If you’re like me, some mornings you’re greeted by an email that purports to be from a potential client (usually located in China, Hong Kong, or Japan) that reads something like this:

Dear Counsel [or Sir or some other generic greeting],

On behalf of XYZ Company, we request your legal services and possible representation on a Debt Recovery matter involving XYZ Company and a client in your jurisdiction.

Do let us know if you are currently accepting new clients. We look forward to a prompt response from you. Thank you very much.


[Mr. ________

XYZ Company]

I’ll admit that the first time I received such an email years ago, I entertained the idea, for a brief moment at least, that maybe, just maybe, it was legitimate inquiry. But then my inner skeptic took over, and I went right to snopes.com or some similar site to see if scams of this type were going around. They were, of course.  I deleted the email and went back to the grind.

Now I just delete them as soon as they come in. As I’m sure you do. And as I thought every lawyer did.

But it seems that some lawyer or employee at a now-defunct central Florida law firm didn’t listen to his or her inner skeptic when he/she received one of those emails back in 2007. Giving that person the benefit of the doubt, let’s assume these scams weren’t so well publicized back then.

The Scam

In any event, an inquiry came from Hong Kong asking the law firm to set up a U.S. subsidiary of a supposed Hong Kong parent company. The “client” subsequently sent a cashier’s check to the law firm for a bit more than $197,000. The lawyer deposited it in the firm’s lawyer’s trust (IOTA) account. Before the check cleared, the client told the law firm to wire $180,000+ to other foreign entities.

The law firm proceeded to follow the client’s directions. And because the law firm had enough funds from other clients in its IOTA account, the bank covered the wire transfers even though the original check hadn’t cleared. The “client’s” check, of course, never did clear.

The Insurance Coverage Dispute

Realizing it was short $180,000+ to its other clients, the law firm sought coverage from its malpractice insurer for their lost funds.  [I imagine the adjuster’s reaction went something like this: “You did what? You fell for one of those scams? And you want us to indemnify you for it?!”]

The insurer denied coverage. The law firm filed a declaratory judgment action in the Middle District of Florida. Judge Virginia M. Hernandez Covington granted summary judgment to the insurer.

In Nardella Chong, P.A. v. Medmarc Casualty Insurance Co., No. 10-12237, decided May 27, 2011, the Eleventh Circuit reversed.

The Coverage Issues

The law firm’s professional liability policy indemnified it for “Damages” – defined as “any compensatory monetary judgment or award, or any settlement consented to by the” insurer, resulting from alleged “negligent acts or negligent omissions,” in “the performance of or failure to perform ‘Professional Services.’”

“Professional Services” was defined as including, among other things:

“Services performed . . . for others as an attorney;” and “services as an administrator, conservator, receiver, executor, guardian, trustee, committee of an incompetent person, or services performed in any similar fiduciary capacity, but only for those services typically and customarily performed by and attorney.”

In both the district court and the court of appeals, the case came down to two issues:

1. Did the law firm’s acts and omissions occur in the course of performing “Professional Services”?

2. Did the money the law firm owed its other clients (i.e., the funds lost in the scam that it had to repay into its trust account) amount to “damages” as defined by the policy?

The district court answered “no” to both questions, but the 11th Circuit answered “yes.”

The Court’s reasoning, and my analysis, is below.

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The Florida Motor Vehicle No Fault Law has been described over and again by the Florida Supreme Court as designed to “provide swift and virtually automatic payment” for medical treatments to car accident victims “so that the injured insured may get on with his life without undue financial interruption.”  [E.g., Custer Med. Ctr. v. United Auto Ins. Co., No. SC 08-2036, 2010 WL 4340809]. 

But under recent 4th DCA decisions, payment of Personal Injury Protection (PIP) benefits for medical treatment seems anything but “virtually automatic.”  For every PIP claim they submit, providers are now responsible for knowing in advance, and specifying on their claim forms, the exact amount the insurer is required by law to pay for the treatment at issue.  Getting paid from PIP benefits has thus become even harder than claiming payment from standard health plans. 

 Background – the PIP Statute

In case you need a refresher on the PIP payment procedure (codified at Florida Statutes Section 627.736) here’s my simplified gloss:

1. Insured accident victim sees medical provider.

2. Medical provider must notify the accident victim’s car insurer of the fact and amount of the claim within 35 days of treating the insured (or must give notice of starting treatment within 21 days, and submit bills within 75 days);

a. On an approved standard claim form that includes the amount of the claim and the provider’s medical license information;

b. Charging the insurer and the insured “only a reasonable amount,” determined by looking at the provider’s usual charges for the services in question, other providers’ charges for those services, insurers’ fee schedules, and other information; (More on this detail later).

