True Crime of Insurance Fraud Video Number 80

What a Great Country!

See the full video at https://rumble.com/v15xwbx-true-crime-of-insurance-fraud-video-number-80.html  and at https://youtu.be/NIE7BGGSJUE

Wo Ping Chen was trained as a physician in Hong Kong. Until Hong Kong was returned by the United Kingdom to the Peoples Republic of China, he was the best known Orthopedist in the Crown Colony. Fearing problems with the new government he emigrated to Vancouver, British Columbia, Canada as a citizen of the commonwealth.

He worked as an employee of the National Health Service for a year and then obtained a work visa to the U.S. and crossed the border into the U.S. only to find he could not work as a physician without a license from a U.S. state and attended a U.S. based medical school. After one year of medical school, one year of internship in a Seattle hospital and one year as a resident Chen was able to restart his life.

His first effort upon receiving a license was to apply to the U.S. Government’s Medicare and Medicaid systems for a medical provider number which would give the government the ability to deposit funds electronically into his bank account without having to wait for a check to be received and collected.

His youngest daughter had found a husband and he was facing an expense of over $100,000 to pay for a traditional Chinese wedding and reception. He did not have the cash. He did, however, have a large list of Medicare and Medicaid patients in his data base.

He knew, from experience, that no one in the US Government or their agents would check his billing. He had served the public at low rates for many years. He decided to obtain the cost of his daughter’s wedding by using his computer.

He created invoices for 300 of his male Medicare patients for an office visit and complete blood test at $250 each. He dated the service carefully so he showed only ten of the 300 each day for 30 days. He did the same for 300 female patients for an office visit, a pelvic exam, and an x-ray to check for a potential broken hip, each for only $250. By the end of the month $150,000 was deposited into his account without question. He had the money for his daughter’s wedding and did not have to work for it.

Dr. Wo did not consider himself a criminal nor did the United States Government. He just played the system knowing that it was operated by people who did not care as long as the correct boxes in the computer were checked.

His crime succeeded because he was not greedy. He only did the major crime once. The computer operators at the Medicare payment offices never noticed that he did a cervical exam on an eighty-three-year-old man named Louis Jones.

ZALMA OPINION

Insurance fraud is often successful, as it was for Dr. Wo, because the governmental entities have little incentive to even look for fraud, investigate criminal conduct, or even try to do the job for which the government employees were charged. Dr. Wo was correct, this is a great country, and it gives away other people’s money to anyone with the gumption to ask. That includes my money and yours and Dr. Wo’s success offends me and should offend you.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Estoppel Cannot Create Insurance Coverage

Lack of Bodily Injury, Personal Injury or Occurrence Bars Coverage

Cambridge Mutual Fire Insurance Company (Cambridge) sued seeking a declaratory judgment that it did not owe Defendants Terry Gaca and Janet Waymen (collectively, “Defendants”) a duty to defend an underlying lawsuit under the terms of their insurance policy. Thomas J. Frederick sued in Illinois state court, alleging Defendants maintained a boarding house and a parking facility for large trucks on their property (the “Underlying Suit”). The Underlying Suit alleged public nuisance, conspiracy to create a public nuisance, and nine violations of City of Naperville (“Naperville”) zoning ordinances under the Adjoining Landowner Act, 65 ILCS 5/1113-15.

In Cambridge Mutual Fire Insurance Company v. Terry L. Gaca, and Janet L. Wayman, individually and as trustee of The Janet L. Wayman Trust, No. 20 C 2447, United States District Court, N.D. Illinois, Eastern Division (May 17, 2022) Cambridge moved for summary judgment.

BACKGROUND

Cambridge sued seeking a declaratory judgment that it did not owe Defendants Terry Gaca and Janet Waymen (collectively, “Defendants”) a duty to defend an underlying lawsuit under the terms of their insurance policy.

Defendants’ policy with Cambridge includes Homeowner’s Liability Insurance and Personal Umbrella Liability Insurance (the “Policy”). The Policy provides:

If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” or “personal injury” caused by an offense to which this policy applies, we:

1. Will provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.

“‘Bodily injury’ means bodily harm, sickness or disease, including required care, loss of services and death that results.” “‘Property damage’ means physical injury to, destruction of, or loss of use of tangible property.” “‘Personal injury’ means injury arising out of . . . [t]he wrongful eviction from, wrongful entry into, or invasion of right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor . . .”. Finally, “‘[o]currence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results . . . in: ‘bodily injury’ or ‘property damage.’”

The Policy also contains several exclusions. Coverage does not apply to:

  1. “Bodily injury” or “property damage” which is expected or intended by an “insured” even if the resulting “bodily injury” or “property damage”;
  2. is of a different kind, quality or degree than initially expected or intended; or
  3. is sustained by a different person, entity, real or personal property, than initially expected or intended….
  4. “Personal injury”:
  5. caused by or at the direction of an “insured” with the knowledge that the act would violate the rights of another and would inflict “personal injury”….

Based on these events, Cambridge alleged the Underlying Suit does not involve “property damage, ” “personal injury, ” or an “occurrence” under the Policy and moved for summary judgment.

DISCUSSION

The parties agree Illinois law applies. In Illinois, the construction of an insurance policy is a question of law. An insurance policy is to be construed as a whole and requires the court to ascertain and give effect to the true intentions of the contracting parties.

If the underlying complaint alleges facts that fall “within or potentially within” the coverage of the policy, the insurer is obligated to defend its insured even if the allegations are “groundless, false, or fraudulent.” United States Fidelity & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73 (1991) (emphasis in original).

FIRST: an “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Cambridge specifically argues there is no “accident.” Illinois courts have defined “accident” for the purpose of insurance coverage disputes as “an unforeseen occurrence, usually an undesigned sudden or unexpected event of an inflictive or unfortunate character.” [W. Am. Ins. Co. v. Mw. Open MRI, Inc., 2013 IL App (1st) 121034, ¶ 22]

The relevant inquiry is “whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.”

The complaint in the Underlying Suit asserts public nuisance, conspiracy to create public nuisance, and violations of Naperville ordinances The complaint alleges Defendants intentionally conspired to violate the public’s rights and avoid enforcement of Naperville’s ordinances. Further, the complaint establishes Defendants knew their use of the property as a boarding house and truck lot violated Naperville ordinances, and even sued Naperville to challenge the legality of the ordinances. The complaint in the Underlying Suit establishes the injuries were intentional, not accidental. Therefore, there was no “occurrence” as that term is defined in the Policy.

SECOND: Defendants must be the “owner, landlord, or lessor” of the “room, dwelling or premises” where the alleged invasion occurred.  Because Frederick is the owner of the property that was “invaded,” there is no “personal injury” alleged in the Underlying Suit.

Estoppel

To establish equitable estoppel under Illinois law, Defendants must show:

  • [Cambridge] misrepresented or concealed material facts;
  • [Cambridge] knew at the time [it] made the representations that they were untrue;
  • [Defendants] did not know that the representations were untrue when they were made and when they were acted upon;
  • [Cambridge] intended or reasonably expected that [Defendants] would act upon the representations;
  • [Defendants] reasonably relied upon the representations in good faith to [their] detriment; and
  • [Defendants] would be prejudiced by [their] reliance on the representations if [Cambridge] is permitted to deny the truth thereof.

Defendants failed to establish equitable estoppel. Defendants have not shown Cambridge misrepresented any material facts. The undisputed facts show Cambridge denied coverage at all times. Defendants do not show they detrimentally relied on any misrepresentation by Cambridge.

Defendants say Cambridge is estopped from denying coverage because an insurance company cannot deny coverage and file a declaratory judgment suit. This argument is unsupported by the facts and applicable law. The estoppel doctrine cannot create coverage where none existed in the first place. Because Cambridge followed Illinois law and does not have a duty to defend under the Policy, Defendants’ estoppel arguments fail.

THIRD: Defendants argue Cambridge is estopped from denying coverage because it waited too long to file this action. The Underlying Suit was filed in August 2019, while this action was filed in March 2020. But we need not determine if this delay was unreasonable because, as with Defendants’ second estoppel argument, the doctrine does not apply if the insurer did not breach its duty to defend.

The  Court granted Cambridge’s Motion for Summary Judgment.

ZALMA OPINION

Liability insurance covers a large possibility of claims made against an insured that could potentially be covered by the policy. However, no insurance policy covers every possible loss and never will cover intentional torts. Since the claims were all intentional the insured’s tried to claim that the actions of Cambridge estopped them from denying the request for defense and indemnity. They failed for lack of evidence.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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California Fair Claims Settlement Practices Regulations 2022 Now Available

Minimum Standards for Adjusting Claims in California

Every Claims Person in California Must Read, Understand, or be Trained About the California Fair Claims Settlement Practices Regulations by September 1 of Each Year

This newly updated and rewritten book was designed to assist insurance personnel who do business in the state of California with the obligation to apply the Regulations that should be provided to each claims person in your company.

It will provide advice to:

  • all insurance claims personnel,
  • claims professionals,
  • independent insurance adjusters,
  • special fraud investigators,
  • private investigators who work for the insurance industry,
  • the management in the industry,
  • the attorneys who serve the industry,
  • public insurance adjusters,
  • policyholders and
  • counsel for policyholders working with insurers doing business in California

The information needed to properly, efficiently, and fairly resolve insurance claims in full compliance with the requirements of the Regulations so they can understand that the Regulations are merely minimum standards and every insurer requires that the service provided exceeds the requirements of the Regulations.

All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment was found to be questionable and limited because of one courageous insurer who fought the CDOI and succeeded before an administrative law judge who limited the right to punish. That success, as far as I have been able to determine, has not been emulated.

Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process — even if only tangentially — to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath. To avoid the required annual training the claims person can submit a sworn document to the insurer or insurers for whom the claims person works that avers that he or she has read and understood the Regulations.

Reviewing this book, the Regulations and commentary set forth below should be sufficient to comply with the training requirements of the Regulations.

Necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations.

Since the California Regulations appear to be detailed, Draconian, and as or more extensive than similar regulations in other states, understanding and working under the Regulations should suffice in every state.

The insurer’s lawyer will need to know, and establish, that the insurer fulfilled the requirements of the Regulations since it will show to a trier of fact that the insurer fulfilled the minimum standards required and required its claims personnel to comply with the Regulations. A knowledge of the Regulations can assist the lawyer in evaluating the exposure faced by an insurer and help the lawyer present an effective defense to an insurer sued for breach of the covenant of good faith and fair dealing.

Similarly, the lawyer representing a policyholder client needs complete knowledge of the Regulations to use them to prove that the insurer failed to fulfill the minimum standards set by the Regulations. Although not evidence of bad faith failure to fulfill the requirements of the Regulations can go a long way to convince a trier of fact (judge or jury) that the insurer did not act fairly and in good faith. Compliance with the Regulations is important to the evaluation of a claim for breach of the covenant of good faith and fair dealing and evaluation of a claim of damages resulting from the tort of bad faith.

Knowledge of the requirements of the Regulations is important to everyone involved in the business of insurance whether as an insurance adjuster, insurance claims management, public insurance adjuster, policyholder, defense lawyer, insurance coverage lawyer, and policyholder’s lawyer.

For detail about this book and many more by Barry Zalma go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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True Crime of Insurance Fraud Video Number 79

The Sweet Little Old Lady & Fraud

Insurance Fraud is an Equal Opportunity Crime

See the full video at https://rumble.com/v15t91d-true-crime-of-insurance-fraud-video-number-79.html and at https://youtu.be/pPCiqZAFWo8

The Insured was 82 years old and bored. She was born shortly after the turn of the century to a wealthy family of Connecticut merchants. She had been a debutante. She lived most of her life in luxury. Now, at 82, she was a widow living alone.

