Insurance Fraud: An Equal Opportunity Crime

Saturday, September 22, 2007 | 1

By Barry Zalma

Insurance Fraud -- The Orphan Child of the U.S. Justice System

I am tired of those who give lip-service to the need for insurers to defeat insurance fraud. I am frustrated by those judges who give probation to admitted insurance criminals.

Every month ZIFL publishes lists of prosecutions and the wild variations in sentences imposed on people who commit almost identical crimes.

According to the Coalition Against Insurance Fraud:

Insurance fraud occurs every day and in every state. People of all races, incomes and ages are victimized. ...

Insurance fraud is hard to measure because so much goes undetected, and complete research has yet to be done. Still, we have enough evidence to know that fraud is widespread -- and expensive.

Insurance fraud is an equal opportunity crime. It is committed by members of every race, religion, or country of origin. Insurers and those who pay premiums for insurance are the victims. Police and prosecutors ignore the crime and expect insurers to investigate and help prosecute the crime.

Insurers and those who buy insurance should both be screaming at the top of their lungs to their legislators, police and prosecutorial agencies that the crime must be stopped. They do not.

Because of a lack of interest on the part of the public, prosecutions happen rarely and the punishment is spotty and widely diverse. Check the "Good News" section below and you will see punishments from zero jail time to 15 years in prison. The deterrent effect of fraud prosecutions is inconsequential since most people get away with it.

A Proposal

I propose a major advertising campaign explaining to the public, prosecutors, judges and juries how much they personally spend every year to allow fraud perpetrators to continue their practice. Insurers who spend billions on advertising their product could take a mere 1% of their advertising budgets to ask the public to help fight fraud, turn in fraud perpetrators, demand that they be prosecuted and demand that the judges put them in jail.

Regardless of how effective an insurer's SIU is, without the support of the public, press, prosecutors and judges insurance, fraud will remain the orphan child of the U.S. Justice System.

Until insurance fraud prosecution is adopted as the cause of the majority of the public it will continue to succeed.

Nothing will happen until the public and public servants are convinced it is a serious problem. Ask your local prosecutors what they would do if a gang was robbing American banks on a daily basis of $100 billion every year. Would they create a special task force to catch and prosecute the criminals? They why do they do almost nothing about those who steal the same amount from insurers with their pens rather than with guns?

ZIFL encourages you to copy and forward Zalma's Insurance Fraud Letter to everyone you know who can profit from the information it provides.

Scruggs Prosecution Proceeds

As readers of ZIFL are aware, Alabama U.S. District Judge William M. Acker Jr. had originally recommended that state prosecutors pursue criminal contempt charges against Richard Scruggs and his law firm regarding his dealings and relationship with independent claim adjusters Cori and Kerri Rigsby. The request stemmed from a complaint brought by independent adjusting firm E.A. Renfroe that said Scruggs illegally obtained confidential material from the sisters, and then unethically gave them both litigation consulting jobs that paid each $150,000 a year.

In what seemed like a victory for Scruggs in July the U.S. Attorney for the Northern District of Alabama, Alice Martin, refused Judge Acker's request, stating, "Following a serious and thorough review of the facts surrounding this indirect criminal contempt, I respectfully decline to prosecute Mr. Scruggs or his firm."

Not content with the decision to ignore his recommendations, Judge Acker promptly appointed and designated two special prosecutors, Charles Sharp and Joel Williams, to pursue the charges of criminal contempt against Scruggs. The case will be handled independently of other on-going litigation involving the Rigsby sisters and their former employer, E.A. Renfroe, who had been hired by State Farm to handle Katrina-related claims.

On Aug. 21, 2007, the special prosecutors charged Mr. Scruggs and his law firm with criminal contempt. A motion to summon Scruggs and the Scruggs Law Firm was filed the same day by the special prosecutors, who requested that the court schedule an arraignment in the contempt of court case.

Instead of complying with the December injunction, Judge Acker concluded that Scruggs promptly sent the documents to Mississippi Attorney General Jim Hood's office "for the calculated purpose of ensuring noncompliance with or avoidance" of the injunction.

