Zalma’s Insurance Fraud Letter April 15, 2022

Zalma's Insurance Fraud Letter Volume 26, Issue 8

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Quote of the Issue

“History teaches us that men and nations only behave wisely once they have exhausted all other alternatives.” - Abba Eban

The Examination Under Oath (EUO)

EUO Is Not Part of a Judicial Process

Although the EUO is a formal proceeding it is not part of a judicial process nor is it subject to the rules set out by codes of civil procedure. There is no right to object to questions and never a judge present to rule on the objections. The testimony at the EUO is required to be presented in accordance with the obligation imposed on an insured to deal fairly and in good faith with the insurer.

The EUO is not controlled by the rules required of parties or lawyers involved in litigation in state or federal courts. The EUO is not limited by any statute relating to civil discovery. Some states have enacted regulations that try to limit insurers who take an EUO and place certain requirements upon the insurer to chill the desire to take an EUO.

It is well established that the refusal to answer material questions during an EUO is a breach of an insured’s duty to cooperate. A policyholder cannot satisfy his or her duty to cooperate, however, by attending an EUO while refusing to answer material questions. The insured’s obligation to cooperate is not met by “partial testimony.” [Country-Wide Ins. Co. v. Gotham Med., P.C., 20 N.Y.S.3d 861 (N.Y. Sup. Ct. 2015), aff’d, 63 N.Y.S.3d 349 (1st Dep’t 2017)] The failure to answer all relevant questions at the EUO, as required by the provisions of the applicable insurance policies, constitutes a material breach of contract, and precludes recovery by defendant. [Scott v. AIG Prop. Cas. Co. (S.D. N.Y. 2019)]

When an appellate court’s independent review establishes that summary adjudication of a claim for breach of contract was properly granted the insurer showed the insured did not comply with the conditions precedent for coverage and had materially breached the obligations under the insurance contract. [Abdelhamid v. Fire Ins. Exchange, 182 Cal.App.4th 990, 106 Cal. Rptr. 3d 26 (Cal. App. 2010)]

An EUO is not a Deposition

Depositions and examinations under oath serve vastly different purposes:

1. the obligation to sit for an examination under oath is contractual rather than arising out of the rules of civil procedure.
2. ?an insured’s counsel plays a different role during examinations under oath than during depositions.
3. ?examinations under oath are taken before litigation to augment the insurer’s investigation of the claim while a deposition is not part of the claim investigation process.
4. an insured has a duty to volunteer information related to the claim during an examination under oath in accordance with the policy while he would have no such obligation in a deposition. [Beasley v. GeoVera Specialty Ins. Co., Slip Copy, 2015 WL 2372328, 2015 WL 2372328 (E.D.La., 2015)]

An insurer’s right to ask questions at EUO is mostly unlimited as long as the questioning has some relationship to the insurance or the claim.

Similarly, based on the undisputed facts, a court must conclude that there could be no question that the insured made false statements when he applied for coverage and during the claims process. If the insured made false statements relating to the insurance either before or after the loss the insured has breached a material condition precedent.

Under the express terms of the Policy, the insurer can void the entire policy. Even when an insured contended that he had no intent to defraud at any stage of the insurance procurement or claims processes a refusal or failure to answer a material question has breached a material condition precedent to indemnity.

The USDC for the Eastern District of Michigan found that Michigan Compiled Laws Section 500.2832 eliminated a requirement that the insured intended to deceive is not relevant when the insurer seeks to void a policy based on a false statement. [Thomas v. Armed Forces Ins. Exchange, Slip Copy, 2015 WL 2063064 (E.D.Mich., 2015)]

In Kisting v. Westchester Fire Insurance Co. 290 F. Supp. 141 (W.D. Wis, 1968) affirmed 416 F.2d 967 the District Court for the Western District of Wisconsin granted summary judgement because of the refusal of the insured to answer material questions. The court stated the reasons for its decision, as follows:

It is well settled in other jurisdictions that noncompliance with a provision in an insurance policy requiring the insured to submit to an EUO precludes recovery by the insured.

An insured’s refusal to submit to an EUO significantly affects the insurer’s investigation of the claim. When the insurer requested the EUO in order to resolve an issue concerning the insured’s residency and make a coverage determination the court refused to require the insurer to prove that it has been prejudiced by the petitioner’s refusal to submit to the EUO. [Krigsman v. Progressive Northern Ins. Co., 151 N.H. 643, 864 A.2d 330 (2005)] The refusal alone was sufficient to allow the insurer to reject the insured’s claim.

In Diamond Blue Enterprises, LLC v. Continental Insurance Company, Not Reported in Cal.Rptr.3d, 2015 WL 1739444 (Cal.App. 2 Dist., 2015) the insured refused to appear for EUO and, as a result judgment was entered in favor of the insurer and plaintiffs’ suit was dismissed.

In addition, even when the insured submits to EUO, if the insured fails to produce all required documents and fails to sign the transcript of the EUO, under Alabama law the fact that the insured did not comply with the duties after loss requirements of her homeowner’s policy, which were conditions precedent to coverage under the policy following a dwelling loss from fire, the breach defeated her claim. [Morton v. Automobile Ins. Co. of Hartford, Conn., 102 F.Supp.3d 1248, 2015 WL 1586092 (N.D.Ala., 2015)]

In New York state, as in all states, an appearance at an EUO “is a condition precedent to the insurer’s liability on the policy”. [Stephen Fogel Psychological, P.C. v. Progressive Casualty Insurance Company, 35 AD3d 720 at 722, 827 NYS 2nd 217]. Contrary to the determination of the City Court, no provision of No-Fault Regulation 68 requires an insurer to set forth any objective standards for requesting an EUO [see Flow Chiropractic, P.C. v. Travelers Home and Mar. Ins. Co., 44 Misc.3d 132[A], 2014 N.Y. Slip Op 51142[U] [App Term, 9th & 10th Jud Dists 2014]; Metro Psychological Services, P.C. v. 21st Century North America Ins. Co. Slip Copy, 47 Misc.3d 133(A), 2015 WL 1565837 (Table) (N.Y. Sup.App.Term), 2015 N.Y. Slip Op. 50470(2015)].

In Hudson Tire Mart, Inc. v. Aetna Casualty and Surety Co., 518 F.2d 671 (C.A.2d, 1975) the insured sought injunctive relief against the EUO provision of the standard fire policy because it would deprive him of his Fifth Amendment right against self-incrimination. The court rejected the request and held that:

The purpose of the cooperation clause is to enable the insurer to obtain all knowledge and facts concerning the cause of the fire and the loss involved while the information is fresh in order to protect itself from fraudulent and false claims.?Only after the incriminating question is asked, is he in a position to assert his immunity and seek a protective order.

The Fifth Amendment to the U.S. Constitution prevents the U.S. or a state, to pass a law requiring a person to incriminate himself or herself. The Fifth Amendment has no effect on a private contract. Therefore, the failure to appear at EUO was held to be an absolute defense in Lentini Brothers Moving & Storage Co., Inc. v. New York Property Insurance Underwriting Assoc., 428 N.Y.S.2d 684 (1980) affirmed 51 N.Y.2d 740 (1981). The court stated:

Compliance with the policy provisions is a condition precedent to recovery. No compliance with the provisions as to written proof of loss or sworn examination occurred. Thus, recovery is barred.

Since an assignor’s appearance at any properly scheduled EUO is a condition precedent to the insurer’s liability on the policy (see Stephen Fogel Psychological, P.C. v. Progressive Cas. Ins. Co., 35 AD3d 720 at 722, 827 NYS 2nd 217) [2006]), the court ordered that the insurer’s motion for summary judgment dismissing the complaint must be granted. [Performance Plus Medical, P.C. v. Utica Mut. Ins. Co., Slip Copy, 47 Misc.3d 129(A), 2015 WL 1422389 (Table) (N.Y. Sup.App. Term), 2015 N.Y. Slip Op. 50399 (2015)]

In Powell v. United States Fid. & Guar. Co., 88 F.3d 271 (4th Cir.1996), the insureds’ home was destroyed by fire. Under their homeowners’ insurance policy, the insureds were required to submit to questions under oath and sign and swear to them.