She had a small income from her husband’s estate and 82-years-worth of things. The things bored her. Living alone bored her. Simply passing the days caused her nothing but unexplainable exhaustion. Her life needed something to keep her interest. The Insured, regardless of her age, had a fine and steady hand. Her penmanship was, in these days of computers, exotic.

She recalled that shortly before World War II she and her husband lived in New York City and got an appraisal on all of their fine things by Leo McCarthy, the foremost art appraiser of the pre-war years. She found the appraisal, after some searching in an old trunk. It was written on sheets of 11 1/2 by 14-inch artists vellum. A pen and ink drawing illustrated each line of fine descriptive script on the appraisal. She took one sheet to the local stationery store and had them order a pad of fifty sheets of similar paper. When the paper arrived she sat at the kitchen table for weeks meticulously copying with a fountain pen each sheet of McCarthy’s work. The line drawings she traced lightly with a very soft pencil and then drew over the pencil lines in ink. She only changed the values to reflect, what she believed to be, modern prices. She cautiously erased all the pencil lines with a soft gum eraser. Each page was a masterful copy as ably illustrated as any bible page illustrated by a medieval friar.

The agent submitted the application, and a copy of the appraisal, to a Lloyd’s correspondent with whom he was familiar. The Lloyd’s correspondent forwarded the appraisal and application to a London broker who submitted it to certain underwriters at Lloyd’s. The risk seemed a good one. The appraisal was more professional than that which Underwriters had come to expect from the United States. Lloyd’s quoted a 3% rate that the insured accepted. The policy was issued.

No one asked before issuance to look at the fine arts. No one visited the Insured’s home. The agent and the insurers accepted her representations in good faith.

The agent responded, with sympathy: “Being burglarized is nothing to be ashamed of. It happens every day. That’s why you bought insurance. What was taken?”

“Everything, all my fine things. They are all gone.”

Lloyd’s directed a local adjuster to investigate the claim. When he arrived at the Insured’s home he found minimal furniture in relatively poor condition. He found the Insured to be a pleasant old lady who stood only five foot one inches tall. She was thin and frail looking and could not have weighed more than ninety pounds.

She told the adjuster:

I had hired a lady from El Salvador to help me clean my silver. It’s just too big a job for me now that I’m 82. Her name was Juanita. I don’t know her last name. I believe her number and name was on a card on the bulletin board at the Ralphs grocery store.

Juanita and I had been cleaning the silver for about an hour using very strong ammonia when the fumes began to bother me and I became faint. I really don’t know what happened, but the next thing I remember I was waking up on the kitchen floor. Juanita was gone. My silver was gone. All my art work and porcelain was gone. I trusted that woman. I fed her. She broke bread with me and then robbed me when I was incapacitated by the fumes. Imagine that!”

The adjuster believed her. She was obviously so honest. She looked him straight in the eye and answered every question.

Upset at the calumny of the El Salvadorian domestic the adjuster wanted to help. He promised to complete his investigation rapidly. He would make sure her claim was paid as promptly as possible.

The adjuster had been well trained. He knew that Lloyd’s underwriters expected him to verify the appraisal with Mr. McCarthy. He knew that they also required that the claims handler verify the values of the things claimed stolen.

He began his investigation. The Insured had told him that McCarthy’s office was in New York. He immediately dialed the information operator in New York seeking the offices of Leo McCarthy, appraiser. There was no listing. He contacted a local art appraiser who, impressed by the detail of the appraisal, wanted to meet McCarthy. The appraiser, however, had never heard of McCarthy. She searched the list of the American Association of Art Appraisers and did not find his name. She called several friends. McCarthy was unknown. She called an appraiser she knew in New York and asked if he had ever heard of an appraiser by the name of Leo McCarthy.

He replied: “Of course, a dear man, one of the finest art appraisers who ever lived.”

“Where can I find him? A friend needs to speak to him about an appraisal he did.”

“That will be difficult.”

“Why?”

“Because he died on Midway Island in 1943.”

The Insured had made only one mistake. She had used the signature of an appraiser long dead.

Underwriters instructed the adjuster to deny the claim for fraud. They further instructed the adjuster, because of the Insured’s advanced age, not to report the attempted fraud to the police or the Bureau of Fraudulent Claims.

A month later a lawyer called to inquire about a potential settlement. He implied that it would not be wise for an insurer to litigate against a poor, little old lady. The adjuster merely repeated the denial and asked that before counsel filed a lawsuit that he determine the date of Mr. McCarthy’s death and the location of his coffin. He explained to the lawyer that it is difficult for a man who died in 1943 to sign a fine arts appraisal in 2019.

He did not file suit. He confronted the insured who, with hesitation, told him the truth. The lawyer withdrew his representation and refused to file suit.

A fraud was thwarted. The Insured put some excitement into the dull life of an 82-year-old widow. Little harm was done and the adjuster has a story about a fraudulent claim that will top that of all his contemporaries. Because they rescinded the policy Lloyd’s returned the premium.

Everyone should understand that people from every level of society, every race, creed, age group or country of origin commit insurance fraud.  No one looks like a fraud. The most innocent looking, like the Insured, will present a fraudulent claim while the most criminal looking ex-convicts will present an honest claim.

Insurers must, to conduct a thorough investigation without bias, stop the criminal actions of sweet old ladies or hardened criminals equally.

ZALMA OPINION

Insurers must, to conduct a thorough investigation without bias, stop the criminal actions of sweet old ladies or hardened criminals equally.

If not, crime will succeed.  The innocent ex-convict will lose the indemnity to which he is entitled.

The criminal grandmother will recover and everyone who buys insurance will pay more than they should.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Lawyer Appointed by Insurer had a Duty of Zealous Representation

DEFENSE LAWYER HIRED BY INSURER DOES NOT BIND INSURER

Comegys, an independent insurance agency, had an independent contractor relationship with Safeco, a liability insurer-in short, Comegys marketed Safeco insurance policies to the public. Comegys was allegedly negligent in procuring automobile insurance for one of its clients, Robert Smith. Comegys had provided Smith with an automobile insurance policy from Safeco, which Smith eventually needed to rely on when he caused a car accident that ended in a motorcyclist’s death. Comegys offered to settle (and did settle through the errors and omissions policy it had with Endurance) the potential negligence claim Smith had against it.

In Endurance American Specialty Insurance Company et al v. Liberty Mutual et al, No. 19-14664, United States Court of Appeals, Eleventh Circuit (May 16, 2022) the Eleventh Circuit resolved the dispute.

FACTS

Relying on the indemnification provision between Safeco and Comegys, Endurance sued Safeco. Endurance wants to be indemnified by Safeco because the attorney Safeco provided to Smith after the car accident pointed out the potential negligence claim Smith had against Comegys.

At trial, the jury found that, because Safeco had refused to indemnify Comegys, Safeco had both breached its contract with Comegys and violated the implied covenant of good faith and fair dealing. The jury awarded Endurance, the errors and omissions insurer for Comegys, about $1.6 million in damages plus a $25,000 deductible and $30,000 in attorneys’ fees paid by Comegys during litigation. Safeco appealed.

Comegys and Safeco operated under a contract, the Limited Agreement, that allowed Comegys to act as an independent contractor for Safeco “for the limited purpose of placing Safeco insurance products.”

The Limited Agreement contained a set of indemnification clauses between Comegys and Safeco. The indemnification agreements provided:

  1. Safeco agreed to take responsibility when it messed up and its mess-up affected Comegys (and Comegys agreed to do likewise), and
  2. Whether Safeco (or Comegys) messed up was defined by the terms of the Limited Agreement.

Smith’s Safeco automobile insurance policy became important when his car caused an accident with a motorcyclist in June 2015. About two weeks after the incident, the motorcyclist died in the hospital of his injuries.

Twelve days after the motorcyclist’s death, Safeco tendered Smith’s $1.25 million policy limit to the motorcyclist’s estate by mail. The estate rejected the tender because the estate believed its claim was more than the policy limit. In compliance with the insurance policy, Safeco then provided Smith with a defense attorney, whose job it was to represent Smith in any case the estate brought against him.

Smith’s attorney and the estate’s attorney then began discussing how to settle. In reviewing the history of the case, Smith’s attorney realized that Comegys might have been negligent in procuring automobile insurance for Smith. After the estate officially filed a wrongful death action against Smith in state court in December 2015, Smith’s attorney reached out to Comegys, asking Comegys to indemnify and defend Smith on the basis that Comegys had negligently procured insurance for Smith prior to the accident.

After a non-binding arbitration found Smith responsible for $7 million in damages, Smith and the estate entered into a joint stipulation and agreement. The terms of the joint stipulation were that the parties would agree to a mutual release of all claims, in exchange for Safeco’s $1.25 million policy limit on Smith and Smith’s assignment to the estate of his negligent procurement claim against Comegys.

The estate then sent Comegys a demand for $2 million based on Smith’s negligent procurement claim. Comegys’s errors and omissions insurance with Endurance had a policy limit of $2 million. Comegys and the estate settled for about $1.5 million in exchange for Comegys’ release from all liability. The settlement explained that Comegys was not at all admitting fault or wrongdoing in procuring insurance for Smith. As Comegys’ errors and omissions insurer, Endurance paid out this sum to the estate.

Endurance, on Comegys’ behalf, filed suit against Safeco for, among a host of other things, breach of the indemnification agreement between Comegys and Safeco in the Limited Agreement and breach of the implied covenant of good faith and fair dealing.

The case went to trial. In what the Eleventh Circuit concluded must have been the jury attributing the actions of Smith’s attorney to Safeco the jury then agreed with Endurance that Safeco had breached the indemnification provision and the implied covenant of good faith and fair dealing and entered a multi-million dollar judgment in favor of Comegys.

ANALYSIS

Under Florida law, indemnity contracts are subject to the general rules of contractual construction and must be construed on the express intentions of the parties. Looking at this breach-of-contract case, there is one problem according to the Eleventh Circuit, there was no breach. So, there was no legally sufficient evidentiary basis for Endurance to win this case.

Endurance apparently distracted the jury with facts that are totally irrelevant to this appeal. The distraction method may have worked with the jury in this case, but it did not work with the Eleventh Circuit.

What Endurance leaves off is that for Safeco’s actions to fall under the indemnification provision, the actions must fall into one of three buckets:

  • Safeco has breached the Limited Agreement;
  • Safeco has negligently or intentionally committed an act, error, or omission in the placement of business pursuant to the Limited Agreement; or
  • Safeco has negligently committed an act, error, or omission in the carrying out the terms of the Limited Agreement.

FIRST: Comegys was within the scope of its authority when it procured a Safeco insurance policy for Smith. Safeco then covered Smith. In due course, when Smith had an accident and needed his insurance coverage to kick in, Safeco tendered the policy limit within twelve days of the motorcyclist’s death. Safeco provided Smith with an attorney to negotiate the claim. And Safeco ultimately paid the policy limit pursuant to the settlement between Smith and the estate. In other words, Safeco covered Smith, just like it told Comegys it would in the Limited Agreement.

SECOND & THIRD: Endurance’s case is based on two facts: Smith’s attorney (provided by Safeco) 1) brought up the possible negligent procurement claim to the estate during negotiations and 2) recommended an insurance lawyer to the estate, if the estate wanted to assume the negligent procurement claim against Comegys in Smith’s place.

In a very generous reading of Endurance’s arguments at trial, it is basically saying that Safeco acted through the attorney it provided to Smith, ultimately prompting Comegys to voluntarily settle with the estate without Comegys admitting any fault.  Endurance argued, because Comegys settled with the estate as a volunteer, Safeco now must indemnify Comegys even though Comegys never admitted any liability.