Mr. Rasmussen, one of the special prosecutors reportedly said that in the event of a trial conviction by a judge, the maximum penalty Mr. Scruggs would face is a six-month sentence. In the event of a jury trial conviction, there is no set term, but the term must be reasonable and is subject to review by an appeals court.

In a preemptive move, Mr. Scruggs' criminal defense attorney, John Keker in San Francisco, filed a writ of mandamus on August 6, 2007 with the 11th U.S. Circuit Court of Appeals in Atlanta, asking them to block any allegation of contempt.

Scruggs hired San Francisco's John Keker to fight the criminal contempt charges. Keker has filed a writ of mandamus to the 11th U.S. Circuit Court of Appeals and states in the writ:

1. That the court lacks jurisdiction over Scruggs since he is not a party to the whistle-blower case;

2. That Scruggs was complying with the request of the Mississippi attorney general which were relevant to a pending criminal investigation; and

3. That the judge "had to twist the words of its own injunction beyond recognition to reach Scruggs' act of cooperating with law enforcement authorities."

ZIFL will continue to follow this story and report the results.

ClaimSchool and North American Training Group Announce Formation of a Strategic Alliance

Because a thorough knowledge of insurance, insurance coverage and insurance claims handling are necessary to a successful anti-fraud program, North American Training Group, a national fraud training organization, announces the formation of a strategic alliance with ClaimSchool, a national provider of insurance claims training.

ClaimSchool for more than ten years has helped insurance professionals and insurance claims personnel meet state requirements by providing ongoing training paramount to the goals of effective claims handling and fraud reduction.

North American Training Group (NATG) exists to facilitate greater understanding and awareness of insurance fraud. NATG provides a high quality, engaging and user-friendly online curriculum that fosters greater success for all parties involved with the programs dedicated to fighting fraud.

Insurance and insurance claims handling are subjects that require continuous training and education. The law of insurance seems to change daily. The insurance claims professional needs to be familiar with new court decisions, laws, and regulations imposed upon them by the courts and by regulators from various states.

NATG includes a group of insurance and SIU professionals who saw a need within the insurance industry to standardize and make available training specifically targeted to insurance fraud issues. Industry professionals are experiencing greater and greater demands upon their time and need quality resources to efficiently train claim professionals, underwriters, agents and other integral personnel to effectively recognize, identify, combat and deter fraud.

NATG's courses provide professional license holders & other insurance professionals convenient, engaging and superior quality training that both enhance career development and increases productivity. NATG also offers courses designed specifically for private investigators who work in the insurance fraud arena, offering the IFC professional designation.

NATG offers Online Continuing Education (CE), Compliance Training and General Fraud Training courses on topics including insurance coverage, claims handling and fraud for the industry's adjusters, claims executives, SIUs, agents, underwriters and private investigators. NATG will provide clients with an individual branded and secured online "Training Center" for which the client will have access to all of NATGs courses and provide the option for the client to add their own training materials to the site. NATG will customize state specific courses so all employees can obtain 100% of state compliance material in one course. Administrators have the ability to run compliance reports, track employee progress and print certificate of completions.

Details concerning course offerings and a sample of the computer based training, which will include ClaimsSchool, are available at http://fraudeducation.com/ or contact Fred Wharton, president of NATG at Fwharton@fraudeducation.com.

Broker Required to Reimburse Floridians $3.2 Million

As part of a nationwide investigation of insurance brokers and alleged excessive or fraudulent billings for broker fees and commissions, Florida settled a dispute with a major international broker, Willis Group Holdings Ltd.

On July 17, 2007, the Florida Department of Financial Services reported that Willis agreed to reimburse $2.6 million to multiple Florida cities and counties and it had represented as an insurance broker an additional $600,000 in legal fees. The restitution funds will be distributed to the cities of Oldsmar, Safety Harbor and Haines City; Pinellas, Charlotte and Collier counties; the economic development councils of Glades and Hendry counties; the Reedy Creek Improvement District; and school systems in Hillsborough, Orange, Bay, Pinellas and Collier counties. Willis entered into the agreement although it continued to deny any wrongdoing.