The insureds appeared but during the EUO, the insureds refused to answer several questions and to turn over financial and other documents, claiming that an EUO did not permit the insurer to delve into financial or other information relating to the insureds’ possible motives to intentionally set the fire. They claimed that the EUO condition was limited to an examination relating to the existence and extent of loss under the policy. The United States Court of Appeals for the Fourth Circuit disagreed, stating that an EUO “encompasses investigation into possible motives for suspected fraud An EUO is not restricted to amount of loss, but the insurer has the right to examine the insured and his witnesses as to any matter material to the insurer’s liability and the extent thereof.

The Need to Demand Appearance at EUO

To protect its right to the EUO the insurer should always “require” the insured’s attendance at the EUO. The insurer, its insurance claims professional or attorney should never “request” the presence of the insured. A “request” can be refused with impunity. A “demand” or “requirement” to appear cannot be refused without breaching a material condition.

If the insurer only “requests” the insured’s presence, the insured, can correctly contend he did not violate a policy condition if he fails to appear. If the insurer, through its insurance claims professional or attorney, “requires” his presence at a specific date and time at a clearly identified location it should be made clear to the insured that a failure to appear and testify will be a breach of a material condition that will allow the insurer to void coverage or deny a claim as a result of the breach.

Failure of an insured to appear for an EUO prior to filing suit to recover an unpaid claim is a material breach of contract, requiring forfeiture of coverage in Florida and every other state that allows a policy to include an EUO provision. However, if the insurer fails to specify a date, time and location of the demanded EUO, it need for the EUO was deterred by a Florida Court of Appeal that found that the delay in obtaining the insured’s EUO was caused by its failure to comply with an insurer’s request to schedule an EUO prior to filing suit did not prejudice the insurer.

On the other hand, in Southgate Gardens Condo. Ass’n v. Aspen Specialty Ins. Co., 622 F.Supp.2d 1332, 1337 (S.D.Fla.2008) the court allowed dismissal without prejudice to allow belated compliance with the EUO provision because it believed the delayed EUO was the most prudent course of action. [Wright v. Life Ins. Co. of Ga., 762 So.2d 992 (Fla. 4th DCA 2000), Whistler’s Park, Inc. v. Fla. Ins. Guar., 90 So.3d 841 (Fla. App. 2012)]

The EUO is a Condition Precedent to the Insurer’s Liability

An appearance at an EUO “is a condition precedent to the insurer’s liability on the policy” [Stephen Fogel Psychological, P.C. v. Progressive Cas. Ins. Co., 35 AD3d 720, 722 [2006]], and defendant timely denied the claims at issue on that ground. As a result, upon searching the record [see also Merritt Hill Vineyards v. Windy Hgts. Vineyard, 61 N.Y.2d 106 [1984]).] Based on the precedent the court in First Class Medical, P.C. v. State Farm Mut. Auto, 55 Misc.3d, 141 (A) 2017 WL 1822145, 2017 N.Y. Slip Op. 50593(U), found that the defendant State Farm was entitled to summary judgment dismissing the complaint with prejudice because of the failure to appear at EUO.

In Bowlers’ Alley, Inc. v. Cincinnati Ins. Co., 32 F.Supp.3d 817, 89 Fed.R.Serv.3d 50 (2014) the pleadings failed to establish that the defendant ever made a demand for an EUO to occur, specific or otherwise. The only references to an EUO that appear in the pleading papers were the defendant’s allusion in the July 17, 2013 letter referencing its intent to “ask our attorneys” about arranging an EUO, and the plaintiff’s subsequent response indicating that the plaintiff was ready to submit to an examination at any time, and demanding that the defendant schedule one promptly.

Whether or not the subsequent communications between the parties will show that one or the other acted unreasonably in failing to schedule or failing to submit to an EUO is a question that cannot be answered until the record has been fully developed on the issue. The complaint asserted that the plaintiff fully complied with all of its duties under the policy, and, so far as they go, the documents attached to the complaint supported that assertion. It is the obligation of the insurer to prove that a EUO was demanded and that the insured refused to appear at EUO. Failure to properly demand an EUO defeats the claim of breach of material condition precedent.

[This article was adapted from my new book “The Examination Under Oath to Resolve Insurance Claims” now available as a Kindle book, a paperback or hardcover from amazon.com. Available as a Kindle book Available as a paperback. Available as a hardcover.]

Wisdom

“Democracy, with its promise of international peace, has been no better guarantee against war than the old dynastic rule of kings.” —Jan C. Smuts

“It was a wise man who said that there is no greater inequality than the equal treatment of unequals.?— Felix Frankfurter

“Too bad all the people who know how to run the country are busy driving taxis and cutting hair.” —?George Burns

“He who wants peace must prepare for war.” — Claudius

“Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue.” — Barry Goldwater

“The state governments have a full superintendence and control over the immense mass of local interests of their respective states, which connect themselves with the feelings, the affections, the municipal institutions, and the internal arrangements of the whole population.” — Joseph Story

“If we can prevent the government from wasting the labors of the people, under the pretense of taking care of them, they must become happy.” —Thomas Jefferson

“We don’t really know where this goes — and I’m not sure we really care.” – Bob Ross

“Schools are quick to blame everyone and everything but themselves for the failures of American education. To them, every bad teacher is the exception and every bad parent is the rule.” —Thomas Sowell

“I love America more than any other country in the world, and, exactly for this reason, I insist on the right to criticize her perpetually.” – James Baldwin

“No man is entitled to the blessings of freedom unless he be vigilant in its preservation. — General Douglas MacArthur

“It is futile to fight against, if one does not know what one is fighting for.” — Ayn Rand

“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.” – Maya Angelou

“There are a terrible lot of lies going about the world, and the worst of it is that half of them are true.” – Winston Churchill

“If you keep saying things are going to be bad, you have a good chance of being a prophet.” — Isaac Bashevis Singer

No-Fault Auto Insurance Lead Fraudster Sentenced To 7 Years for Bribery

Jelani Wray of Brooklyn, New York, was also ordered to forfeit $2,200,000 and pay a fine of $250,000. Wray previously pled guilty on October 12, 2021, to making payments of bribes and gratuities to an agent of a federally funded organization.

Wray, a man prosecutors said was a leader of a conspiracy that involved bribing 911 operators, hospital workers, and police officers to obtain the confidential information of tens of thousands of New York and New Jersey motor vehicle accident victims, has been sentenced to seven years in prison.

U.S. Attorney charged Wray and 26 other defendants in November 2019, officials said 25 of the defendants pleaded guilty and the remaining two had their prosecutions deferred. Wray is the sixteenth defendant sentenced; 10 defendants have been sentenced to serve time in prison. To date, the defendants have also been ordered to pay approximately $5 million in forfeiture from this scheme.

Prosecutors said Wray received millions of dollars in illegal profits from his involvement in the various aspects of this scheme. In addition to corrupting 911 operators, hospital workers and police officers, the scheme deprived injured car accident victims of a choice in medical providers and attorneys and subjected them to unwanted medical treatments. The scheme resulted in the submission of millions of dollars in false medical reimbursement claims, officials said.

According to the allegations in the Indictment and court documents, the scheme took place in New York and New Jersey from about 2013 through 2019. As part of the scheme, Wray personally bribed and arranged for others to pay bribes to obtain confidential information of motor vehicle accident victims. Using this information, Wray and his co-conspirators contacted victims and steered them to clinics and lawyers handpicked by Wray and his associates. These clinics and lawyers then paid Wray and his associates kickbacks for these referrals, which they distributed to co-conspirators as payments and bribes.

According to court documents, Wray concealed his bribery of the 911 operators by providing them with prepaid “burner” phones, using encrypted messaging applications to communicate with them, and by assigning them code names.

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at https://www.rumble.com/zalma.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at https://www.zalma.com and [email protected].