Endurance’s position was that Endurance equates the actions of Smith’s attorney with the actions of Safeco. However, the two are not the same.  Safeco was bound by the terms of the Limited Agreement. Smith’s attorney, on the other hand, was not bound to protect Comegys in any way. Smith’s attorney had a duty of zealous representation, which is exactly what he provided to Smith in settling with the estate. Smith’s attorney was acting on behalf of Smith, not on behalf of Safeco.

The next problem with Endurance’s argument is that by looking at the plain (and clear) language of the Limited Agreement between Comegys and Safeco, it cannot be read as covering in any way, shape, or form how Safeco ultimately insures its policyholders.

Finally, Endurance’s breach-of-contract claim hinges on the fact that the indemnification provision protects Comegys from all liability or loss arising out of Safeco’s breach. The problem for Comegys is that in its settlement agreement with the estate it specifically disclaimed all liability, and it has not proven that it lost anything because of Safeco’s actions.

Because the indemnification provision between Safeco and Comegys hinges on Comegys having some sort of liability or demonstrating that Safeco’s actions caused loss, Safeco is not liable where Comegys is a volunteer in settlement. A court cannot create coverage out of whole cloth where it otherwise would not exist.

The Eleventh Circuit concluded that it refused to penalize Safeco for Comegys’ volunteer payment to the estate. Even if Comegys had been negligent and that fact had been proven in court by the estate, the Eleventh Circuit would still refuse to hold Safeco liable for Comegys’ own alleged negligence because Florida requires those kinds of arrangements to be clearly stated by contract. Safeco, therefore, was entitled to judgment as a matter of law. The case is remanded for entry of judgment in favor of Safeco.

ZALMA OPINION

Comegys convinced a jury that a lawyer appointed by an insurer to defend an insured is the insurer when, in fact, the lawyer is retained only to defend the insured, Smith, to the best of his or her ability. The lawyer’s action, working to best defend Smith cannot be claimed as wrongdoing against another. Comegys convinced the jury but could not convince the Eleventh Circuit because it, unlike the lawyer for Comegys and the jury, read the contract.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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True Crime of Insurance Fraud Video Number 78

Fire! Why Arson-for-Profit is Dangerous

See the full video at https://youtu.be/jcvZvnHNkpw  and at https://rumble.com/v15ga9h-true-crime-of-insurance-fraud-video-number-78.html

The crime of arson is violent. Not only is property damaged, people die. Most arson fires are set for spite, anger, vengeance or spousal abuse. Approximately 25 per cent are set to defraud insurers. Fires set to defraud an insurer are called, by arson investigators, “arson for profit.”

Because most perpetrators do not understand uncontrolled fires, they believe arson is simple and risk free. The nascent arsonist believes all the evidence that might tie him to the crime will be consumed by the fire. He or she is mistaken.

Ben Standish was an arsonist who might have tried a less violent crime if he knew more about fire. Had he known that evidence will remain after the fire is extinguished by the fire fighters his house would not be a charred hulk. Had he known that it is difficult to avoid injury he would have filed a personal bankruptcy rather than use arson as a method to get out of debt.

Ben Standish was upside down on his mortgage and a balloon payment was due. The value of his house had decreased $200,000 in the last two years. He could not find a lender willing to lend him enough to cover the balloon payment which was $100,000 more than the fair market value of the house. He was desperate.

Ben decided that his only solution was to burn down his house and sell it to his insurance company. An honest man, faced with the shame of bankruptcy, decided that defrauding an insurance company was not criminal. He had paid them premiums for 10 years with no claims. They owed him.

Ben owned a shoe store. He was very successful and had no problem making the monthly payments on his $600,000 home loan. Ben Standish was cash poor. He couldn’t make up the difference between the amount a bank would lend and the amount he needed to pay the balloon payment. He had three weeks and, to his mind, no choice.

A graduate of Venice High School who had taken two business classes at Pasadena City College, Ben had no training, knowledge or background in the activities and uses of fire or flammable liquids. Ben had seen a movie on television called “Batteries Not Included” where a professional arsonist burned down an apartment building in the Bronx. Standish decided to emulate the person in the movie. A fire at his house would pay off the mortgage. His debt problem would be solved. He would then borrow the money needed to rebuild a house on the soon to be empty lot.

The day after his wife left for Atlanta, Ben rented, under the name George Johnson, a public storage unit approximately 12 feet by 10 feet. He carefully moved into that unit his jewelry, his wife’s jewelry (that she didn’t take to Atlanta), a new Sony 60-inch Plasma T.V., DVR and Surround Sound system. All the family DVDs. video tapes, photographs and accounting records that would be impossible to replace, he moved to the storage unit. When he was finished, the storage unit was filled. He purchased a separate policy through the facility to cover more than $150,000 of valuable goods and all of the private papers and photographs of the family he had stored at Public Storage unit.

Friday afternoon, after closing his shoe store, Ben visited his local Shell Service Station and filled a five-gallon can with gasoline. He went to the PayLess Drug Store and bought a package of balloons and at the Ace Hardware store next to the PayLess he purchased a carpenter’s staple gun.

The fire department arrived at the scene of the fire within minutes. Streams of water were placed on the scene and the fire was extinguished. Because of the flash of the explosion most of the balloons, Ben had stapled to the ceilings remained intact. The firefighters, expecting a simple residential fire sat down on the front steps and curb and shook with fear. They recognized that if one of those balloons had let loose it would have caused an explosion that could have killed any one or all of the firefighters. Their Captain, so angry at the danger his men had faced, was almost speechless as he called for an arson unit to come to the scene of the fire.

“It’s O.K. Orson. I’m calmed down now. But the sonofabitch hung balloons full of gasoline all over the ceiling. If we didn’t have the fire out immediately, we would have dead firefighters here on the grass. You’ve got to get the person who did this fire.”

“Have you done any overhaul, Captain?”

“No. As soon as the fire was out and no longer a danger to the rest of the neighborhood, I had the firefighters stand down and set up a security perimeter. No one has been in the house but the firefighters.”

Campizi grabbed his camera and slung it over his shoulder, pulled a shovel and a broom from his car trunk and walked into the house.

Four hours later Campizi had taken 72 photographs of the scene of the fire, collected four gasoline filled balloons, six one-gallon cans of cloth and carpeting Campizi believed were soaked in gasoline, a small plastic package with a label stating that it contained 10 “Happy Birthday” balloons. The bar-coded price tag was still visible and showed the balloons were purchased from a PayLess Drug Store.

The Captain, and two uniformed police officers stood next to the pumper drinking from Styrofoam cups what appeared to be coffee. As Campizi approached, they stood to attention anxiously awaiting his arrival. Behind the yellow tape there were 10 men in business suits holding clip boards. Campizi recognized them as solicitors for various firms of public insurance adjusters who seemed to appear at every fire scene. They were all talking to each other since the owner had yet to arrive.

“Mr. Standish, you are under arrest. I must inform you that you have the right to remain silent and refuse to answer any questions I pose to you; you have the right to have a lawyer present while I question you. Do you want to waive the rights I have just explained to you?”

“Sure, I will waive the rights. You’ve got me red-handed.”

“And those vultures trying to sign him up will get nothing.”

“Not really. They’ll find the mortgage holder and sign it up. Even when we prove Standish burned down his house his insurance company still must pay the mortgagee.”

“You’re kidding. You mean if he goes to jail, he still succeeds in getting out of the debt?”

“Yes. And you thought crime doesn’t pay.”

“Orson, I’ll never say anything bad about my insurance company again.”

ZALMA OPINON

Arson is the least effective and most dangerous method to defraud an insurer. Even a hot-burning gasoline fed arson for profit leaves physical evidence. A fire will seldom destroy everything.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Judgment Debtor Can Sue Indigent Defendant’s Insurer

New Jersey Statute Allows Suit Against Insurer Who Advised its Insured No Coverage Years After Denial

But, is this a Waste of Time & Money?

Steven D’Agostino appealed from trial court orders dismissing his complaint in Steven D’agostino v. Colony Insurance Company, Lake Poulton, Poulton & Associates, LLC, and The Lawyers’ Fund For Client Protection, No. A-5331-18, Superior Court of New Jersey, Appellate Division (May 17, 2022) dealt with the effect of a New Jersey Statute on a suit by a judgment debtor of an insured whose claim was rejected.

FACTS

Plaintiff’s complaint alleges the following facts, which, like the trial court, the appellate court accepted as true for purposes of the motion. In February 2002, plaintiff retained Laurence Hecker, a solo practitioner licensed in New Jersey, to represent him in connection with an employment matter. Despite harboring some initial skepticism as to Hecker’s ability to handle the case, plaintiff claims he decided to retain Hecker once the lawyer represented “he was ‘a PC’ with ‘half a million dollars’ worth of malpractice insurance.”

Plaintiff’s employment matter went against him and, in September 2006, proceeding pro se, he filed a legal malpractice action against Hecker. In 2009, a jury determined Hecker had been negligent in his representation of plaintiff and awarded plaintiff $330,000 in damages, along with pre-judgment interest. Plaintiff claims Hecker reportedly told two different pretrial judges he had no insurance carrier.

Defendant Colony Insurance Company issued a $1,000,000 claims made professional liability policy to Hecker for a one year period beginning March 16, 2006 – six months before plaintiff filed suit. The retroactive date for that policy, however, was March 16, 2006, the first day of the policy period. Colony declined Hecker’s request for defense and indemnification under the policy.

Plaintiff was unable to recover the $330,000 judgment from Hecker. In 2011, plaintiff filed a claim with the Lawyers’ Fund for Client Protection, that denied plaintiff’s claim.

Hecker died in May 2017, and, over the course of the next year, plaintiff obtained access to several boxes of Hecker’s personal and business records. After reviewing the records, plaintiff claims he learned Hecker had malpractice insurance in place during the pendency of the malpractice suit. Plaintiff subsequently called Poulton, which informed him that Colony had denied Hecker’s claim for coverage “because the retroactive date of Hecker’s policy did not go back far enough to cover” the conduct underlying the malpractice suit. Colony refused to provide any information and claimed it only kept records for ten years.

Colony and Poulton successfully moved to dismiss for failure to state a claim, arguing plaintiff lacked standing as a third-party beneficiary and any derivative claims were time-barred. Poulton also argued plaintiff had not stated a viable claim against the company because, as an independent insurance broker, it was not liable for an insurance carrier’s coverage decision.

The court found plaintiff’s status was more akin to a judgment creditor. The trial court found plaintiff’s claim was “essentially a bad faith claim against the insurance carrier and the broker,” which is not cognizable by an individual or entity that is not the insured or an assignee of the insured’s contract rights.

ANALYSIS

As a general rule an individual or entity that is a stranger to an insurance policy has no right to recover the policy proceeds. But, the appellate court concluded, that the general rule does not apply here. N.J.S.A. 17:28-2 provides an injured person may maintain an action against an insurer when his judgment against the insured tortfeasor remains unsatisfied due to insolvency, which plaintiff’s complaint alleges here.

The trial court was correct plaintiff is not an intended third-party beneficiary in the traditional sense. Nor is he an assignee of Hecker’s contract rights entitling him to sue on the policy. But, the court concluded, he has plainly stated a claim as a third-party beneficiary by virtue of the direct action statute with standing to sue Colony on the policy

Accordingly, the appellate court concluded that the judgment dismissing plaintiff’s complaint for lack of standing against Colony must be reversed. While Colony has raised potential defenses it may have to plaintiff’s claim, assuming plaintiff can establish Hecker’s insolvency – asserting plaintiff can look to the limit of the policy proceeds to satisfy his judgment under N.J.S.A. 17:28-2, only if coverage is available, [and] only if plaintiff does so within the statutory limitations period – the viability of those defenses will have to await discovery.

