03 December 2020

Illinois Supreme Court Broadly Construes Relators’ Standing under the Illinois Insurance Claims Fraud Prevention Act

On November 19, 2020, the Illinois Supreme Court issued an opinion broadly construing relators’ standing to sue under the Illinois Insurance Claims Fraud Prevention Act (“Act”) (740 ILCS 92/1 et seq.). The Act is similar to the Illinois False Claims Act, but allows private citizens (“interested persons”) to sue on behalf of the State to remedy alleged fraud against private insurers. As with the Illinois False Claims Act, the State retains ultimate control over the litigation under the Act whether or not it intervenes, but the relator is entitled to a portion of the proceeds of any settlement or judgment if the litigation succeeds.

Defendant Family Vision Care, LLC, an optometry practice in LaGrange, Illinois, argued that a relator did not have standing to sue under the Act because: (1) fraud on private insurers did not relate to a personal claim, status, or right held by the relator; and (2) the State could not assign the relator, a private citizen, a non-pecuniary interest in the State’s sovereignty. The Illinois Supreme Court rejected both arguments.

The fraud at issue stemmed from a vision health insurance company’s requirement that optometrists have “majority ownership and complete control” of their medical practices in order to receive reimbursement. Family Vision Care was not owned by its optometrists and allegedly instructed one of its employees, Cahill, to falsify information regarding ownership of the practice in order to receive reimbursement from the insurance company. Shortly after leaving Family Vision Care’s employ, Cahill filed for bankruptcy and the trustee of her bankruptcy estate filed a complaint against the practice, alleging that its scheme resulted in millions of dollars of fraudulent claims.

Family Vision Care first argued that Cahill was not an “interested person” under the Act because she did not personally suffer any injury related to the alleged fraud. The Act does not define the phrase “interested person,” but Family Vision Care argued that it limits relators to those with a personal claim, status, or right capable of being affected by the alleged fraud. The Supreme Court rejected this interpretation, finding that it was not supported by any section of the Act. Instead, the Court found that the Act, when read as a whole, indicates that a person is “interested” if they have “material evidence of wrongdoing and involvement in the litigation.”

Family Vision Care next argued the Act addresses only injury to the State’s sovereignty, not its treasury, and that prior case law indicated the State could not transfer such a non-pecuniary interest to private citizens. In so arguing, Family Vision Care distinguished the Illinois False Claims Act, asserting that the State is allowed to transfer its interests under that statute because it provides for the recovery of actual monetary damages suffered by the State. The Supreme Court again disagreed, finding that, whether operating under the Illinois False Claims Act or the Act, “violation of the laws, not the defrauded party’s opportunity for recovery, . . . is what makes the defrauding party liable.” Accordingly, the Court held that, under either statute, the State could assign its interests to a private relator.

Finally, Family Vision Care argued that the Act is unconstitutional because it results in private citizens exercising the State’s law-enforcement power, which, under the Illinois Constitution, is reserved to the Attorney General. The Supreme Court rejected this argument, noting that, as with litigation under the Illinois False Claims Act, the Attorney General retains enough control under the Act to render the Act constitutional. For example, under both statutes, the Attorney General has the right to receive copies of all pleadings, the right to intervene in the litigation at any time, and the right to dismiss or settle the litigation at any time.

In sum, the Supreme Court found that Family Vision Care’s reading of the Act would “effectively bar claims by anyone other than an insurer that lost money from fraudulent conduct,” thereby defeating the Act’s “purpose of protecting the public from insurance fraud.” The Court’s ruling confirms the broad reach of the Act, which is already seeing increased use by whistleblowers as an FCA-adjacent theory of recovery.

A copy of the decision can be found here.

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