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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Litigant Who Represents Himself Has an Idiot for A Client & Was Unable to Prove That an Insurer Defrauded Him

No Good Deed Goes Unpunished Because Court Refused to Ignore Pro Se Plaintiff

Plaintiff Refused to Accept that Liability Insurers Defend the Insured but Never Retain a Lawyer to Pursue a Tort Claim on Behalf of the Insured

After an automobile accident involving Neco Moss, Juan Manuel Orozco, Robert Henry Hartman, and two other motorists on the eastbound 210 freeway in Fontana, California, Orozco crossed a double yellow line to enter the carpool lane at a relatively low speed in the path of Hartman’s truck. Hartman struck Orozco’s vehicle, Orozco hit Moss’s vehicle, Moss hit a fourth vehicle, and the fourth vehicle hit a fifth. Moss sued Hartman and Orozco and a jury found Hartman was not negligent and found Orozco had been negligent but awarded no damages. Moss appealed that verdict in a companion case, and Court of Appeal affirmed the judgment.

In Neco Moss v. 21st Century Insurance Company, E074487, California Court of Appeals, Fourth District, Second Division (April 7, 2022) Moss claimed that 21st Century defrauded him by refusing to provide a lawyer to sue the other drivers involved in the accident.

FACTS

Moss joined 21st Century to the lawsuit against the drivers. 21st Century was ultimately severed, and after considerable wrangling, the case against 21st Century was reduced to a single cause of action for fraud. Moss alleges 21st Century falsely represented to him that they would hire counsel for him to sue the other drivers. The trial judge ruled undisputed evidence established Moss could not show the elements of reliance, reasonable reliance, causation, or damages required for a fraud cause of action, and entered summary judgment for 21st Century.

Moss, who represented himself on appeal as he did in the trial court, appealed the summary judgment order. As he did in his appeal from the judgment in favor of the drivers, Moss spends considerable time arguing the drivers and other insurance companies should not have been allowed to defend themselves because the trial court entered default judgments against them earlier in the case for failing to answer earlier versions of the complaint in a timely fashion. However, the trial court set aside those defaults and the trial court reasonably refused to reinstate them.

Moss reported a claim to 21st Century, which settled with Scott for property damage and sought reimbursement via subrogation against the other drivers’ insurers in arbitration. 21st Century also paid medical payments benefits to Moss and paid for Moss’s rental car. Regardless, Moss who was properly indemnified by 21st Century, alleged fraud. The only issue at the summary judgment stage was whether the evidence was sufficient to go forward to trial on Moss’s cause of action against 21st Century-whether they had committed fraud by telling Moss they would hire an attorney to sue the other drivers on his behalf.

SUMMARY JUDGMENT

Adjuster’s McGann and Grimley declared that in late 2014, 21st Century received copies of lawsuits Moss had filed against the other drivers, their insurers, and other parties, and represented there was no indication Moss had been sued by any of these parties so no action needing defense. Grimley said Moss called 21st Century again on January 26, 2015 and reported he had gone to a court hearing in his lawsuit and complained no one from 21st Century had showed up to represent him.

21st Century supported summary judgment based on Moss’s failure to establish that he had detrimentally relied on the representation, reasonably relied on it, or that the promise caused harm to Moss. They argued he couldn’t show he relied to his detriment because he actually prosecuted the case on his own and had a full jury trial.

Moss did not show any promise had caused him damages or that he suffered harm, because he in fact sued Hartman and Orozco on his own and the jury returned a verdict finding Orozco liable, but that Moss had suffered no damages.

The trial judge granted 21st Century’s motion and later issued a written ruling stating that 21st Century met its initial burden on the issues of detrimental reliance, causation, and damages, and Plaintiff fails to submit evidence raising any disputed issues of material fact in response.

ANALYSIS

21st Century challenged Moss’s fraud claim on the ground he could not establish essential elements of the claim. The elements of fraud are:

• a misrepresentation (false representation, concealment, or nondisclosure);
• scienter or knowledge of its falsity;
• intent to induce reliance;
• justifiable reliance; and
• resulting damage. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.)

The policy and the declarations of two adjusters negated the misrepresentation and justifiable reliance elements essential to Moss’s fraud claim and shifted the burden to Moss to set forth the specific facts showing that a triable issue of material fact exists as to those elements. To raise a triable issue of fact, Moss submitted his own declaration and argued a trier of fact could conclude 21st Century had promised to provide him with counsel in prosecuting a lawsuit against the other motorists.

In his declaration, Moss said he contacted 21st Century when he first filed the claim for coverage. He said at that time 21st Century assured him, “he did not have to retain a lawyer because they would hire one for him.” However, that representation is not inconsistent with 21st Century’s claim, and does not fill the gap of providing evidence that they promised to provide Moss with an attorney to prosecute claims against third parties to recover damages after successfully defending him against liability.

The Court of Appeal concluded that trial judge correctly granted summary judgment in 21st Century’s favor. He did present evidence that he misunderstood 21st Century’s duties under the policy, but that is no basis for a fraud claim.

ZIFL OPINION

It is time that trial and appellate judges stamp out frivolous suits and appeals filed by pro se plaintiffs who seem to have no idea what insurance does, what promises are made by an insurance company and stop them from suing an insurance company for not providing a service that was not promised by the policy. This entire lawsuit and appeal was idiotic, brought by a person who had no idea what he was doing, and wasted the time of a trial and an appellate court, not to mention the amounts paid by the insurer to defend itself against an insured who had received every benefit promised by the policy.

The Examination Under Oath to Resolve Insurance Claims

The Most Effective Tool Available to Insurers to Defeat Attempts at Insurance Fraud & To Resolve Questionable Claims

A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud

The insurance Examination Under Oath (“EUO”) is a condition precedent to indemnity under a first party property insurance policy that allows an insurer to compel an insured to submit to questioning from a representative of the insurer under oath. It is a formal type of interview authorized by an insurance contract. The EUO is taken under the authority provided by the agreement of the insured when he, she or it acquires a policy of insurance, to submit to the requirement of the insurer that the insured appear and give sworn. Failure to appear and testify is considered a breach of a material condition that can cause the insured to lose the right to indemnity.

The EUO is conducted before a notary and a certified shorthand reporter. The reporter is present to give the oath to the person interviewed and record the entire conversation and prepare a transcript, in question and answer format, to be read, reviewed, corrected and signed by the witness under penalty of perjury or by an oath taken before a notary or judge.

The EUO is a tool sparingly used by insurers in the United States. A professional insurer will only require an insured to submit to an EUO when a thorough claims investigation raises questions:

1. about the application of the coverage to the facts of the loss,
2. the potentiality that a fraud is being attempted, or
3. to assist the insured in the obligation to prove to the insurer the cause and amount of loss.

Although seldom used the EUO is an important tool needed by insurers when there is a question of coverage, destruction of evidence needed to prove a compensable loss or the amount of loss or evidence indicating the potential that a fraud is being attempted.

The Reason for the Examination Under Oath

In 1884, the U.S. Supreme Court explained the purpose of the EUO, as follows:

“The object of the provisions in the policies of insurance, requiring the assured to submit himself to an EUO, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, would be fraudulent. If it made, with intent to deceive the insurer, would be fraudulent. If it accomplished its result, it would be a fraud effected; if it failed it would be a fraud attempted. And if the matter were material and the statement false, to the knowledge of the party making it, and willfully made, the intention to deceive the insurer would be necessarily implied, for the law presumes every man to intend the natural consequences of his acts. No one can be permitted to say, in respect to his own statements upon a material matter, that he did not expect to be believed; and if they are knowingly false and willfully made, the fact that they are material is proof of an attempted fraud, because their materiality, in the eye of the law, consists in their tendency to influence the conduct of the party who has an interest in them, and to whom they are addressed.” [Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (1884)] (Emphasis added)

Available as a Kindle book Available as a paperback. Available as a hardcover.

“Insurance Fraud – Volume I & Volume II

?Second Edition” Now Available

Insurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year. Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

Available as a Kindle book; Available as a Hardcover;?Available as a Paperback

Volume II of Insurance Fraud provides coverage of the issues not covered by Volume I and, together with Volume I becomes a complete manual for how lawyers and claims people can effectively work to deter or defeat insurance fraud.

Volume II includes the following:

• The following are covered in this volume including:
• The Federal Crime of Insurance Fraud
• Insurance Fraud as a State Crime
• Insurance Fraud by Insurers
• California SIU Regulations
• Investigating Insurance Fraud
• The Examination Under Oath
• The Taking of an Examination Under Oath
• The Mutability of Memory
• Rescission
• Insurance Fraud Statutes
• The Tort of Bad Faith and Insurance Fraud
• Sample California Rescission Letters
• Sample Complaint for Declaratory Relief
• Form of Mutual Rescission Agreement
• Form Declaration of Underwriter in Support of Rescission
• Insurance Fraud Statutes
• Outline of Training for Integral Anti-Fraud Personnel
• Form of EUO Demand Letter
• EUO Testimony admitting fraud.

