has even employed racketeering laws, designed to combat organized crime, to sue chiropractors and physical therapists.
By launching civil actions, Geico is able to financially pressure chiropractic and physical therapy offices by tying up assets while the case is being litigated, defense lawyers said.
It can cost these businesses tens of thousands of dollars to fight the suits. The net result is that clinics will be discouraged from tangling with Geico again.
Geico has pursued this strategy against the backdrop of its growth in Massachusetts and a history of rampant insurance fraud in the state, particularly in poor Boston neighborhoods such as Dorchester and Roxbury and lower-income cities such as Lawrence, Brockton, and Fall River.
In 2003, for example, the state launched a crackdown on fraud after a 65-year-old grandmother died while staging a car accident in Lawrence to bilk her insurance company.
Home and auto insurance fraud adds up to an estimated $32 billion a year nationally, according to industry estimates, and can cost all consumers through higher rates and premiums. The Insurance Fraud Bureau of Massachusetts, an industry financed group that investigates and refers fraudulent claims to police and prosecutors, estimated that reducing fraud in the state’s largest cities since the 2003 crackdown cut annual premiums an average of $185.
Judges have ruled in favor of Geico in a few cases and required chiropractic practices to repay the insurer triple the damages, plus legal expenses. But most cases settled. The terms of the agreements aren’t public, but three of the chiropractors contacted by the Globe said they no longer accept Geico clients.
In documents filed in one open case, the insurance company has demanded that the chiropractor stop billing Geico as part of a proposed settlement.
Among insurers nationwide, Geico, Allstate Corp., and State Farm Insurance are among the most active in attacking fraud through lawsuits, said James Quiggle, the spokesman for the Coalition Against Insurance Fraud, a nonprofit alliance of consumer groups, insurance companies, and regulators in Washington. Criminal cases have higher burdens of proof than civil cases and can take longer, Quiggle said.
“Geico has been taking an increasingly aggressive stance with civil suits,” he said. “If you have to face a [civil] suit, it can be financially draining, it makes you think twice about defrauding an insurer. It can send a very loud and clear message that you take on that insurer at your own risk.”
Geico entered Massachusetts the year after the state deregulated the auto insurance industry. It is now the sixth-largest auto insurer in the state, collecting almost $290 million in premiums a year.
In court documents, Geico has alleged that the chiropractors and physical therapists billed improperly, provided inappropriate treatment meant to maximize billings and profits, used unskilled employees to provide care, and sometimes illegally paid people to direct injured drivers to their offices.
Geico has sued over total claims it paid ranging roughly from $78,000 to more than $136,000.
Geico generally challenges personal injury protection, or PIP, claims filed by chiropractors and physical therapists. Under state PIP law, the insurance company is supposed to pay reasonable and necessary medical expenses under $2,000, no matter who is at fault for the accident.
The law was designed to keep lawsuits over minor injuries from clogging the courts, but these smaller claims, for whiplash and back sprains, also make attractive targets for fraud.
Insurance companies that discover potential fraud can report it to the Insurance Fraud Bureau for criminal investigation. If there is enough evidence, said Daniel Johnston, the bureau’s executive director, it is referred to the district attorney, attorney general, or the US attorney’s office.
No criminal case referrals involving Geico have been reported in the fraud bureau’s semiannual newsletter since January 2013.
In 2012, Geico took Dorchester Chiropractic Inc. to court, alleging that it had fraudulently billed the insurance company for $136,000 in claims because the clinic treated different clients with essentially the same care, wrongly coded bills, and paid third parties for referrals.
Dorchester Chiropractic denied the allegations, arguing in court documents that Geico depended on unreliable testimony and that any coding errors were unintentional. The case was settled, with each party paying its own fees and costs, according to court documents.
Dorchester Chiropractic said it no longer accepts Geico coverage but did not respond to requests for additional comment.
Frank Frisoli, a Cambridge lawyer who represented the clinic through most of the case, said Geico’s approach was to bury the chiropractic office in motions, paperwork, and legal expenses.
“The objective,” Frisoli said, “appeared to be to put my clients out of business so they could not treat Geico patients.”