Florida Chief Financial Officer Alex Sink, Attorney General Bill McCollum, and Insurance Commissioner Kevin McCarty reported in a statement that as a result of the settlement agreement no formal action will be taken by state agencies.

A joint investigation by the Attorney General's Antitrust Division and the Department of Financial Services led to allegations that Willis improperly collected undisclosed fees or commissions when it placed various coverages with insurance companies. Willis brokered multiple insurance contracts in Florida from 1999 through 2004, and clients included more than a dozen public entities in Florida, including economic development councils, city and county governments and school boards.

Under the agreement, Willis also agreed to make full written disclosure of all such commissions in the future and to pay the costs of the investigation.

Willis, which once generated about $160 million a year in contingent commissions, was among the first brokers to quit the practice completely. That decision was made in late 2004, in the wake of then-New York Attorney General Eliot Spitzer's investigations of alleged fraud and anti-competitive practices by brokers and insurers.

Willis later reached a $50 million settlement with Spitzer and a separate $1 million settlement with Minnesota Attorney General Mike Hatch to settle the charges.

Man Bites Dog -- Insurer Successfully Sues Fraud Perpetrator

In the first auto body shop fraud case tried under a 1993 California state law, a Los Angeles jury issued an injunction against Hollywood Auto Collision, prohibiting the shop from submitting further false claims to Farmers Insurance Exchange.

After a week of trial the jury deliberated for less than five hours on July 9, 2007 before awarding Farmers Insurance $163,387. Plaintiff's lawyers successfully proved the auto body shop violated the Insurance Frauds Prevention Act and part of the California Business and Professions Code.

The suit against Hollywood Auto Collision and its former president, Jong S. Kim, also known as Sean Kim, is just the second case to go to trial and the first involving an auto shop under the 1993 insurance code, which allows agencies to sue individuals who knowingly take part in submitting a false or fraudulent claim. Manning & Marder Kass, Ellrod, Ramirez attorney Dennis Kass represented Farmers Insurance in the suit.

Good News From the Coalition Against Insurance Fraud

A former deputy sheriff fraudulently collected about $22,000 in workers' comp money after shooting himself in the shoulder then lying that an unknown gunman shot him. Former McCracken, Ky., deputy Benny Harding says someone shot him while checking on a suspicious parked car at a ferry landing. Police launched a regional search and stopped several innocent motorists at gunpoint. Harding finally admitted in February that he shot himself and made up the story. Harding pleaded guilty Wednesday. Hes expected to receive seven years when sentenced in October, but is expected to serve only 20% of that time. Two owners of an Oklahoma employee-leasing firm sold bogus workers' comp to unsuspecting client businesses. Justin Bruner and Paul Voyles Jr. ran Fairway Employment Services, in Norman. Great American Insurance and other insurers had told Fairway it wouldnt supply the comp coverage. But Fairway invoiced its 34 small-business clients for comp insurance anyway, issuing forged certificates of coverage. One client, May Drilling, was billed nearly $22,700. Voyles and Bruner were convicted, and each faces up to five years in federal prison when sentenced.

Ronald Evano may have eaten his last glass sandwich. The 49-year-old Boston man who ingested glass at least a dozen times and collected more than $200,000 from insurers pleaded guilty in federal court this week. He scammed restaurants on the east coast by complaining of glass in food and quickly got paid after medical tests confirmed glass in his stomach. One restaurant paid Evano $45,000 directly for his medical expenses and pain and suffering. Evano faces up to 100 years in prison when sentenced. His wife also was charged and is still being sought.