Available as a Kindle book; Available as a Hardcover;?Available as a Paperback

The Insurance Frauds Prevention Act Protects and Cannot be Used to Punish Insurers

Insurers May not be Sued Under the Insurance Frauds Prevention Act’s Qui Tam Provisions

Gilbert Ellinger sued as a qui tam plaintiff on behalf of the People of the State of California against Zurich American Insurance Company (Zurich), ESIS, Inc. (ESIS), and Stephanie Ann Magill under Insurance Code section 1871.7, a provision of the Insurance Frauds Prevention Act (IFPA). The trial court sustained defendants’ demurrers without leave to amend.

In The People ex rel. Gilbert Ellinger v. Stephanie Ann Magill et al., E076378, California Court of Appeals, Fourth District, Second Division (March 18, 2022) the court resolved the issue of the limitation of qui tam suits under the purpose for the enactment of the California Insurance Frauds Prevention Act.

BACKGROUND

Ellinger injured his back while working. The following month, Ellinger reported to his employer’s human resources manager that he had sustained a work-related injury and had told his supervisor about it. The human resources manager created a “time line memorandum” summarizing the conversations she had with Ellinger about the injury. She placed the memorandum in Ellinger’s personnel file.

Ellinger filed a workers’ compensation claim based on the injury. Zurich was the workers’ compensation insurance carrier for Ellinger’s employer, and ESIS was Zurich’s claims administrator. Magill worked as a senior claims examiner for ESIS and was the adjuster assigned to investigate Ellinger’s claim. ESIS denied Ellinger’s claim. Magill later testified that she denied the claim because of an April 2016 written statement from Ellinger’s supervisor in which the supervisor claimed that Ellinger had not reported the injury to him.

When the human resources manager was deposed she produced the time line memorandum, and nearly eight months after that disclosure, in July 2017, ESIS reversed its denial of the claim and stipulated that Ellinger was injured while working, as he had alleged.

Contrary to Magill’s testimony, her email messages showed that the human resources manager had emailed Magill the time line memorandum in March and April 2016, and Magill thanked the manager for sending it.

Ellinger alleged that Magill’s concealment of or failure to disclose the time line memorandum violated Penal Code section 550, subdivision (b)(1) to (3). On the basis of those alleged violations, Ellinger alleged that defendants were liable under section 1871.7. Against each defendant, Ellington sought a civil penalty and an assessment of no greater than three times the amount of his workers’ compensation claim.

Defendants filed demurrers. They argued that insurers and their agents, such as a claims administration company and a claims adjuster, could not be held liable in a qui tam action under section 1871.7. The trial court sustained defendants’ demurrers without leave to amend. It concluded that defendants could not be held liable under section 1871.7 for any failures of Magill in the claims handling or review process. The court concluded that insurance carriers are not subject to liability under the IFPA for claims handling practices.

DISCUSSION

When dealing with a demurrer the court must assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. Ellinger argued that the trial court erred by concluding that insurers and their agents cannot be liable under the IFPA for claims handling practices. He contended that strong policy considerations support holding insurers liable under the IFPA and that he has properly alleged a cause of action under the IFPA. We are not persuaded.

Legal Background

The legislative findings and declarations concerning the IFPA begin as follows:

The business of insurance involves many transactions that have the potential for abuse and illegal activities. . . . This chapter is intended to permit the full utilization of the expertise of the commissioner and the department so that they may more effectively investigate and discover insurance frauds, halt fraudulent activities, and assist and receive assistance from federal, state, local, and administrative law enforcement agencies in the prosecution of persons who are parties in insurance frauds. (§ 1871, subd. (a).)

The findings and declarations go on to describe various types of insurance fraud, including automobile insurance fraud, workers’ compensation fraud, and health insurance fraud. Concerning workers’ compensation, the Legislature found:

Workers’ compensation fraud harms employers by contributing to the increasingly high cost of workers’ compensation insurance and self-insurance and harms employees by undermining the perceived legitimacy of all workers’ compensation claims. (§ 1871, subd. (d).)

The clear purpose of the legislation is to reduce fraud against insurers in order to benefit policyholders. The Legislature enacted the IFPA to combat insurance fraud committed against insurers by individuals, organizations, and companies. Notably, the IFPA’s legislative findings make no mention of a problem with insurance claims handling practices.

Section 1871.7 of the IFPA provides that any interested person may bring a qui tam action to recover penalties, damages, and other relief for certain deceptive acts directed at insurers not by insurers directed at the public. The penalties are assessed for each fraudulent claim presented to an insurance company by a defendant and not for each violation.

Penal Code section 550 criminalizes a broad range of deceptive acts in connection with making, supporting, or opposing claims for payment, including but not limited to insurance claims. Some, but not all, violations of Penal Code section 550 can serve as the basis for a section 1871.7 action, because section 1871.7 concerns only claims presented to insurance companies.

Liability under section 1871.7 does not extend to insurers and their agents based on claims handling practices. This conclusion is consistent with the IFPA’s purpose of preventing and punishing the making of fraudulent claims to insurance companies. The statute does not target the conduct of insurance companies themselves it targets frauds perpetrated against insurance companies.

Ellinger argued that he properly pleaded violations of Penal Code section 550, subdivision (b)(1) to (3), based on Magill’s alleged conduct in handling his claim. The argument fails for two reasons. Ellinger’s contention that he has properly pleaded a violation of Penal Code section 550 is based on a mischaracterization of the record.?Ellinger does not explain how Magill’s alleged lie at her deposition in September 2018 could have affected the handling of his claim, given that the denial of his claim had already been reversed in July 2017.

First: Ellinger has not sufficiently alleged a violation of Penal Code section 550 and thus has not properly alleged that defendants committed any kind of fraud.

Second: excluding insurers and their agents from liability under section 1871.7 does not “tacitly approve of insurance company fraud” or otherwise entail that insurers and their agents can commit fraud with impunity. It means only that insurers and their agents cannot be sued under the IFPA. That holding is not surprising, because the IFPA expressly targets only deceptive conduct directed at insurers, not improper conduct by insurers.

The judgment was affirmed.

ZIFL OPINION

There is no question that an insurance company can commit insurance fraud even if the facts pleaded by Ellinger were insufficient to establish a cause of action for fraud. If there was fraud by the insurance company, rather than just an incompetent claims decision, still no one can file a qui tam action against an insurer under section 1871.7. This action was creative but wrong. I support insurers using section 1871.7 against fraud perpetrators but condemn using 1871.7 to punish insurers because it uses a statute designed to help insurers and the state fight insurance fraud and not a weapon against insurers.

Good News From the Coalition Against Insurance Fraud

Two agents were disciplined for suspected malfeasance by the Louisiana insurance department. The department contends: Kim Marie Holmes allegedly defrauded Farmers Insurance out of nearly $16,000. She overstated the price or never bought possessions she claimed were damaged after Hurricane Ida. Holmes also worked numerous shifts during the time she claimed she was evacuated to another state. Her apartment complex also received no reports of damage. Holmes’ life license was suspended and she’s charged with insurance fraud in Ascension Parish. Agent Andrea R. Ceballos allegedly stole nearly $13,000 from the agency where she worked in Union County.

This security firm was insecure. Atlas Private Security avoided paying $1.3 million of workers comp premiums by laundering $18 million of wages to cover up the theft. Robert and Makaila Foster owned the San Jose, Calif. outfit. They illegally reduced their comp premiums and taxes by reporting false and inaccurate payrolls, underreporting employee headcounts, paying employees off the books, and underreporting employee injuries. The couple also didn’t pay employees overtime, and intimidated them from accurately reporting on-the-job injuries and wage-theft violations. And the Fosters hid millions of dollars of payroll through a complex subcontractor-masking scheme. They paid employees by a different security company, Defense Protection Group, which knew nothing about the employees hours, wages or schedules. Instead, DPG simply moved money from the Fosters’ firm to the employees so the couple could avoid paying their fair share of comp insurance, taxes and overtime wages. Robert received three years in state prison, and Makaila will serve a year.