3. Insurer reimburses medical provider;

a. A reasonable amount based on statutory criteria; or

b. May limit its payments to 200% of the amount allowed by Medicare Part B for non-hospital treatments, or if not covered by Medicare Part B, to 80% of the maximum amount allowed for workers’ compensation claims.

4. The insurer must pay within 30 days of receiving “reasonable proof of such loss and the amount of expenses and loss incurred which are covered by the policy.”

5. Payment is “overdue” if not made within 30 days, unless “the insurer has reasonable proof to establish that the insurer is not responsible for the payment.”

6. If the insurer doesn’t pay the provider, the provider must send the insurer a demand letter.

a. The demand letter can’t be sent until the payment is “overdue”; and

b. Must “state with specificity” the name of the provider that treated the insured and “each exact amount, the date of treatment, service, or accommodation, and the type of benefit claimed to be due.”

7. If the insurer pays in response to the demand letter, it must pay also pay a 10% penalty, up to $250.

8. If it still doesn’t pay, the provider or insured can sue, and if successful, recover the claimed amount, the 10% penalty, and attorneys’ fees.

In other words, at first glance, PIP appears to work like other health insurance.   The provider submits a claim, the insurer determines whether it’s covered, and if so, it pays.  One would assume that the amount the provider may charge may be greater than the amount the insurer deems to be reasonable or whatever other measure it uses to value claims, and that the insurer will pay less than the amount billed.   The difference is that PIP is “swift” and “automatic”: coverage is automatic up to $10,000 regardless of fault; time periods are shorter; there are penalties for paying late, and there’s a procedure for resolving disputes quickly. 

Does the PIP Statute Seek to Prevent Providers From Asking for Too Much?

In its May 4, 2011 decision in MRI Associates of America, LLC v. State Farm Fire & Casualty Company, No. 4D10-2807, the 4th DCA held that the PIP statute streamlines payment procedures in another way: By eliminating “gamesmanship” in the prices providers charge for treatment.

The result of MRI is perhaps not a shock for providers in Palm Beach County that regularly treat PIP insureds, because the Palm Beach Circuit Court reached the same result in an influential 2007 decision. (Because PIP cases by definition, involve less than $10,000 in controversy, in Florida’s court system structure, they are tried in County Courts. Three-judge panels of Circuit Court judges hear most appeals and often have the final word on PIP issues.)

But other providers may be surprised to learn that if they want to get paid by a PIP insurer, they will have to submit a claim stating not the amount the provider charges for treatments, but the amount the insurer will pay for the treatments under its policy.

The Facts Underlying the MRI Decision

The provider in MRI submitted claims of $1816.17 and $1707.33 for administering MRIs to the insured.  The insurer denied the claims.  The provider then sent a demand letter restating the charges claimed.  The demand letter also said the amounts of the claims “if Paid at 80%,” would be $1146.22 (which is actually 80% of $1432.78) and 1061.31 (80% of $1326.64).

The Holding of MRI

The 4th DCA held that the provider’s demand letter was premature, because despite the passage of more than 30 days since the provider billed the insurer, payment to the provider wasn’t “overdue.” Why not? According to the court, the provider had never the insurer “notice of the amount due” for treating the insured.

True, the provider had submitted a claim form to the insurer. But, the court explained, the claim form request payment of the amount charged by the provider, not “the exact amount owed under the statute”, which the court said, at that time was capped at 175% of the Medicare Part B maximum in 2001. So the claims did not give the insurer “written notice of the fact of a covered loss and of the amount of” the loss. Without that notice, no payment ever became overdue.

While unstated in the court’s opinion, if no payment became ever overdue, no payment ever became due either. And since 35 (or 75) days have passed since the treatment, the result of the 4th DCA’s holding seems to be that provider is out of luck – and the insurer is off the hook.

The Court’s Reasoning

Here’s the rub. The court took a circuitous route to reach its conclusion. That’s because subparagraph (5)(d) sets forth the claims procedure and doesn’t say that claims must “specify the exact amount owed under the statute.” It only says that the provider must completely fill out one of the approved standard claim forms and submit it within the specified time period.

It’s only in describing the requirements of demand letters, in subparagraph (10) that the PIP statute requires the provider to “state with specificity” the names of all treating medical providers and to provide “an itemized statement specifying each exact amount…claimed to be due.”

But the 4th DCA held that both claim forms and demand letters, based on the reasoning of a Palm Beach County Circuit Court decision in an appeal from County Court. The analysis involves two steps. First, the 4th DCA read subparagraph (10)’s “exact amount…claimed to be due” language as requiring demand letters to state not the amount of the provider’s charges, but “the exact amount owed under the statute” per the insurer’s policy.

Then the court observed that subparagraph (10)(b)3 says that a completed claim form “may be used as the itemized statement,” required in a demand letter. If it can be used for that purpose, the 4th DCA reasoned, a completed claim form, must also state the “exact amount owed under the statute.”

My analysis below the fold.  

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