Colony’s assertion that plaintiff’s claim is time-barred was not clear to the court on this record when plaintiff’s claim accrued under N.J.S.A. 17:28-2.

The New Jersey Supreme Court has noted that “[w]hile the injured person has no greater right under the policy than has the assured, he has ‘a cause of action the moment he is injured’ which ripens into a right of action when he recovers a judgment against the assured whose insolvency is proved by the return of an execution unsatisfied.” Dransfield, 5 N.J. at 194 (quoting Century Indemnity Co. v. Norbut, 117 N.J. Eq. 584, 587 (Ch. 1935); aff’d, 120 N.J. Eq. 337 (E. & A. 1936)).

Plaintiff has only stated a claim against Colony under N.J.S.A. 17:28-2, he has come nowhere near proving one. Finally, we likewise find plaintiff has stated a claim against Poulton and Poulton & Associates for the broker’s negligent failure to procure the appropriate professional liability coverage. A broker has a duty of care to foreseeable third parties injured by the broker’s negligence in failing to secure appropriate insurance coverage.

Although it is certainly possible plaintiff will not be able to prove Poulton failed to secure the coverage Hecker asked for or expected, or that any such cause of action is timely, plaintiff has stated the claim and should thus be permitted the opportunity to try to prove it.

ZALMA OPINION

Trial and appellate courts tend to give a great deal of consideration to actions brought by pro se plaintiffs. Although Mr. D’Agostino successfully sued his lawyer for malpractice he was unable to collect on his judgment. Only when the lawyer defendant died did he obtain information that indicated the lawyer was insured at the time of his trial although the insurer disclaimed coverage he sued the insurer and insurance broker to attempt to collect his old judgment. He lost on a motion to dismiss only to have the appellate court send the case back down for gathering evidence which, very probably, will result in a judgment in favor of the insurer and broker defendants because the case is old and Hecker, now dead, has no assets. A waste of court, lawyer, and defendant time.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Video Number 77

This One Isn’t Fiction Because No One Would Believe It

See the full video at https://rumble.com/v15b79h-true-crime-of-insurance-fraud-video-number-77.html and at https://youtu.be/fD08Q2CJbPY

I received a copy of findings of fact and conclusions of law in a case filed in the U.S. District Court for the Central District of California entitled CIGNA Property and Casualty Insurance Company v. Polaris Pictures Corporation, U.S. Inbanco, Ltd., Continental Pictures Corporation, Paul Ebeling, Kendall Earl Capps, Adrien Wirz, and Jacob Wizman there docketed as case number CV 93-2259 JSL.

On February 20, 1997 United States District Judge J. Spencer Letts found a lawyer and others had committed fraud and purchased a policy of Marine Insurance for the sole purpose of sinking a boat. The findings of Judge Letts read better than I could ever imagine. Here are parts of what Judge Letts concluded:

The evidence presented to the court …convinces the Court that, according to the overwhelming weight of the evidence, that defendants Polaris Pictures Corp. (‘Polaris’), and U.S. Inbanco Ltd. (‘Inbanco’), … conspired with at least one of the named defendants in this action, and a non-party lawyer (the ‘lawyer conspirator’), to engage in a very sophisticated fraud to collect insurance proceeds from plaintiff, Cigna Property and Casualty Insurance Company (‘Cigna’), a marine insurer.

In essence, the fraud intentionally concealed from Cigna the material fact that the conspirator’s purpose in purchasing the insurance from Cigna was not to protect themselves against the risk of an unknown future event, but rather to precipitate an accident which would allow them to collect on it. As a result, a judgment of rescission of [the policy] … issued to Polaris and Inbanco is warranted.…

On June 9, 1992, the lawyer conspirator signed an Order Contract to purchase a brand new 76’ Azimut motor yacht for $1.9 million.

Prior to June 1992, the lawyer conspirator had sustained three total losses of yachts that he either owned or held ownership interests in. Each of these prior yacht losses was insured and each prior yacht loss was paid in full by the respective insurer.

The lawyer conspirator then arranged for Continental to ‘sell’ the yacht to Polaris. The Continental-Polaris transaction was a stock transaction between a company about which little evidence was presented (Continental) and a company with virtually no assets (Polaris).

Polaris was formed by the lawyer conspirator and completely controlled by him at all relevant times. It was also located at the same address as the lawyer conspirator’s residence.

The evidence showed that Polaris never did business of any kind or substance. In addition, the evidence showed that Polaris was placed between the principals of this fraud as a diversion in order to disguise the identity of the person who would get the money in the event of a loss – namely, the lawyer conspirator.

[T]he court finds that defendants’ fraudulent scheme consisted in part of using the insurance proceeds to pay to Inbanco, as a ‘creditor,’ the sham ‘debt’ secured by the vessel.…

[T]he court finds …a conscious plan to defraud Cigna by temporarily distancing the lawyer conspirator from Polaris until the insurance proceeds had been paid.… “All of the ostensible transactions discussed above, with the exception of the purchase of the boat, were among parties all closely tied to the lawyer conspirator, and the corporate parties did not have any meaningful assets.

[T]he reason the lawyer conspirator took such extensive measures to distance himself from these corporations and transactions was to divert attention away from his own personal loss history of sinking vessels.…

Polaris and Inbanco eventually purchased marine insurance for the yacht, named “Principe Di Pictor,” from Cigna… The Application [for the insurance] also failed to state the material fact that Polaris and Inbanco’s purpose for purchasing this insurance was to collect on it, and that a preplanned event for the destruction of the yacht and collection of the insurance was soon and certain to occur. …

The yacht was scuttled on November 7, 1992 [two weeks after the policy was issued] off the Coast of Italy during its maiden voyage. The lawyer conspirator … [was] on board at the time.…

The account of the scuttling from the lawyer conspirator … was that the yacht, allegedly worth $3.5 or $3.62 million, and the lives and bodies of the people on it, was entrusted to a person met for the first time in a dockside restaurant in Naples. This person, whose documents were written in a foreign language, brought with him two other persons who did not speak English and six black duffel bags with undisclosed contents. The three strange men were allegedly applicants for the jobs of Captain and crew.

The Court finds defendants’ claim …to be wholly preposterous. The Court finds the account of the scuttling so incredible that standing alone it would raise serious questions as to whether the boat was deliberately scuttled.…

[P]urchasing insurance, not for the purpose of insuring a risk, but rather for the purpose of collecting the insurance for an event that is being planned, is a highly material fact that should be stated to the insurer.…

The lawyer conspirator was without any credibility as a witness, and he looked, acted and sounded very much like a conspirator in a dishonest scheme. …The lawyer conspirator’s testimony was not cogent and his financial records were very difficult to follow.

The news report did not name the lawyer conspirator. I had dealt with him several times with regard to fraudulent insurance claims so I called the trial lawyer and just asked:

“Is the lawyer conspirtor’s name Rex?

The trial lawyer, Neil S. Lerner was shocked. “How did you know?”

I explained my history with lawyer Rex and wanted to thank Mr. Lerner and all the lawyers at Sands Narwitz Forgie Leonard & Lerner who tried the case on behalf of CIGNA, for finally defeating a fraudulent claim presented by Rex, a long-time nemesis of the insurance industry in California.

I also wish to thank Judge Letts for seeing through an insurance fraud and recognizing that an insurance company can be a victimized by an insured. At the direction of Judge Letts, the lawyer – Rex DeGeorge – was prosecuted by the U.S. Attorney and convicted of mail and wire fraud.

He is now serving a long sentence in federal prison.

ZALMA OPINION

This case is important, and unusual, because it affirmed a rescission based on blatant fraud in obtaining insurance that allowed the insurer, CIGNA, to rescind the policy from its inception. It is more important because the Judge Letts referred to the U.S. Attorney the conspirator who was arrested, tried, convicted and sentenced to federal prison for fraud. Although I held out hope for other judges to emulate Judge Letts, but I have been disappointed.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Named Peril Policy Only Covers What it Agrees to Cover

RTFP – Refusal to Read the Full Policy Doesn’t Require Insurer to Fulfill Insured’s Belief

Ibaldo Arencibia’s purchased a travel insurance policy – one he believed to be a broad, “no-fault” policy. When the insurer declined to provide coverage for a canceled trip, Arencibia sued. Arencibia appeals the district court’s dismissal of his claims for unjust enrichment and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and the lower court’s refusal to allow him to amend his complaint.

In Ibaldo Arencibia v. AGA Service Company d.b.a. Allianz Global Assistance, Jefferson Insurance Company, No. 21-11567, United States Court of Appeals, Eleventh Circuit (May 12, 2022) the Eleventh Circuit resolved the dispute.

THE ALLEGATIONS

On August 17, 2019, Arencibia purchased a roundtrip airline ticket on American Airlines’ website from Miami, Florida, to Bogota, Colombia. When booking his ticket, Arencibia was offered the option of purchasing travel insurance from AGA Service Company, doing business as Allianz Global Assistance (“Allianz”). Arencibia decided to purchase the travel insurance in exchange for the payment of a $36.83 premium. Following his purchase, Allianz emailed Arencibia a copy of the 36-page Individual Travel Insurance Policy (the “Policy”), which provided that he could cancel the Policy for any reason within ten days of purchase and receive a full refund.

Later, Arencibia was offered a stint of temporary employment in the United States on dates that overlapped with his planned trip to Bogota. Arencibia alleges that, “[t]hinking he was ‘insured,” he telephoned Allianz and was told that “his work conflict was not covered by his [travel insurance] policy.”

The Allianz representative directed Arencibia to cancel his flight and submit a claim under the Policy to “see what could be done.” Arencibia did so, and received a letter from Allianz formally declining to provide coverage under the Policy. Allianz advised that the Policy is a named perils travel insurance program, which means it covers only the specific situations, events and losses included in the Policy, and only under the conditions described. Trip cancellation due to being required to work is not included among those reasons.

Based on this theory, Arencibia sued American Airlines, Allianz, and Jefferson, alleging claims for declaratory relief, unjust enrichment, violation of the Florida Deceptive and Unfair Trade Practices Act, violation of the federal RICO statute, and false advertising.

All three defendants filed motions to dismiss and the USDC granted American Airlines’ motion to dismiss and two district courts, one in Texas and another in Florida dismissed the amended complaint in its entirety without leave to amend.

DISCUSSION

Although the district court dismissed all Arencibia’s claims, on appeal he challenges the dismissal of just two – his claims for unjust enrichment and for RICO violations.

Unjust Enrichment

The district court dismissed Arencibia’s unjust enrichment claim for two independent reasons. First, it held that there is no private right of action under Florida’s Unfair Insurance Trade Practices Act (FUITPA) for damages caused by false or deceptive representations concerning insurance coverage. Second, it held that the unjust enrichment claim was due to be dismissed because a valid contract existed between the parties.

The Eleventh Circuit concluded that since a valid contract existed between Arencibia and the insurers there was no unjust enrichment and the USDC’s decision was affirmed. Under Florida law, to state a claim for unjust enrichment, a party must establish all the following:

  1. a benefit conferred upon a defendant by the plaintiff,
  2. the defendant’s appreciation of the benefit, and
  3. the defendant’s acceptance and retention of the benefit under circumstances that would make it inequitable for him to retain it without paying the value thereof. [Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1274 (11th Cir. 2009)]

The general rule in Florida is that the equitable remedy of unjust enrichment is unavailable if an express contract exists. [Ocean Commc’ns, Inc. v. Bubeck, 956 So.2d 1222, 1225 (Fla. 4th DCA 2007).]