From our Football Follies files: A Scottish football player earned splashy news headlines while telling his insurer he was too injured to play. Bobby Linn was a winger with Arbroath FC. He told Aviva that he suffered whiplash injuries in a vehicle collision. While Linn’s main wage-earning job was to empty trash cans (called a binman), he didn’t tell Aviva he also played in the Scottish League One. In fact, Linn took to the pitch just hours after the claimed crash. He scored three goals in front of the crowds, and was awarded the league’s Player of the Week. Linn played four more matches while claiming the debilitating crash injury. His feats (well, feet) drew plenty of news and social media coverage, leading to his bust. Linn finally dropped his claim instead of giving testimony under oath. He agreed to pay the legal costs, though no prison.

Bus bamboozle: Harken back to another UK football crash scam after Leeds United defeated Yeovil Town 2-0. A bus packed with Leeds fans had a minor fender bender with a Ford Fiesta at less than 10 mph. The retired couple in the Fiesta were uninjured. Yet more than 50 fans in the large bus lodged injury claims. Two fans were convicted. Bus footage showed the passengers were so tightly packed that one scammer had no room to fall, as he’d claimed. Footage showed the other guy smiling while holding his neck.?

Wrong number, Florida’s CFO says of a suspected cellphone insurance scam in Miami. Prosecutors dialed up this case: Learne Perez, her husband Paul Adelardo Pena Lora and his brother Leonardo bought cellphone insurance through Assurant. They made 40 claims, falsely reporting their iPhones and Samsung devices were stolen, lost or damaged. Then the trio sold the phones to retail stores in Miami for about $500 each. Assurant paid out more than $19,000. The suspects are charged with cellphone insurance fraud. One of the largest cell-fraud cases involved Laquitta Brackins of Atlanta. She recruited cell users across the city. They made more than 3,600 false claims that produced some 2,900 new insurer-paid phones. Brackins received seven years in prison in 2016.?

Barry Jacobson spent 40 days in prison in 1983 after being convicted of trying to set fire to his Massachusetts vacation home for insurance. The Manhattan real estate broker spent the next 40 years trying to overturn his sentence. He contended he was wrongfully convicted by antisemitism on the jury. Jacobson, who is Jewish, got his wish. His conviction was vacated this week, a Massachusetts DA announced. The original jury’s forelady made statements such as “one of those rich New York Jews who think they can come up here and get away with anything.” That violated Jacobson’s Sixth Amendment right to a fair trial. A fire heavily damaged Jacobson’s vacation home in Richmond, Mass. in 1982. He spent more than $200,000 repairing the $55,000 home and still didn’t have running water. He also was placed at the fire scene. All this created suspicion that he set the fire for an insurance payout. In addition to jury bias, evidence also was tainted. The fire supposedly started on a porch carpet. Yet the crime lab found no evidence of gasoline or an accelerant. Officials produced a vial of gasoline they said was squeezed out of the carpet and put into the vial. Yet there was no record of their doing so — no viable chain of custody. A leading arson expert, John Lentini, testified that errors in handling the evidence were the most egregious he’d seen in 47 years. Jacobson’s conviction nearly wrecked his life. He lost his real estate licenses in New York and Massachusetts. His mental health and personal relationships also suffered. Now 78, Jacobson says he doesn’t plan to sue.

A Nigerian fraud ring with ties to global crime syndicates was taken down after bilking a U.S.-based company out of 455,000 euros, officials announced in Johannesburg, South Africa. The syndicate specializes in online fraud. The case also illustrates the widespread global crime networks that often engage in insurance fraud, among many other financial crimes — thus requiring cooperation among anti-fraud officials worldwide. In the Nigerian takedown — not necessarily an insurance case — investigators from South Africa, the U.S. Secret Service and INTERPOL teamed on the case. The operation was part of a global initiative involving INTERPOL’s Global Financial Crime Task Force, where 14 nations work jointly to tackle cyber-enabled financial crime such as insurance fraud. The Nigerian suspects are allegedly key figures in a global crime syndicate involved in fraud and money laundering, including romance scams. The case is one of several global operations with multinational law enforcement cracking down on West African fraud syndicates targeting individuals and businesses worldwide. Authorities are tracking the gang’s money. Investigations focus on a global crime syndicate known as Black Axe. It allegedly used business-email-compromise scams to defraud a U.S. mental health institute. Such scams usually target third-party vendors to access business email accounts, diverting payments to the bank accounts of money mules.

Up to 900 Wisconsin residents were lured into buying fake health plans by an unlicensed insurer, the state insurance department says. Salvasen Health claimed to sell full-benefit coverage under the Federal Affordable Care Act. One consumer looking for health coverage Googled “ACA.” An agent then called and sold the person four policies. Yet the Salvasen “membership card” said “THIS PLAN IS NOT ACA COMPLIANT.” Another client says an agent sold him what was portrayed as catastrophic coverage. The client learned the plan was a limited-benefit policy after his spouse was hospitalized. Yet another consumer says Salvasen paid nothing after advertising 100% coverage for preventive services. A client also reported difficulty canceling two policies after deciding the coverage was less than she expected. Salvasen illegally sold health coverage without a Wisconsin license, the insurance department says. Wisconsin, Minnesota and Nevada are among the states taking action against Salvasen.

Douglas Vineyard bought a house for just $5,000 in Bluefield, W.Va. He then took out a policy that included $285,500 for the dwelling, $142,750 for contents and $14,275 for other structures. The home cost him $50,000 to purchase, Vineyard lied on the insurance application. He and a cohort burned down the home just a month later. It was a total loss. Vineyard faxed a sworn proof-of-loss seeking $285,500 of insurance money. The insurer spent more than $13,000 investigating the fire, and denied his claim. Vineyard pled guilty and will spend up to 20 years in federal prison when sentenced July 18.

Contractor Wyatt Green convinced homeowners to sign assignment-of-benefits forms allowing insurers to deal directly with him for payment, and resolve the repair claims in the Jacksonville, Fla. area. Green forged the homeowners’ signatures on insurance checks. He also used stamps with the names of mortgage companies to fraudulently endorse those checks. Green and his employees bought 58 false bank endorsement stamps from an online manufacturer. He stole more than $40,000 from consumers who assigned their insurance benefits to him. The AOBs gave Green the power to file claims, make repair decisions and collect insurance money — without the homeowner’s involvement. Green also forged customer signatures on construction documents and insurance claim checks that required signatures from both the homeowner and mortgage lender. In some cases he never finished or even began home repair work. Homeowner Kristen Wright told News4Jax that Green gutted her bathroom and never finished it. Green also replaced her roof, but the work failed the city inspection. The entire roof had to be stripped and replaced. Green’s work van also carried a state construction license number that wasn’t his. “I fully intend to make it right. And any other wrongdoings that I have done, I take full responsibility for,” Green told News4Jax when confronted by TV cameras. Green pled guilty. He’ll serve no time, though will repay $50,000 to be divided among his defrauded customers. The state CFO played a decisive role in investigating Green’s scams.

Trying to frame an FBI agent to torpedo a probe into staged crashes has earned Mohammed Naji Al-Jibory a likely federal jail term. The Kennewick, Wash. man was among 23 suspects charged with staging 14 crashes that amassed nearly $1 million of insurance payouts for fake injuries, vehicle damage and lost wages. The FBI interviewed Al-Jibory. During the interview, he falsely accused an FBI agent, and someone he suspected was an informant, of seeking a bribe from a third party. Al-Jibory’s goal was to get his case dismissed for supposedly being corrupted. The collisions often happened on remote roads, at night with no witnesses. No one was inside the “victim” vehicle during at least three crashes. Hammers were used to break car windows in at least two crashes, and weighted items were placed on the front passenger seat so the airbag would deploy on impact. Ring members then sought ER treatment, faking injuries. They also hired personal-injury lawyers to pursue fraudulent claims. One suspect was a case manager at a Tri-Cities personal-injury firm. She handled phone calls, emails, faxes and mail with insurers for the firm’s clients involving the claims. Al-Jibory faces up to 20 years in federal prison when sentenced July 21. Other suspects are charged.