A workers' comp claims adjuster teamed up with an injured cop to bilk $153,000 in fraudulent claims in Baltimore. The adjuster, Natalie L. Mack, 40, received a 15-year suspended sentence for issuing bogus checks to former city cop Andre Stover. Mack met Stover when she was assigned to handle his claim. She befriended the injured officer and proposed the scheme where she would meet him on a nearby street corner, hand him a check and follow him to an check-cashing place where they would split the proceeds. Mack, who worked for a third-party administrator that handled the citys comp claims, also was sentenced to five-years probation, ordered to serve 500 hours of community service and pay back the stolen money. Stover pleaded guilty in January, received six months of home detention and lost his job. The Maryland fraud bureau and AGs office coordinated investigation and prosecution of the case.

Michael Carreon's mid-life career change will be costly. The 45-year old Pomona, Calif., man went from nursing assistant to carpenter, but unfortunately he left one job injured and on workers' compensation and continued collecting while working as a carpenter. Hartford Insurance paid him about $100,000 before his benefits were cut off and he admitted the scam. This week a judge ordered him to report to prison September 11 to begin serving a two-year sentence. The case was investigated by the California DOI and prosecuted by the Riverside County DA.

In another career change case, correctional officer Steve Felter, 36, of Pine Grove, Calif., was caught selling cars at a local Ford dealership while collecting workers' comp money. Felter started collecting benefits in 2003 after he claimed he hurt his back and leg. Video surveillance found Felter walking with a limp into his doctors office, but walking normally other times as well as lifting heavy objects. He was ordered to pay $112,709 for benefits he received and for investigative costs, and was sentenced to 100 days in jail. The case was prosecuted by the workers comp fraud unit of the Amador County DAs office.

A chiro in Pennsylvania who aided his partner in stealing $200,000 from an insurer was ordered to pay $70,000 and serve two years probation. Dr. David Fellerman of Scranton was aware of the billing fraud his partner, Dr. Robert Bittenbender, was committing and allowed his ID to be used in filing phony claims. The judge in the case said Fellerman did not personally profit from the fraud and cooperated in the investigation of his partner. Bittenbender was convicted in June for filing $200,000 in false claims against Blue Cross Blue Shield of Northern Pennsylvania, and splitting the proceeds with his staff and patients who aided in the crimes.

Jeffrey Bell Sr. said he hurt his neck after falling from a chair while working as an electronics technician for the Federal Aviation Administration. But the Vineland, N.J., man collected more than $100,000 in workers' comp money while running a business installing and servicing navigational devices for aircraft. Bell received a year in prison and must repay the insurance money.

Former N.Y. Mail Carrier Lied to Get Workers' Comp Benefits

On Aug. 15, 2007, a former New York postal worker who said he suffered a back injury on the job 16 years ago has admitted to bilking the government out of nearly $400,000 in workers' compensation benefits.

David VanDeusen, 56, of Tully, pleaded guilty U.S. District Court to defrauding the government out of $392,000 since 1991.

While receiving monthly benefits of more than $2,000 a month, VanDeusen was also earning income from selling cars for his wife's dealership, Double D Auto Sales. He also had income from two other sources a driveway-sealing company and a sign-making company, said Assistant U.S. Attorney Richard Southwick.

VanDeusen admitted that he lied when he signed sworn statements saying he had no other income besides the workers' comp benefits.

VanDeusen stopped collecting workers' comp in March, after prosecutors confronted his lawyer with the results of their investigation, Southwick said.

He was a mail handler with the U.S. Postal Service for five years before he said he was injured.

VanDeusen faces a maximum of five years in prison and a $250,000 fine or twice the amount he defrauded the government when he's sentenced Dec. 13. Federal sentencing guidelines put his likely sentence between 18 and 27 months, Southwick said.

Workers' Comp Fraud -- Restitution & Probation Only

On Aug. 16, 2007, a 37-year-old Ronkonkoma, N.Y., woman has paid $41,160 in restitution and faces five years probation after pleading guilty in a case of workers' compensation fraud against the New York State Insurance Fund.

According to a statement from the NYSIF, Lisa Marie Cavalieri entered a guilty plea to a charge of third degree grand larceny in Nassau County Court Aug. 8, 2007, after her November 2006 arrest by Nassau County District Attorney Kathleen Rice's office on felony workers' compensation fraud charges.