The facts demonstrated that the insurers did not misrepresent the terms of the Policy. The Policy expressly warns consumers that Flight cancellation coverage is not unlimited.

The Policy also details the “covered reasons” that would trigger coverage – for example, if the insured or a family member became ill or injured, if the insured is in a traffic accident on the departure date, or if the insured is required to attend a legal proceeding during the trip.

Even if Arencibia did not read the terms of the Policy before purchasing it, the Eleventh Circuit agreed with the district court that Arencibia was on inquiry notice that “[t]erms, conditions, and exclusions apply” because the hyperlink in the offer box was conspicuous and plainly disclosed.

In addition, Arencibia does not deny that he received a full copy of the Policy shortly after his purchase and that he had ten days in which to review the Policy and cancel it for a full refund if he was dissatisfied for any reason. In Florida a party is bound by his contract and charged with knowledge of its contents. [Allied Van Lines, Inc. v. Bratton, 351 So.2d 344, 347-48 (Fla. 1977); Rocky Creek Ret. Props., Inc. v. Estate of Fox, 19 So.3d 1105, 1108 (Fla. 2d DCA 2009)]

Finally, Arencibia availed himself of the insurance by making a claim under the Policy, effectively conceding that a contract existed between the parties. The fact that Arencibia does not like the terms of the Policy does not serve to make the contract unenforceable.

The district court’s dismissal of Arencibia’s unjust enrichment claim was affirmed.

RICO

Section 1962(c) of the RICO statute requires that a plaintiff prove that a defendant participated in an illegal enterprise “through a pattern of racketeering activity.” 18 U.S.C. § 1962(c).

A scheme to defraud requires proof of a material misrepresentation, or the omission or concealment of a material fact calculated to deceive another out of money or property. “Material” misrepresentations or omissions are ones having a natural tendency to influence, or capable of influencing, the decision maker to whom it is addressed. The misrepresentation or omission must be one on which a person of ordinary prudence would rely.

Arencibia failed to plausibly allege a material misrepresentation, which is fatal to his RICO claim. Moreover, Arencibia failed to plausibly allege any injury caused by the alleged mail and wire fraud.

Therefore, the district court correctly held that Arencibia could not demonstrate any injury under RICO because he received exactly what he bargained and paid for – insurance coverage for his round-trip flight, subject to certain conditions and restrictions. In other words, Arencibia received the benefit of his bargain and has not suffered any injury or loss.

Accordingly, his RICO claim was correctly dismissed.

ZALMA OPINION

It takes a great deal of gall to allege that an insurance policy, not read, provided a coverage that the plaintiff wanted, or assumed he purchased, when the words of the policy are clearly limited to named perils. It was ridiculous to charge insurers with racketeering for failing to pay a claim for which no insurance existed. Arencibia  and his lawyers should have read the policy and avoided this litigation. The insurers should consider a malicious prosecution action against Arencibia  and his lawyers for accusing them, without evidence, of a RICO violation and forcing them into extensive litigation and an appeal to the Eleventh Circuit and the court should have sanctioned the frivolous lawsuit and appeals.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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True Crime of Insurance Fraud Video Number 76

Am I In Trouble?

Bankruptcy Fraud Defeats Legitimate Insurance Claim

See the full video at https://rumble.com/v1572mx-true-crime-of-insurance-fraud-video-number-76.html?mref=6zof&mrefc=3  and at https://youtu.be/ua3cLByciDc

Insurance fraud, like any other profession, improves with practice. The beginner, unaware of the tools available to an insurer, makes a stupid error that will destroy him or her.

Abraham MacPherson was an insurance fraud novice. He had succeeded, with ease, in defrauding his bank by submitting a false financial statement as part of the application for a loan. He even convinced an FBI Agent, checking his fraudulent loan application, that he was the victim of a dishonest loan broker. Success made Abraham bold. He decided it was time to branch out into insurance fraud.

The Petition for bankruptcy, like most filed in the Bankruptcy court showed MacPherson to have no equity in any of his property and no money. He reported his assets as only $500 in jewelry and the tools of his plumbing trade since they were exempt from the grasp of his creditors. What he did not tell the Bankruptcy Court was that MacPherson also owned a $150,000 twin engine Cessna Aircraft that he used to go on hunting and ski trips. He did not tell his lawyer about the airplane because he did not want it sold for the benefit of the judgment creditor whom he felt cheated him.

The day his debts were discharged Abraham called his insurance broker. He advised the broker that his home had been burglarized. He claimed the burglars took all of the jewelry on the schedule. He demanded the immediate issuance of a check for $41,960.

MacPherson stuck to his story. He demanded immediate payment or he would complain to the California Department of Insurance and file suit.

Moseby reported to his principal, the insurer, who decided to deny the claim for fraud. Further, following the law, since MacPherson had admitted to Bankruptcy fraud, the insurer instructed Moseby to pass the information he had obtained to the FBI. In addition, as required by California law he presented the information to the California Department of Insurance, Fraud Division.

Moseby was right, MacPherson was not in trouble with him. He simply would not collect on his claim. MacPherson was in serious trouble with the FBI and the U.S. Department of Justice.

The Special Agent of the Federal Bureau of Investigation was upset that MacPherson had fooled him. After verifying the results of Moseby’s investigation the FBI presented the information to a U.S. Attorney. Prosecution followed charging MacPherson with Bankruptcy Fraud, Mail Fraud — for the presentation of a false and fraudulent claim to an insurer by use of the U.S. Postal Service — and for loan fraud.

He went to trial in U.S. District Court in Sacramento on charges of Bankruptcy fraud. The trial took five hours to complete and the jury was instructed on the law at 4:00 p.m. They deliberated for three days and convicted MacPherson, who was sentenced to serve three years in federal prison.

ZALMA OPINION

It doesn’t pay to lie to an insurance company about a claim. Doing so can lose your claim. It is worse to lie to a bankruptcy court because that is a federal crime that could put the liar in jail for as much as five years. This case proves why it is best to always tell the truth.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Statute of Limitations Defeats Equal Protection Claim

Plaintiff Sat on Her Rights and Lost Them

Sharon Motley appealed the district court’s dismissal of her putative class action brought against Hal Taylor in his official capacity as Secretary of the Alabama Law Enforcement Agency (“ALEA”) for failing to warn her that her drivers license was suspended. In Sharon Motley, on behalf of herself and those similarly situated v. Hal Taylor, in his official capacity as Secretary of the Alabama Law Enforcement Agency, No. 20-11688, United States Court of Appeals, Eleventh Circuit (May 12, 2022)

FACTUAL BACKGROUND

In 2013, the Montgomery County District Court ordered Motley to pay fines and court costs after she pled guilty to a traffic ticket. Motley did not pay the ticket because she could not afford to do so. Motley’s driver’s license was suspended for failure to pay her fines. She had not received prior notice that her driver’s license would be suspended if she did not pay the ticket. Before suspending her license for failure to pay, neither the court nor ALEA-which administers all state laws relating to the operation of vehicles-held a hearing to determine whether her failure to pay was willful.

Employers rescinded job offers to Motley after learning of Motley’s suspended driver’s license because without a valid license it was impossible for her to perform certain job functions like deposit checks or travel for work.

Motley’s Lawsuit

Motley sued Taylor in his official capacity, seeking declaratory and injunctive relief on behalf of herself and a putative class of “[a]ll individuals whose driver’s licenses are suspended for nonpayment of traffic tickets.”

Motley’s complaint alleged in a single claim that Alabama R. Crim. P. 26.11(i)(3)-which authorizes license suspensions for failures to pay traffic fines-violates the Equal Protection and Due Process Clauses of the Fourteenth Amendment.

Specifically, Motley alleged that Rule 26.11(i)(3) authorizes the suspension of a driver’s license for nonpayment of traffic fines or court costs without prior notice, the opportunity to be heard, or an express finding that the individual is able to pay and willfully failed to do so.

The district court (1) denied Taylor’s motion to dismiss to the extent it was based on the statute of limitations but (2) granted Taylor’s motion to dismiss for failure to state a claim on the merits.

DISCUSSION

The parties agree that, because Motley filed her claim under 42 U.S.C. § 1983 in Alabama, the applicable statute of limitations period is two years. The statute of limitations begins to run on the date where the facts which would support a cause of action are apparent or should be apparent to a person with a reasonably prudent regard for his rights.

The district court found that

  • the state court suspended Motley’s driver’s license for failure to pay in December 2013; and
  • she knew or should have known of her suspended license before July 3, 2017.

Thus, Motley’s two-year clock began to run sometime before July 3, 2017, and her claim was time-barred unless an exception to the statute of limitation applies.

IS THERE AN EXCEPTION TO THE STATUTE

Motley argued that the indefinite suspension of her license was a continuing violation. A plaintiff may bring an otherwise time-barred claim when additional violations occur within the statutory period. Applying the continuing violation doctrine the appellate court must distinguish between the present consequence of a one time violation, which does not extend the limitations period, and the continuation of that violation into the present, which does. The continuing violation doctrine is not triggered merely because the harm caused by the defendant’s action continues after the limitations period.

Motley alleged a continuing harm, not a continuing violation. While Motley’s claim does encompass an equal protection injury, that injury stems from the alleged due process violations, all of which occurred on or before December 20, 2013, when her license was suspended.

The court concluded that all of Motley’s alleged injuries stem from the 2013 suspension of her driver’s license without an opportunity to be heard or to prove her indigency. Accordingly, her claim is time-barred.

Motley’s claim against Taylor accrued at least sometime before July 3, 2017. Thus, her complaint was untimely when she filed it on July 3, 2019. And the continuing violation doctrine does not apply to save her from the statute of limitations.

ZALMA OPINION

Stale claims make it impossible for a court to deal fairly with an allegation of wrongdoing because witnesses either forget or are unavailable to testify. No litigant should be required to defend against a stale claim. Motley, perhaps because the suit was frivolous, waited four years after the accrual of a cause of action to sue and, therefore, her case was dismissed and the trial court’s decision was affirmed.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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True Crime of Insurance Fraud Video Number 75

I Don’t Need Your Stinkin’ License!

See the full video at https://rumble.com/v152pzz-true-crime-of-insurance-fraud-video-number-75.html and at https://youtu.be/tyNITmOujOw

Yuri Gasparov was 19 years old when he entered the United States from the old Soviet Republic of Georgia. Although still a teenager he was strong of will and body. In the old Soviet Georgia he had made his mark as a thief, extortionist and enforcer. Yuri was 13 years old when he first killed a man who refused to pay half his earnings to the group Gasparov joined when he was 11.

When the Soviet Union fell, he emigrated to the U.S. He saw the U.S., unlike the new Georgian Republic, as a place of opportunity for his criminal skills.

Gasparov arrived at Los Angeles International Airport on an immigrant’s Visa claiming to be a persecuted Russian Jew. He was unusual as an immigrant. There were gold bars weighing ten Kilograms and 30 carats of “D” to “H” color diamonds in his luggage. Yuri stepped off an Al Italia jet from the First Class Cabin wearing an English suit cut by a Saville Row tailor, a Gold Rolex President watch and Italian alligator leather shoes.

As he waited in the “Nothing to Declare” line at the Bradley International Terminal women in the line openly stared. They saw a handsome young man with long black hair, green eyes, an aquiline nose and a neatly trimmed Van Dyke beard. They assumed he was an Italian Actor come to try his hand at Hollywood.