Ishais Price claimed she was a passenger in a 2014 Dodge Avenger driven by Doniesha Gibson. The car was hit by a bus while traveling on I-10 in New Orleans. Also in the vehicle was defendant Chandrika Brown. In truth, a crony asked Gibson to recruit Brown and Price to ride along as passengers. The crony drove, and rammed an innocent bus. After the staged crash, the driver switched seats with Gibson, and they called the police. Gibson and the passengers lied that the bus illegally changed lanes and caused the collision. They all hired personal-injury lawyers and demanded payouts from the bus owner and its insurer. They settled for $677,500. Price pled guilty and will spend up to five years in federal prison when sentenced.

Falsely prescribing unneeded opioids and overcharging for treating injured workers will cost Dr. Clinton Battle 12 years in federal prison. The Arlington, Tex. doc said he performed workers-comp functional-capacity exams, though actually had his unlicensed assistants do the work. Battle upcoded by billing for higher insurance payout levels than were authorized. He also routinely prescribed opioids and other drugs without a medical reason, and without examining patients. Battle sometimes even told staff to issue scripts for whatever opioids his patients wanted. He also gave scripts to friends and family members with whom he had no physician-patient relationship. Battle provided an employee’s husband with opioids in exchange for cocaine. He also let his nurse practitioner illegally use his DEA registration number and med credentials to issue scripts for controlled substances.

Workers came to psychiatrist Harry Doyle to deal with the emotional fallout from their job injuries. The Philly man used their appointments to rip off federal worker comp programs for $3 million. Attorneys referred the employees to Doyle. His wife Sonya was the office assistant. The Doyles billed for canceled and no-show appointments as if they’d actually occurred. The couple also upcoded appointments to a higher level of service than they provided, including billing for more therapy time than spent with the patient. And the Doyles double-billed patients for initial consults. The Doyles agreed to repay the stolen money, and were bounced from the federal healthcare system. This was the largest recovery against a psychiatrist in the system’s history.

With a life policy set to expire in just days, Tracy Nessl McNamara shot her husband to reap the money, a jury ruled in a civil murder case in the Seattle area. McNamara had large debts when she married longtime farmer Timothy Patrick Nessl. They moved to Belize to farm mangoes and run a bed-and-breakfast. Nessl paid McNamara’s debts and made her the sole beneficiary of several life policies. He was found dead on their veranda, with a bullet wound to his head. Nessl shot himself, McNamara claimed. Analysis of the wound and blood-spatter patterns determined his wound wasn’t self-inflicted. The bullet also appeared to have entered the back of his head. Her 9mm handgun also was found at the scene. McNamara moved back to the Seattle area after the shooting. Nessl’s family then filed a wrongful-death suit. A civil jury found that McNamara killed Nessl, and ordered her to pay his heirs $3.2 million.

Health Insurance Fraud Convictions

Federal Civil and Criminal Investigations Result in Six Convictions and Recovery of Over $8.7 Million In Connection with Compounded Medications Formulated by Delco Pharmacy

Heritage Therapeutics, LLC, a Delaware County pharmacy was found out by an investigation that yielded six criminal convictions and recovered over $8.7 million in criminal forfeitures, criminal restitution, and civil settlement payments.

From 2013 into 2015, Heritage formulated expensive compounded medications such as pain creams, scar creams, and vitamins. These compounded medications were prescribed to, among others, beneficiaries of TRICARE, a federally funded health care program for military members, retirees, and their families. The investigations revealed that Heritage paid commissions to some of its sales representatives for referring Heritage’s compounded medications to medical providers who prescribed them to TRICARE beneficiaries. Some of these sales representatives, in turn, paid kickbacks to the medical providers to induce them to issue those prescriptions.?

A lead sales representative for Heritage was Michael Bemis. Bemis paid kickbacks to a Philadelphia-area physician, Dr. Scott Kurzrok, in exchange for issuing prescriptions to TRICARE beneficiaries that Kurzrok allegedly never examined or treated. In addition, Bemis recruited other sales representatives and encouraged them to also pay kickbacks to medical providers to induce them to prescribe compounded medications to TRICARE beneficiaries through Heritage. Bemis also paid and encouraged other sales representatives to pay TRICARE beneficiaries to allow medically unnecessary prescriptions to be filled in their names. In addition, Bemis encouraged sales representatives to push TRICARE beneficiaries to accept refills of the medically unnecessary medications. Heritage submitted claims for those medications to TRICARE and paid commissions on those prescriptions to Bemis and other sales representatives.

For his involvement in the scheme, Bemis pleaded guilty to conspiracy to commit health care fraud, was sentenced to over two and a half years in prison, and was ordered to pay criminal restitution of more than $3.3 million and to forfeit over $930,000. Bemis and Dr. Kurzrok each entered into settlement agreements to resolve civil claims under the False Claims Act.

Charles Hollister, a Heritage sales representative in North Carolina, was one of Bemis’s recruits. Hollister paid kickbacks to Tanya Dyer, a licensed nurse practitioner in Hickory, North Carolina, in exchange for Dyer prescribing Heritage compounded medications to TRICARE beneficiaries. These TRICARE beneficiaries included individuals whom Dyer allegedly never saw or examined. Hollister pleaded guilty to conspiracy to commit health care fraud, was sentenced to over a year in prison, and was ordered to pay over $1 million of criminal restitution jointly and severally with Bemis. Dyer entered into a settlement agreement to resolve civil claims under the False Claims Act.

Andrew Balick, a Heritage sales representative in Georgia, was another of Bemis’ recruits. Balick convinced a purported physician assistant to write medically unnecessary prescriptions for compounded medications that were filled by Heritage. Balick provided TRICARE beneficiary information to the physician assistant for use in writing the prescriptions and then shared part of his Heritage sales commissions with the beneficiaries, including a man named Andrew Dykstra. In addition to providing his own beneficiary information to Balick, Dykstra became a Heritage sales representative and allegedly recruited other purported sales representatives to provide their TRICARE beneficiary information for use in the scheme. Balick pleaded guilty to conspiracy to commit health care fraud, was sentenced to over a year in prison, and was ordered to pay criminal restitution of over $1.8 million jointly and severally with Bemis. Dykstra entered into a settlement agreement to resolve civil claims under the False Claims Act.

Separately, Benjamin Tewes, the brother of Heritage sales representative Kristine Sewell, paid kickbacks to Thomas Hersch, a physician assistant in Georgia, to induce him to write prescriptions for Heritage compounded medications to TRICARE beneficiaries. Sewell allegedly received sales commissions from Heritage on these prescriptions and shared part of her commissions with Tewes. Tewes pleaded guilty to one count of paying kickbacks in connection with a federal health care program, was sentenced to 3 years of probation, and was ordered to forfeit over $276,000 and to pay a $15,000 fine. Hersch pleaded guilty to one count of receiving kickbacks in connection with a federal health care program. Sewell entered into a monetary settlement agreement to resolve civil claims under the False Claims Act.

In addition, Joseph Fidelie, who was both a Heritage sales representative and a medical assistant at an orthopedic practice in Oklahoma, paid kickbacks to a physician assistant in the same practice to induce the physician assistant to prescribe Heritage’s compounded medications to TRICARE beneficiaries. Fidelie received commissions from Heritage for the claims paid by TRICARE. Fidelie pleaded guilty to one count of paying kickbacks in connection with a federal health care program.?

In addition to the resolutions noted above, Heritage, along with its president, David Raffaele; principals Kevin O’Brien and Stephen Seiner; former pharmacist-in-charge Gary Umland; and sales assistant Michael D’Antonio; entered into a settlement agreement to resolve civil claims against the entity and associated individuals under the False Claims Act. The civil claims resolved through this settlement relate to Heritage’s sales representatives’ alleged payments of kickbacks to medical providers, as described above, as well as to Heritage’s compensation of its sales representatives on a commission basis in the absence of bona fide employee relationships, all in violation of the Anti-Kickback Statute. In addition, this settlement resolved claims that, to avoid TRICARE’s recoupment of amounts previously paid to Heritage for compounded medications prescribed to TRICARE beneficiaries in the absence of any legitimate provider-patient relationship, as described above, Heritage itself made false statements in its responses to a TRICARE audit.