Cavalieri began receiving $350 per week in workers' compensation benefits from NYSIF after claiming a back injury suffered while working as a marketing display manager in March 1998. In February 2004, investigators found that she had returned to work in an office in February 2004 while denying to NYSIF that she was employed.

In addition to the $41,160 Cavalieri received in benefits, NYSIF estimated potential future savings in this case at just under $250,000 in unpaid benefits as a result of the arrest and conviction.

Ex-Maryland Claims Adjuster Convicted and Sentence Suspended

On Aug. 16, 2007, Maryland Attorney General Douglas F. Gansler reported that Natalie L. Mack, 40, a former insurance claims adjustor with CompManagement Inc., was sentenced in the Circuit Court of Baltimore City for stealing approximately $153,000 in fraudulent workers' compensation checks from CompManagement, Inc.

Judge John M. Glynn sentenced Mack to a 15-year suspended sentence and five years probation, according to Gansler. He said the court also ordered Mack to perform 500 hours of community service and to pay $153,000 in restitution. Andre Stover, a former Baltimore City police officer, pled guilty to felony theft earlier this year and was sentenced for his part in the conspiracy, according to officials.

Four Convicted of Workers' Comp Fraud -- Probation Only

On Aug. 21, 2007, Texas Mutual Insurance Company reported that four workers' compensation claimants were sentenced, in separate cases, for fraud. The claimants collected a combined $17,346 in benefits they were not entitled to, the company said.

Charges against all four involved double-dipping they were found to have collected workers' compensation benefits for being too injured to work when they were actually gainfully employed. Three of the claimants, Jose Rubio of Houston, Rufino Montiel-Lopez of Austin and Marvin Reyes of Del Valle, were sentenced in Travis County district courts.

Rubio was ordered to serve one year of probation and pay $4,320 in restitution to Texas Mutual, plus fines and fees. Montiel-Lopez must serve 18 months of probation, perform 80 hours of community service and pay $3,188 in restitution to Texas Mutual. Reyes' sentence includes two years of probation and 100 hours of community service. Reyes must also pay $1,555 in restitution to Texas Mutual. In Brown County, Chris C. McCall of May was ordered to serve a five-year probated sentence and pay $8,283 in restitution to Texas Mutual, plus fines and fees

WC Fraud Conviction -- 2 Years in Prison

Insurance Commissioner Steve Poizner announced on Aug. 22, 2007, the conviction of a Pomona man for workers' compensation insurance fraud. On Aug. 14, 2007, Manuel Carreon, 45, of Pomona, was convicted on one felony count of workers' compensation insurance fraud. Carreon was sentenced to two years in state prison for attempting to swindle his insurance company out of more than $100,000.

In February, Carreon was arrested for workers' compensation fraud, following an investigation by California Department of Insurance Fraud investigators. In 2003, Carreon reported that he strained his back working as a nursing assistant. He was placed on temporary total disability and received benefits. In 2004, Carreon sought employment and was hired as a carpenter for Howard Roberts Development, while receiving temporary total disability. Shortly after being hired, he was examined by his physician and falsely claimed that he was still injured. He also failed to inform his doctor that he was working at the time of the examination.

Hartford Casualty Insurance Co. lost more than $100,000 in medical, legal and investigative costs, in addition to benefit payments, due to Carreon's scheme. The Riverside County District Attorney's Office prosecuted this case.

This column was first published in Zalma's Insurance Fraud Letter. Zalma's Insurance Fraud Letter (ZIFL) is published 12 months a year by ClaimSchool. Zalma serves as an expert witness or consultant in insurance coverage, claims handling, insurance bad faith and fraud. Zalma's law practice is limited to the representation of insurers and those in the business of insurance. He is available to provide advice and counsel concerning insurance fraud, first and third party insurance coverage issues, bad faith and first party insurance appraisals. It is republished here with permission.

You can read the full Insurance Fraud Newsletter at http://www.zalma.com.

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The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.