A limousine was waiting to pick him up at the curb. The chauffeur held the door for him as he entered the long, white, stretched Lincoln Town Car welcoming him to the U.S. in Russian.

Yuri Gasparov had convinced the boss in Georgia that it was necessary to use the American system to make profit and leave the violent tried and true methods of making a criminal profit perfected in the old Republic of Georgia. The American system of civil justice was open to the devious, the criminal and the unethical for instant wealth.

What he did not know, basking in all the accouterments of immediate success, that knowledge of the law or how to practice law, was irrelevant to his success. All that was required of Casparian was to hang his license on the wall and wait for the profits to roll in.

Casparian did not know — or refused to learn — that his “clients” were not injured, that they never received medical treatment and that most had never been involved in an accident. Casparian convinced himself that he had achieved the American dream and was the most successful new lawyer in the state of California.

Within weeks new clients’ cases were flowing into the Casparian law firm at three times the rate as the first year of business. The three doctors were, by their billing, treating over sixty patients a day. Medical bills were forwarded to the Casparian law firm on behalf of its clients of more than $100,000 a day.

Profits increased exponentially. Casparian, sitting in his office spent most of his time watching daytime soap operas on the office television. The secretarial staff and the staff of adjusters worked 10 hours a day negotiating hundreds of claims a day. Everyone in the Casparian law firm was happy and Gasparov had purchased, for cash, a four bedroom house in Brentwood.

The staffs of the various SIUs worked together to create a database of claims from the Casparian law firm. It found that the doctors, by their billing records, were billing for more than 80 hours of work a day. Auto accident victims, although never to the same insurer twice, were involved in more than fifteen accidents a month.

The information was taken to the Major Fraud Division of the Los Angeles District Attorney’s office. In a task-force with the Fraud Division, California Department of Insurance and the Los Angeles Police Department, search warrants were issued for the files of the law office and the offices of the three doctors. Records were gathered and collated. Four months later arrest warrants were issued for Casparian, the three doctors and each “adjuster” in the law firm.

Gasparov, the instigator and receiver of the profits, sold his house in Brentwood when the search warrants were issued, moved to Fresno, and started an office with a lawyer who had immigrated from Kazakstan.

Gasparov’s new law office in Fresno is a great success. His position in the criminal organization has improved and he is now only third in line behind the boss in Georgia.

Without the benefit of, education, training or a license Yuri Gasparov made more money from the practice of law in California than 99 percent of the lawyers in the state and continues to earn more than any lawyer practicing in Fresno, California.

ZALMA OPINION

The insurance industry’s need to deal fairly and in good faith with everyone presenting a claim made them vulnerable to an intelligent and immoral criminal. A group of good investigators stopped the fraud only to have the courts hand out minimal sentences and allowed the instigator of the fraud to escape and proceed with his criminal pursuits elsewhere. It is time that the courts truly punish those involved in insurance fraud.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Coverage Cannot Be Created by Arguing Waiver or Estoppel

Often, Once An Insurance Company Has Denied Coverage To An Insured And Stated Its Defenses, The Company Has Waived Or Is Estopped From Raising New Defenses

After an accident involving plaintiff and non-party Michael Ragland who struck plaintiff while he was traveling through a crosswalk on an electric scooter. Plaintiff became stuck under Ragland’s vehicle, and he had to be transported by ambulance to the hospital for a number of injuries. In Christopher Carter v. Owners Insurance Company, doing business as Auto-Owners Insurance Company, No. 356556, Court of Appeals of Michigan (May 12, 2022) Carter sought no-fault benefits because of the reason used by the insurer was not effective.

BACKGROUND

Plaintiff’s father, who lives in Ohio, had an insurance policy with defendant that was sold by an Ohio-based broker. Following the accident, plaintiff notified defendant of his injuries arising from the accident.

Defendant sent plaintiff a letter stating that it was not responsible for personal injury protection (PIP) benefits to plaintiff because “[plaintiff] is not a named insured on” his father’s policy “nor is he a . . . domiciled relative of our named insured,” i.e. plaintiffs father. The letter informed plaintiff that he could still be eligible for PIP benefits from Ragland’s insurer, Farm Bureau Insurance Company, and defendant instructed plaintiff to inform it if Farm Bureau rejected his claim for benefits.

According to defendant, because plaintiffs injuries did not arise out of his use of a motor vehicle as a motor vehicle, it was not responsible for the payment of his PIP benefits. In making this argument, defendant conceded that, contrary to statements in its initial denial letter, plaintiff was a domiciled relative under his father’s policy, but argued that it was still not responsible for payment of plaintiff s PIP benefits-Farm Bureau was.

At a hearing on defendant’s motion, the trial court agreed with plaintiff and denied defendant’s motion for summary disposition. The trial court also denied the motion because plaintiff detrimentally relied on defendant’s assertion that plaintiff was not a domiciled relative of the named insured.

ORDER OF PRIORITY

Defendant first argues the trial court’s ruling with respect to MCL 500.3163(1) was error. Michigan’s no-fault act articulates the priority of insurers responsible for an injured party’s PIP benefits. The parties agree that plaintiff was domiciled with his father in Ohio at the time of the accident, that his father had an Ohio-based policy with defendant, and that plaintiff was a covered party under that policy. In other words, the parties agree that plaintiff was a nonresident insured by an out-of-state insurer, defendant.

Because plaintiffs injuries did not arise from his “ownership, operation, maintenance, or use of a motor vehicle as a motor vehicle,” defendant was not obliged under MCL 500.3163(1) to cover plaintiffs PIP expenses, and the trial court erred when it concluded differently.

ESTOPPEL

Defendant alternatively contended that the trial court improperly applied the “mend-the-hold” doctrine to hold defendant liable for plaintiffs claim. The Michigan Supreme Court explained the mend-the-hold doctrine as follows:

Where a party gives a reason for his conduct and decision touching any thing involved in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and a different consideration. He is not permitted thus to mend his hold. He is estopped from doing it by a settled principle of law. [CE Tackels, Inc v Fantin, 341 Mich. 119, 124; 67 N.W.2d 71 (1954) (quotation marks and citation omitted).]

The mend-the-hold doctrine has also been applied in the insurance context:

This court has many times held, and it must be accepted as the settled law of this state, that, when a loss under an insurance policy has occurred and payment refused for reasons stated, good faith requires that the company shall fully apprise the insured of all the defenses it intends to rely upon, and its failure to do so is, in legal effect, a waiver, and estops it from maintaining any defenses to an action on the policy other than those of which it has thus given notice. [Smith v Grange Mut Fire Ins Co of Mich, 234 Mich. 119, 122-123; 208 N.W. 145 (1926).]

Stated differently, “once an insurance company has denied coverage to an insured and stated its defenses, the company has waived or is estopped from raising new defenses.” South Macomb Disposal Auth v American Ins Co, 225 Mich.App. 635, 695; 572 N.W.2d 686 (1997).

Waiver and estoppel are not available where their application would result in broadening the coverage of a policy, such that it would cover a loss it never covered by its terms and create a liability contrary to the express provisions of the contract the parties did make.

The second class of cases allowing the limits of a policy to be expanded by estoppel or waiver involves instances where the inequity of forcing the insurer to pay on a risk for which it never collected premiums is outweighed by the inequity suffered by the insured because of the insurance company’s actions.

In this case, plaintiff’s requested PIP benefits would not be available under the defendant’s out-of-state policy that insures plaintiff, and the requirements of MCL 500.3163(1)-the statute that provides when an out-of-state insured can be required to pay Michigan no-fault benefits to a nonresident insured-were not met. Plaintiff is asking for defendant to be estopped from asserting a basis for nonliability other than the reason given in its initial denial letter.

This would, in effect, broaden the coverage of defendant’s policy, such that it would cover a loss it never covered by its terms and create a liability contrary to the express provisions of the contract the parties did make.

The decision to not name Farm Bureau as a defendant was plaintiff’s alone, and no act or omission by defendant induced it. Based on the above, the court concluded that this case does not present an instance in which estoppel can be used to bring within coverage risks not covered by the policy terms because defendant’s belated argument related to MCL 500.3163 did not prejudice plaintiff.

Plaintiff was prejudiced but not by defendant’s belated argument under MCL 500.3163 but by his decision to not name Farm Bureau as a defendant despite being informed by defendant that Farm Bureau was the insurer liable for his claim.

Therefore, the trial court erred as a matter of law in employing principles of waiver and estoppel to expand defendant’s insurance coverage under the policy at issue.

The trial court was ordered to enter summary disposition in favor of defendant.

ZALMA OPINION

Insurance is a contract. It should always be enforced as written. In this case the insurer mistakenly rejected the claim for a reason not available but learned, later, a reason that was appropriate. Because the injured party sued the wrong defendant and tried to change a policy by claiming waiver, he lost both.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Video Number 74

Someone Stole My Rolls Royce

See the full video at https://rumble.com/v14ysrv-true-crime-of-insurance-fraud-video-number-74.html and at https://youtu.be/JfjQ7CCiY4k

Investing in California real estate in the 1980’s was fun. Whatever you bought you could sell for more. The doctrine: “there is always a greater fool than I,” worked.

Li Chen Hua immigrated to California from Hong Kong in 1981. He did it legally, winning a lottery for a Green Card. He came to the U.S. with his savings (converted from Hong Kong dollars to diamonds for ease of transportation).

Li set himself up in a condominium on Wilshire Boulevard just west of the community known as Westwood and east of Beverly Hills. It only cost him $500,000. He bought three other condos in the same building that first year and paid his mortgages and living expenses from the rent he collected.

In 2008 the bottom fell out of the California real estate market. Mr. Li, found himself owning real estate mortgaged to over $14,000,000 but worth only $9,000,000. The rents he collected were not sufficient to pay the various mortgages and allow him to continue in the life style with to which he had become accustomed. He needed to make a great deal of money fast and then, leaving his mortgagees to fend for themselves, return to Hong Kong for a pleasant retirement.

Mr. Li’s cousin was the number one luxury car dealer in all of the People’s Republic of China. She had no competition, an almost unlimited supply of vehicles, and overhead limited to shipping costs. Li’s account at CitiBank, Hong Kong was growing. He put his savings in broad-based stock mutual funds specializing in high risk emerging markets. His investments doubled in two years.

Li decided it was time to stop while he was ahead. He would ship his pRoger Parsons, the claims supervisor at Massive and Stoney Insurance Company, looking out his window at the slow moving, brown Illinois River, was about to order a check for the settlement when he received a report from the NICB that the car had been shipped by Li to Hong Kong a month before the reported theft. Customs officials in Hong Kong reported the car arrived and was picked up by its consignee. The NICB had copies available of the shipping documents with Mr. Li’s signature.

Massive and Stoney retained counsel to examine Mr. Li under oath about the theft. Li and his attorney appeared at Massive’s lawyer’s office belligerent, demanding immediate payment of a legitimate insurance claim.

“Mr. Li is a wealthy and highly respected member of the community. This examination under oath is a waste of time and an attempt to create useless and unwarranted delays. If payment is not received immediately, Mr. Li will sue Massive and Stoney for bad faith” Len Shyster, Li’s attorney, orated.

The examination under oath was not completed. Using his testimony at the examination under oath the NICB, working with Massive and Stoney and fifteen other insurers, the California Highway Patrol, the US Customs Service and the Fraud Division of the California Department of Insurance resulted in a major arrest of 41 individuals, including Li, for insurance fraud, grand theft, and fraud against lenders. A ring of insurance criminals who made hundreds of millions of dollars from insurers across the United States was stopped because one of the criminals allowed his customs broker to record the VIN number of his automobile before it was shipped out of the US.