$7 Million to be Paid by Home Health Agencies for Cheating Workers and Medicaid Fraud

All American Homecare Agency and Crown of Life Care Submitted False Claims to Medicaid and Failed to Pay Millions of Dollars in Wages to Employees Companies Agree to Pay $5.4 Million to Medicaid and Crown Agrees to Return $1.5 Million to Employees Cheated Out of Wages

All American Homecare Agency, Inc. (All American) repaid $4 million and Crown of Life Care NY LLC (Crown) will return $1.4 million to the Medicaid program. Crown will also pay more than $1.5 million for distribution to employees that were cheated out of their wages.

Both All American and Crown have admitted to their wrongful conduct and have simultaneously entered into settlement agreements with the U.S. Attorney’s Office for the Eastern District of New York (EDNY) to resolve their Medicaid fraud liability.

The New York Wage Parity Act sets wage and benefit minimums that state-licensed home care services agencies (LHCSAs) are required to pay staff who perform home health aide and personal care services to Medicaid recipients. Under the law, workers are currently entitled to a base wage of $15.00 per hour that agencies must pay, and an additional $4.09 per hour in New York City and $3.22 in Nassau, Suffolk, and Westchester counties. Reimbursement by the Medicaid program for services rendered to Medicaid recipients is conditioned upon compliance with these wage and benefit requirements.

The joint investigation by the Office of the Attorney General (OAG) and EDNY found that both All American and Crown failed to pay their home health aides the required wages and benefits owed to them pursuant to the Wage Parity Act; unlawfully sought payment from Medicaid and received money for care performed by aides who were underpaid; and falsely certified compliance with the Wage Parity Act.

Between April 2014 and December 2018, Crown underpaid its home care aides by more than $1.5 million, all of which will now be repaid to current and former employees impacted by Crown’s wage parity issues. Of that amount, $1,167,050 will be paid to OAG for distribution to the impacted home health aides and $411,000 will be paid in the form of paid time off for current aides who are owed back wages. Crown will also pay $1.4 million to the Medicaid program, of which $840,000 will be paid to the state and the remaining $560,000 will be paid to the federal government. Also, as part of its agreement with OAG’s Labor Bureau, Crown is required to revise company policies and procedures; train personnel on updated policies subject to OAG’s approval; and regularly report staff wages and policy implementations to OAG for six years. If Crown fails to comply with these terms or properly compensate its aides, OAG has the authority to bring a civil action against the agency and demand $15,000 in liquidated damages for violating its legal obligations.

Although All American provided certain benefits to its staff, it did not timely pay the full $4.09 per hour required by law. During the investigation, All American remunerated its impacted home health aides by depositing money into current employees’ 401(k) accounts and issuing checks for back pay to former employees. All American has now repaid $4 million to Medicaid to resolve its liability for submitting false claims. Under the terms of the agreements, All American will also self-report to OAG for a two-year period to ensure continued compliance with the Wage Parity Act.

The OAG’s Labor Bureau and Medicaid Fraud Control Unit (MFCU), in conjunction with EDNY, commenced these investigations after whistleblowers filed a complaint under the qui tam provisions of the New York False Claims Act, as well as the federal False Claims Act, in the U.S. District Court for the Eastern District of New York. The New York False Claims Act allows individuals to file actions on behalf of the government and share in any recovery. The whistleblowers’ complaint alleged that All American and Crown failed to pay their home health aides the statutorily required amount pursuant to Wage Parity. The state has since filed a notice of intervention against both companies with these settlement agreements. This is also the Labor Bureau’s largest settlement to date for violations of the Wage Parity Act and is a vital victory in Attorney General James’ ongoing efforts to protecting New Yorkers’ rights and wages.

MFCU’s total funding for federal fiscal year (FY) 2022 is $59,918,216. Of that total, 75 percent — or $44,938,664 — is awarded under a grant from the U.S. Department of Health and Human Services. The remaining 25 percent of the approved grant — totaling $14,979,552 for FY 2022 — is funded by New York state. Through its recoveries in law enforcement actions, MFCU regularly returns more to the state than it receives in state funding.

ZIFL can only wonder why so many of the insurance fraud, Medicaid and Medicare fraud are not discovered by authorities but are the result of whistleblower suits. More should be encouraged.

Louisiana Places Four Insurers Into Receivership

The general public believes that insurance companies have bottomless pits full of money and only fail to pay claims to increase their profits. In reality insurers operate on a small profit margin calculated actuarily. When an insurer is faced with natural disasters or a rash of fraudulent insurance claims – and catastrophes always generate fraudulent claims – those that are not exceedingly well capitalized and reinsured, run out of money to pay legitimate claims and fail.

The insurance business is often difficult. It is plagued with fraudulent claims, insufficient capital, and catastrophes. Lighthouse Property Insurance announced a few weeks ago that it would stop writing new business in Florida, and shortly thereafter it became the fourth insurer that was placed into receivership in Louisiana in the last 12 months.

Insurance Commissioner Jim Donelon placed Lighthouse into receivership last week in the 19th Judicial Circuit Court. Lighthouse becomes the fourth insurer in Louisiana to exhaust their resources in the aftermath of Hurricanes Laura, Delta and Zeta in 2020 and Hurricane Ida in 2021. The combination of hurricanes cost insurers over $20 billion.

“For the first three failed insurers, we were able to quickly find an insurer to take over their policies on the same terms and conditions policyholders had under the failed companies, and I’m hopeful we will do the same for Lighthouse policyholders,” Donelon said in a press release.

A court-appointed receiver is now in charge of operating the company, according to the Louisiana Department of Insurance. Policyholders will be contacted by the court-appointed receiver or their insurance agent about claims and whether in-force policies will be transferred to another insurer.

Lighthouse and its subsidiary Lighthouse Excalibur had approximately 30,000 policies and 16,000 Ida-related claims, and as of December 31, 2021, the insurer covered 3.27% of the Louisiana homeowners insurance market.

The Louisiana Insurance Guaranty Association will pay up to $500,000 per pending claim.

Last month Demotech withdrew the financial stability rating for Lighthouse, which previously carried an “A, Exceptional” rating according to the insurer’s website.

“Despite a substantial capital contribution in the fourth quarter 2021, the operating loss in 2021, which reflected the evaluation of losses and loss adjustment expenses associated with Hurricane Ida, resulted in a level of capitalization below what was needed to sustain FSRs at the A level,” Demotech President Joe Petrelli said in a statement.

Lighthouse was founded in 2008 and is domiciled in Louisiana. The company’s website says its headquarters are in Tampa, Florida. In addition to Louisiana, Lighthouse is authorized to write in Florida, North Carolina, South Carolina and Texas.

In late February, Lighthouse said it would suspend writing new business in Florida but would honor any policies quoted Feb. 15 or before, with effective dates on or before Feb. 28.

The insolvencies appeared to have spiked in the wake of the last two hurricane seasons. Louisiana lawmakers are now considering increasing the minimum capital and surplus requirements needed for all insurers licensed to write fire and allied and/or homeowners’ insurance lines of business.

SB 264 sponsored by Sen. Joseph Bouie would raise the minimum capital and surplus requirement for existing companies from $3 million to $5 million by end-of-year 2026 and to $10 million by end-of-year 2031.

No one can predict when the next catastrophe will hit but Florida and Louisiana can be certain there will be hurricanes at or near the state every year and that some will result in many expensive claims. It is the obligation of the state to be certain that the insurers doing business in the state have sufficient capital to pay the resulting claims and a staff of claims people sufficient to deal with the claims fairly and deter attempts at insurance fraud.

“What this bill will do with those small regional carriers is it will require them to have more ‘skin in the game,’” the insurance commissioner, Donelon, said last month at a rollout of catastrophe reform legislation. “Therefore with $10 million on the table instead of $3 million, they’ll be making much more conservative purchases of reinsurance for their risk than they are with less assets involved in making that decision.” Although the proposed legislation will help by requiring regional insurers to be better capitalized it would behoove the Legislatures of Louisiana and Florida to consider beefing up their fraud investigation units, since catastrophes draw fraud like ants are drawn to honey and bees are drawn to flowers. Each state needs to implement an aggressive insurance fraud investigative unit and assign specialized insurance fraud prosecutors. In addition, the states must encourage the insurers special investigative units to report suspected fraud so that it can be further investigated by the state and prosecuted.

Other Insurance Fraud Convictions

CFO Sentenced to 66 Months for Part In $33 Million Insurance Fraud Case

Erin Verespy, 50, was accused of misappropriating client healthcare funds and defrauding multiple lenders. Verespy, the chief financial officer of Employee Benefit Solutions LLC (EBS), she pleaded to one count of conspiracy to commit wire fraud and bank fraud before the US District Court for the Southern District of New York in April 2021. Her prosecution is currently being handled by the Southern District of New York Office’s White Plains Division.

Verespy, a Connecticut woman has been sentenced to 66 months in prison for her role in an insurance and loan fraud scheme worth $33 million.

According to information from complaints, court proceedings and documentation, EBS offered third party healthcare claims administration (TPA) services to clients that chose to self-insure their employee healthcare plans. From 2015 to 2019, EBS administered the employee healthcare program of a certain automobile dealership chain based in Westchester County, NY – the specific dealership was kept anonymous and identified only as “Company-1” in court proceedings.

A good portion of the purported checks listed on the EBS “check register” invoices were not deposited by healthcare providers, court documents said. It was found that approximately $17.87 million in Company-1 healthcare payments were misappropriated, with most of the cash being transferred by EBS into its own operating account, which was used by EBS’ managers and owners for personal expenses such as home mortgage payments, boats, luxury cars, and even golf.

Verespy and her co-conspirators helped EBS choose which few Company-1 healthcare claims they paid, based on which healthcare providers were likely to complain if no payment was made. Court documents also noted that EBS also paid for claims connected to Company-1’s executives. It was also found that Verespy had discussed the timing of payments for Company-1’s “VIPs,” and had mentioned a contentious “Not VIP” claim over phone calls. Additionally, it was uncovered that the “check registers” sent to Company-1 by EBS contained fraudulent or inflated healthcare claims to the tune of millions of dollars, that the dealership was forced to pay.

But by mid-2017, EBS began to face increasing outstanding fiduciary obligations. Court documents stated that Verespy and her co-conspirators had applied for multiple fraudulent bank loans and merchant cash advances – under the guise of financing upgraded billing software – to pay its obligations to Company-1. To accomplish this, the schemers submitted invoices from a fake billing software company.

For her involvement in the scheme, Verespy made over a million dollars, court documents said.

In addition to her prison sentence, Verespy has been ordered to pay over $16 million in restitution, forfeit another $1 million, and serve five years of supervised release.

11 Guilty of Insurance Fraud in Abu Dhabi

The Abu Dhabi Criminal Court convicted a group of 11 individuals for insurance fraud, and sentenced them to prison for up to 10 years.

According to the Court, the individuals would purchase vehicles and insure them at a higher than market price. They would then fabricate traffic accidents that allegedly damaged the vehicle to the point of writing them off, and use these as a basis for claiming the insurance payout.

The individuals received jail sentences between one to 10 years, and the Court ordered their deportation after the sentences are served. It also ordered the confiscation of all forged documents used for the fraud.

The facts of the case, as summarized by the investigations of the Money Prosecution in Abu Dhabi, state that the accused defrauded insurance companies by carrying out criminal activity that involved fabricating traffic accidents. The accidents enabled the convicted to claim insurance payouts.

How the fraud worked

The first accused individual purchased cars and registered them under his name, or under the name of one of the other convicted individuals. They had to agree to his participation, and others took advantage of his relationship with them, after which accidents were deliberately fabricated between them, so that they could deceive companies and seize the amounts of compensation for vehicle damage.

In the rationale for its ruling, the Court clarified that evidence of the crimes attributed to the accused had been proven from the investigations about the incident and the investigations of the Public Prosecution in Abu Dhabi, and the statements of the accused before the court, which proved that the funds of insurance companies had been illegally seized through accidents carried out in a way that the vehicles were not usable. This would cancel the vehicle traffic records so that the person in whose name the vehicle was registered received the compensation. This payout would then be shared with the first accused as the real owner of all the cars used in the commission of the crime.

Retired Cop Gets 3 Years for Work Comp Premium and Payroll Fraud

Robert Foster, 48, a retired San Jose Police officer was sentenced to three years in jail for cheating insurers and exploiting workers for his side security business.

Foster, a Morgan Hill, California resident was convicted in January for felony fraud charges, including 173 acts of conspiring to commit $1.13 million in insurance fraud and $18 million in money laundering. The sentence announced by the Santa Clara County Superior Court March 27, 2022 requires Foster to also serve two years of mandatory supervision when he finishes his jail sentence.

Foster has already paid complete restitution of $1.13 million to Everest National Insurance and the Employment Development Department. There was also a general order of restitution for the purpose of paying exploited workers, the office said.

Foster founded Atlas Private Security with his wife, Mikaila Foster, 46, without the department’s knowledge. The company is now called Genesis Private Security.

Prosecutors say the Fosters reduced their workers’ compensation insurance premiums and taxes by reporting inaccurate payroll, underreporting the number of employees, paying employees off the books and failing to report employee injuries, according to the district attorney’s office.

Investigators discovered that the Fosters hid millions of dollars of payroll through a complex subcontractor masking scheme. Employees were paid by a different security company, Defense Protection Group (DPG), which had no knowledge of the employees’ hours, wages, or schedules. Instead, DPG simply moved money from the Fosters’ firm to the employees so that the Fosters could avoid paying their fair share of taxes, workers’ compensation insurance, and overtime wages, the district attorney’s office said.

In one case, an “off-the-books” security guard suffered severe injuries during a crash while driving an Atlas security vehicle. Robert Foster responded to the guard’s $1 million medical bill by telling the insurance company that the guard was not an Atlas employee. Investigators found records showing that the guard was driving an Atlas vehicle and wearing an Atlas uniform at the time of the collision.

Foster retired from the San Jose Police Department after he was charged in July 2020.

Mrs. Foster also pleaded no contest to the same insurance fraud and money laundering charges. She will be sentenced to one year in county jail and five years of probation on April 29, 2022.

Zalma on Insurance Blog Posting

• True Crime of Insurance Fraud Video Number 55 April 14, 2022
• The Insurance Frauds Prevention Act Protects and Cannot be Used to Punish Insurers April 14, 2022
• True Crime of Insurance Fraud Video Number 54 April 13, 2022
• Litigant who Represents Himself has an Idiot for a Client April 13, 2022
• True Crime of Insurance Fraud Video Number 53 April 12, 2022
• Poisoning People with Opioids is not an Occurrence April 12, 2022
• True Crime of Insurance Fraud Video Number 52 April 11, 2022
• Property Insurance April 11, 2022
• Arson-For-Profit Fails & Guilt Established April 8, 2022
• Subrogating Insurer Has No More Rights than the Insured April 8, 2022
• Passover Seder for Americans April 7, 2022
• True Crime of Insurance Fraud Video Number 50 April 7, 2022
• Failure to Pay Premium Defeats Claim April 7, 2022
• New Insurance Book: “The Examination Under Oath to Resolve Insurance Claims” April 6, 2022
• True Crime of Insurance Fraud Video Number 49 April 6, 2022
• New York Refuses Bad Faith Case When Breach of Contract is Pleaded April 6, 2022
• True Crime of Insurance Fraud Video Number 48 April 5, 2022
• A Lie About Where a Car is Garaged May Save Premium But Defeated UM Claim April 5, 2022
• True Crime of Insurance Fraud Video Number 47 April 4, 2022

True Crime Stories of Insurance Fraud

There are now available at https://rumble.com/zalma more than 45 Video True Crime Stories of insurance fraud.

Barry Zalma, Esq., CFE presents videos so you can learn how insurance fraud is perpetrated and what is necessary to deter or defeat insurance fraud. This Video Blog of True Crime Stories of Insurance Fraud with the names and places changed to protect the guilty are all based upon investigations conducted by me and fictionalized to create a learning environment for claims personnel, SIU investigators, insurers, police, and lawyers better understand insurance fraud and weapons that can be used to deter or defeat a fraudulent insurance claim. You can see all the True Crime Stories of Insurance Fraud and insurance law with a total of more than 398 videos at https://rumble.com/zalma.

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Barry Zalma, Esq., CFE

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at https://www.zalma.com and [email protected].

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