Li, the instigator of the fraud, testified against his coconspirators. He served six months of electronic confinement to his penthouse apartment and paid $250,000 in restitution to one insurer.

He is now living a comfortable retirement in Hong Kong.

ZALMA OPINION

The state should be proud that they took down a massive insurance fraud scheme but, because they needed him, Li retired a rich man to Hong Kong. He may regret it now that the Communist Party took over Hong Kong.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Lack of Covered Concurrent Cause Defeats Concurrent Cause Argument

Clear & Unambiguous Exclusion Affirmed

Amy Higgs (“Higgs”) individually and on behalf of her deceased son, Cayson Emmit Turnmire (“Cayson”), sued David Payne (“Payne”) for the negligent maintenance of his property in relation to Cayson’s death by drowning in Payne’s swimming pool. Tennessee Farmers Mutual Insurance Company (“Tennessee Farmers”), Payne’s homeowners’ insurance carrier, sued seeking declaratory judgment the Trial Court against Payne and Higgs. Tennessee Farmers argued that, due to an exclusion in Payne’s homeowners’ insurance policy against claims “arising from or in connection with the swimming pool,” it is not obligated to defend or indemnify Payne. Tennessee Farmers Mutual Insurance Company v. David Payne, et al., No. W2021-00376-COA-R3-CV, Court of Appeals of Tennessee (May 13, 2022)

Tennessee Farmers and Higgs filed cross motions for summary judgment. The Trial Court granted Tennessee Farmers’ motion and denied Higgs’ motion. Higgs appealed.

THE APPEAL

Citing the concurrent cause doctrine, Higgs argued that Tennessee Farmers must defend and indemnify Payne as, apart from the pool, certain non-excluded causes contributed to Cayson’s death-namely, Payne’s failure to fence or gate his property.

OPINION

Higgs, individually and on behalf of her deceased son, Cayson, sued Payne for the negligent maintenance of his property in relation to Cayson’s death by drowning in Payne’s swimming pool. As Higgs did laundry, Cayson wandered into Payne’s yard, climbed up on his unsecured deck, and drowned in Payne’s swimming pool. Tennessee Farmers asserted that, based on an exclusion contained in Payne’s policy, it had no obligation to defend or indemnify Payne in this matter. The exclusion states:

PERSONAL LIABILITY AND MEDICAL PAYMENTS TO OTHERS COVERAGE PROVIDED BY THIS POLICY SHALL NOT PROVIDE PROTECTION FOR ANY CLAIMS OR DAMAGES ARISING FROM OR IN CONNECTION WITH THE SWIMMING POOL ON THE INSURED PREMISES.

The Trial Court entered an order granting Tennessee Farmers’ motion for summary judgment and denying Higgs’ motion for summary judgment.

The Complaint is predicated upon negligence by Defendant as it relates to the pool where the Complaint alleges, among other things:

  • Defendant Payne did not have a fence or gate around the pool or his property. Rather, he had a deck that partially surrounded the aboveground pool, providing easy access to the pool[.]
  • The child’s death was proximately caused by Defendant’s failure to maintain his property and pool in a reasonable and safe manner and condition.
  • Defendant’s breaches of duty include but were not limited to:
    • Failing to have a fence around his pool and/or property,
    • Failing to have a gate to prevent access to his pool,
    • Failing to secure, lock, or remove the steps to the aboveground pool to prevent access to the pool,
    • Failing to have a pool alarm,
    • Failing to exercise reasonable and ordinary care under the circumstances, and
    • Defendant is guilty of violating Tenn[.] Code Ann[.], §68-14-801 et Seq “Katie Beth’s Law” (Pool Alarms) and said violation constitutes negligence per se and was a direct and proximate cause of the minor child’s death and injuries[.]

At the time of the incident, based on the relevant undisputed facts: Defendant’s property was insured by an all-risk policy with Tennessee Farmers Mutual Insurance Company for which he was paying a premium.

ANALYSIS

Viewing the complaint and evidence in the light most favorable to Respondent Higgs, the claims in the Complaint arise from or in connection with the swimming pool on Respondent David Payne’s property and although they may have been otherwise covered under the general terms of the “all-risk policy” the Court of Appeal concluded that it was clear that the endorsement expressly excludes coverage, and the Court finds no ambiguity in the words “arising from or in connection with the pool” or its applicability in this case[.]

Further, it is of no consequence that the policy does not explicitly provide an exclusion concerning coverage for claims or damages arising from or in connection to Defendant’s decks or other defects or deficiencies on Respondent Payne’s property such as lack of fencing because these alleged breaches of duty are linked to the swimming pool.

There is no allegation that these alleged breaches of duty were defective any way other than as it relates to the pool and there are no allegations that injuries would have resulted if there was no pool.

In this case, there is no other separate cause or non-excluded cause for the injuries. As such, the concurrent coverage theory is not applicable.

The Tennessee Supreme Court most recently addressed the concurrent cause doctrine in Clark v. Sputniks, LLC, 368 S.W.3d 431 (Tenn. 2012), a case featuring an issue of whether liability insurance coverage existed so as to cover plaintiffs’ injuries stemming from an altercation at the insured’s bar and restaurant.

Tennessee recognizes the concurrent cause doctrine, which provides that there is insurance coverage in a situation “where a nonexcluded cause is a substantial factor in producing the damage or injury, even though an excluded cause may have contributed in some form to the ultimate result and, standing alone, would have properly invoked the exclusion contained in the policy.” Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 887 (Tenn. 1991).

Higgs’ mere assertion or conclusion that homeowners are duty-bound in general to fence in their property, whether they have a swimming pool or not, is unsupported by any facts or law. The absence of a fence from Payne’s property is meaningful to the question of Tennessee Farmers’ obligation to defend and indemnify this claim only if it constituted a non-excluded concurrent cause of Cayson’s death not “arising from or in connection with the swimming pool on the insured premises.”

The chain of events leading to the ultimate harm did not begin with an excluded risk; it ended with one. Moreover, the issue with Higgs’ proffered non-excluded concurrent causes is not their sequence in the chain of events leading to Cayson’s death, but whether these proffered causes constitute non-excluded concurrent causes at all. Each of Higgs’ alleged non-excluded concurrent causes are bound up inextricably with Cayson’s tragic drowning in Payne’s pool, an excluded cause under Payne’s insurance policy.

Under the facts of this case, Higgs alleged non-excluded causes of no fence or gate securing Payne’s pool or property cannot be negligent except “in connection with the swimming pool on [Payne’s] premises.” In other words, it is not a matter of “but for” the pool; it is the pool only.

The language in Payne’s insurance policy is clear and unambiguous-there is no “personal liability” or “medical payments to others” coverage for any claims or damages “arising from or in connection with the swimming pool on the insured premises.”

Higgs’ complaint alleges no non-excluded concurrent cause. Tennessee Farmers is not obligated to defend or indemnify Payne in this matter. Having held that no non-excluded concurrent cause was alleged in this case, the judgment of the Trial Court is affirmed, and this cause is remanded to the Trial Court for collection of the costs below.

ZALMA OPINION

The concurrent cause doctrine has helped insured’s obtain insurance coverage in the face of a clear and unambiguous exclusion. However, there must be a covered cause of loss that concurs with the excluded cause in effecting the damage. In this case there was only one cause of the child’s death, the pool. Ms. Higgs is not without a remedy, she may still proceed against Payne and collect any judgment against his assets.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Zalma’s Insurance Fraud Letter – May 15, 2022

ZIFL May 15, 2022

Volume 26, Issue 10

See the full video at https://rumble.com/v14q7g0-zalmas-insurance-fraud-letter-may-15-2022.html and at https://youtu.be/UYektUideZY

Prosecution Proper for Accident in Missouri and Fraud in Kansas

Crossing a State Line to Present a Fraudulent Claim Doesn’t Work

ZIFL-05-15-2022.

Under K.S.A. 2020 Supp. 21-5106(a)(1) and (b)(3), a Kansas court has jurisdiction over a crime partly committed in Kansas by a criminal actor who commits either (1) an act that constitutes a constituent and material element of the offense or (2) an act that is a substantial and integral part of an overall continuing criminal plan and the act causes an effect or consequence in Kansas close enough in time or cause to be a proximate result. Two courts found no jurisdiction but the Supreme Court read the whole statute and found jurisdiction in State of Kansas v. Ivan Rozell, No. 121, 094, Supreme Court of Kansas (April 22, 2022)

Doctor Who Defrauded Health Insurers Tried to Back Out of Plea Deal

In State Of New Jersey Amgad A. Hessein, No. A-0983-20, Superior Court of New Jersey, Appellate Division (April 26, 2022) Dr. Amgad A. Hessein, a physician facing a thirty-eight-count indictment alleging billing fraud related to his medical practice, was on the verge starting his trial after completion of jury selection when he pled guilty to second-degree theft by deception, N.J.S.A. 2C:20-4(a), and second-degree health care insurance claims fraud, N.J.S.A. 2C:21-4.3(a).

Drivers Admit Lying When They Apply for Auto Insurance

How Much Americans Think They Save By Lying on Auto Insurance Applications

In an article at https://www.propertycasualty360.com/2022/05/10/how-many-americans-lie-on-auto-insurance-applications/ the authors report about a survey that showed that the primary reason Americans lie to car insurance companies is to save money. About a third of survey participants said they lie because they’re a high risk and know they’d pay higher premiums telling the truth.

Convicted Fraudster Frivolously Keeps Trying to Avoid Jail

Those Who Commit Insurance Fraud Have Funds to Issue Interminable Motions & Appeals

Insurance fraud convictions are unreasonably rare and when the perpetrator is convicted the convicted defendant seems to have unlimited funds to appeal the convictions. Imtiaz Shareef, after his conviction, unsuccessful in his first appeal filed a new appeal claiming his lawyers failed him.

In Imtiaz Shareef v. United States of America, Nos. 3:22-cv-001144-RJC, 3:18-cr-00157-RJC-DCK-3, United States District Court, W.D. North Carolina, Charlotte Division (May 4, 2022) the USDC put a stop to Shareef’s appeals.

Fake Claim Defeated by Surveillance in the U.K.

Anthony Hawkins, a retired scrap metal dealer’s £1.1 million insurance claim dismissed in full after an investigation carried out by Admiral Insurance and Horwich Farrelly found the claimant to be a liar who fabricated evidence to fraudulently inflate the value of his claim of loss of earnings.

Hawkins, claimed that he suffered multiple and serious injuries in a road traffic accident on 23 August 2014. As a result of his injuries Hawkins spent 26 days as an inpatient. Hawkins also claimed that he suffered recurrent infections around the metalwork in the injured right forearm. Central to his claim for lost earnings was a handwritten, undated letter that alleged to offer the claimant employment at the same scrap yard he had previously sold for a salary plus weekly bonuses.

Strems Law Firm Settles Fraud Suit with Insurers

The Strems Law Firm, a Miami-based law firm and its co-defendants agreed to a $1 million settlement with Citizens Property Insurance Corporation (Citizens) after the state-created insurer filed a lawsuit that alleged fraudulent claims involving the firm in collusion with a public adjusting firm and a water mitigation company.

Health Insurance Fraud Convictions

Clinic Owner Sentenced To Federal Prison For Laundering Money For ‘Pill Mill’

Defendant Also Bought Mercedes And Hummer With Profits

Jamesetta Whipple-Duncan, 59, of Savannah, a former Garden City, Georgia, clinic owner and CEO was sentenced to federal prison for 60 months after admitting she laundered money in connection with a notorious “pill mill” doctor who illegally dispensed massive amounts of drugs. She pleaded guilty to Money Laundering. U.S. District Court Judge Lisa Godbey Wood also ordered Whipple-Duncan to pay $86,074 in restitution and to serve three years of supervised release after completion of her prison sentence. There is no parole in the federal system. Plus many more.

Other Insurance Fraud Convictions

Guilty of Murder-For-Hire & Insurance Fraud Case

 Euri Jenkins heard a Florida jury return a guilty verdict saying he was the orchestrator of a 2017 plot to kill his pregnant wife. Deliberations lasted less than a day before the jury reached a decision on the charge of first degree murder. Jenkins, 35, now faces life in prison without parole. Prosecutors told the jury that he plotted with another man, Joevan Joseph, then 19, to kill his wife, Makeva Jenkins. Plus many more convictions.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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New Books on Insurance Issues from Barry Zalma

Books Needed by Every Insurance Professional

“Insurance Fraudsters Deserve No Quarter”

New Book That Explains How to Defeat or Deter Insurance Fraud

What every insurer should know about how it can be proactive in the efforts against insurance fraud by refusing to pay every fraudulent claim.

How Giving No Quarter Worked

Many years ago a client I represented was offended that an insured tried to defraud him and the people who were names in the syndicate he represented at Lloyd’s, London. I walked the Underwriter through the debris of the house that was burned, showed him some of the remains of the allegedly highly valuable fine arts, and then explained how he was deceived into issuing the policy. I was the attorney for Lloyd’s underwriters for the fine arts and Imperial Casualty for the homeowners policy. Once it became clear to the Underwriter I was given the following instruction:“Take No Prisoners!” The military instruction to give no mercy to the enemy. Typically if you give or grant no quarter, you treat someone—usually an opponent or foe of some kind—harshly. You don’t take pity on them or give them any leeway or concession. That is what I did. The claim was denied, the policy was rescinded, and the bad faith suit that resulted was litigated without quarter or concession. It took more than five years, a motion for summary judgment, an appeal, and eventually a judgment in favor of the insurers that resulted in payment to the insurers of every dollar advanced and every dollar expended in investigation and defense of the bad faith suit. That was followed by suits against the claims adjuster, death threats and a bomb threat that took 15 years of my professional life. The appellate decision can be read at Imperial Casualty & Indemnity Co. v. Sogomonian, 243 Cal.Rptr. 639, 198 Cal.App.3d 169 (Cal. App. 1988).After Mr. Sogomonian and his co-defendants were compelled to pay fraudulent claims against Imperial and the Lloyd’s underwriters dropped precipitously. Giving no quarter to a fraud perpetrator not only defeated a fraudulent claim but deterred others from attempting fraud.The Imperial v. Sogomonian case and many similar cases is why I am convinced that giving no quarter to a fraud perpetrator is the best way to deter and defeat insurance fraud and why I wrote this book to convince more insurance professionals to emulate the insurers that defeated the Sogomonian attempt at fraud.

How to Proactively Work to Defeat or Deter Insurance Fraud

Available as a Kindle Edition, a Paperback or a Hardcover

What every insurer should know about how it can be proactive in the efforts against insurance fraud by refusing to pay every fraudulent claim, by refusing to settle litigation brought by fraud perpetrators and by proactively taking the fraud perpetrators to court by seeking damages for common law fraud and take the profit out of insurance fraud.No one knows the true extent of insurance fraud because most attempts at insurance fraud succeed. Estimates are extrapolated from those few people who attempt insurance fraud that are caught.Insurance fraud is a crime in most states of the United States and in most countries the usual victims of the crime of insurance fraud are insurers. Some creative people have created fraudulent insurance companies that exist to defraud the insurance buying public who acquire insurance from the fraudulent insurers.The crime of insurance fraud is ubiquitous and is committed by every race, gender, national origin, religion, or sexual orientation.Unlike other victims of crime state legislatures require insurers create special investigative units (SIU) to thoroughly investigate all potential insurance fraud and present evidence to the authorities so that they can prosecute insurance fraud. Unfortunately, experience of the insurance industry has established that even when the insurer’s SIU presents a case to the state’s Fraud Division or Fraud Bureau for criminal prosecution, it is rare that a prosecution is commenced and a conviction obtained.State insurance departments brag about convictions in double digits when they receive as many as 1500 reports of suspected fraudulent claims every 30 days. Prosecutors dislike insurance fraud cases because they are usually document heavy while an assault, rape, murder or drunk driving are usually summarized by a single police report and are, therefore, relatively easy to prosecute to a jury or obtain a plea of guilty.Some insurers are buying Artificial Intelligence software to detect insurance fraud. Others hire retired police officers to operate the SIU and ignore their experienced insurance claims handlers.Most do the minimum necessary to fulfill the requirements of the anti-fraud statutes and regulations concluding that it is better to pay the fraudsters than to fight fraud attempts proactively.All insurers and those who regulate insurers agree that regardless of where the insurance is sold, regardless of where the promises made by an insurance policy are required to indemnify an insured, insurance fraud is a serious problem for the insurance industry. All attempt to deter or defeat insurance fraud to one extent or another.All recognize that if there is an insurance claims that is denied for fraud it is axiomatic that the insured, so accused, will file suit for breach of contract and for the tort of bad faith. Bad faith lawsuits, even when they fail, take the value out of the effort to deter or defeat insurance fraud since defense of the bad faith suit will usually exceed the amount of the claim that was denied.On an individual claim basis it is never cost effective to reject the claim for fraud. However, knowledgeable insurance fraud investigative professionals recognize that an aggressive effort against insurance fraud, refusal to pay a settlement to avoid litigation, and forcing the fraud perpetrator to litigate through trial and appeal will become known to those who make a living defrauding insurers, that the insurer is not a pushover and will avoid fraud attempts against that insurer and move to insurers the fraud perpetrators know will pay rather than fight.Available as a paperback here.  Available as a hardcover here. Available as a Kindle Book here.

“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”

Insurance Fraud Volume I Second Edition: How Lawyers & Claims People Defeat Insurance FraudInsurance 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. No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous. When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. The effort to stop insurance fraud against Medicare and Medicaid has increased in recent years. Insurance Fraud Volume II Second Edition: A Manual for How Lawyers & Claims People Can Defeat Insurance FraudThis book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes. It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume I of Insurance Fraud includes the following:

  • Insurance Fraud is Epidemic.
  • Measuring Insurance Fraud
  • What is Insurance Fraud?
  • Arson for profit.
  • Soft Fraud
  • Hard Fraud
  • Insurance Against the Risk of Loss of Real or Personal Property
  • Liability Insurance
  • Interpretation of Insurance Contracts
  • Ethics & The Insurance Fraud Investigation
  • Fraud by Professionals
  • First Party Property Fraud
  • Health Insurance Fraud
  • Insurance Fraud is a Crime
  • Fraud Created by Legal Professionals
  • Fraud in the Acquisition of Insurance
  • Fraud in the Presentation of a Claim
  • Investigation of a Claim for Fortuity
  • Investigating Fraud
  • Arson for Profit Investigation
  • Investigation Methods
  • Evaluation of Medical Records

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.
INSURANCE FRAUD IS EPIDEMIC
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
  • Fom 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 bookAvailable as a HardcoverAvailable as a Paperback

“Ethics for the Insurance Professional – Third Edition”

How The Covenant of Good Faith and Fair Dealing Requires Insurance Professionals to Act Ethically and With Utmost Good Faith and Fair Dealing

by Barry Zalma

Ethics is Essential to the Insurance Professional

Insurance is, by definition, a business of the utmost good faith. This means that both parties to the contract of insurance must act fairly and in good faith to each other and do nothing that will deprive the other of the benefits the contract of insurance promised.

In essence the covenant requires that each party to the contract of insurance treat the other ethically, fairly and in good faith.

Without the covenant of good faith and fair dealing and without the people who work in the insurance industry applying and fulfilling the covenant ethically, insurance is impossible. One cannot act fairly and in good faith without being a person with a well-formed ethical compass.

In Carter v. Boehm S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3 Lord Mansfield in the British House of Lords stated: “Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.”

Insurers, when making a decision to insure or not insure a risk, rely on the information provided to them by the insured. As Lord Mansfield instructed, the insured must provide the information requested honestly and in good faith. Failure to do so is unethical and breaches the covenant of good faith.

The implied covenant explains that no party to a contract of insurance should do anything to deprive the other of the benefits of the contract. By so doing an insurer must keep all the promises made by the policy fairly, promptly and in total accord with the promises made by the policy. Similarly, a person insured must treat the insurer ethically, fairly and in good faith when seeking the insurance.

The implied covenant of good faith and fair dealing imposes obligations not only as to claims by a third party but also as to those claims made by the insured. When the insurer unreasonably, and in bad faith, withholds payment of the claim of its insured, it is subject to liability in tort. For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it again must give at least as much consideration to the latter=s interests as it does to its own.

Therefore, since, at the very least 1766, the business of insurance is a business of the utmost good faith. Each party to a contract of insurance must deal with each other ethically. The general duty of good faith and fair dealing incorporated by reference into every policy of insurance requires a complete understanding of ethics and ethical behavior.

In every insurance contract there is an implied covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. It was the decision of the California Supreme Court in Gruenberg v. Aetna Insurance Co., 9 Cal.3d. 566, 108 Cal. Rptr. 480 (1973) that first stated that the tort of bad faith will apply to first party insurance in the state of California. Gruenberg was adopted in a majority of the states of the United States making the breach of an insurance contract unethically and in bad faith became a tort.

The covenant is mutual and the principles of good faith and fair dealing impose an affirmative obligation on the insured to cooperate as much as it requires the insurer to treat the insured fairly with regard to every claim presented

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True Crime of Insurance Fraud Video Number 73

Nobody’s Been Hurt

Why Some People Believe Insurance Fraud is no Criminal

See the full video at https://rumble.com/v14h8gs-true-crime-of-insurance-fraud-video-number-73.html and at https://youtu.be/QorXQ5w07qk

Dr. Scrooge was eighty-five-years old. He lived with his daughter and son-in-law in a remodeled tract home outside of Portland, Oregon.

The doctor’s daughter had insisted that he move into her house, even though he owned one of his own, after his last heart attack. She was afraid that her father, now a widower, would succumb to his passion for chocolate fudge ice cream.

Only two months before he moved to his daughter’s house Dr. Scrooge managed to consume a full gallon of chocolate fudge ice cream at a single sitting. Shortly after that, as any healthy person under the same circumstances would, Dr. Scrooge felt serious pain in his chest.

There was no question that Dr. Scrooge had a heart condition. It was, however, a condition that could be controlled by medication.

After moving in with his daughter, Dr. Scrooge signed an agreement with a health maintenance organization who promised him no premium and better services than Medicare. Always on a look out for a bargain, Dr. Scrooge was pleased with the plan even though it did not pay 100% of all his pharmacy charges. He had many drug samples in his house given to him by drug-salesmen. He did not expect to ever need to buy a drug. He happily filled his own prescriptions for the medication his cardiologist prescribed to keep him healthy.

Dr. Scrooge’s son-in-law was a detective with the Bunco-Forgery Division of the Portland Police Department. The Portland police provided its officers with an excellent preferred provider health plan. They could use any doctor they desired and were only required to pay $5 for every prescription drug they purchased regardless of the true cost of the drug. Dr. Scrooge’s HMO required a payment of up to $25 per prescription, depending on the cost of the drug.

Since he lived with them, Dr. Scrooge (although he did not actively practice) still maintained his medical license. He would, at the request of his daughter, write prescriptions for antibiotics and other benign drugs requested for the assistance of the family. Occasionally he would even go to the drug store and pick up the drugs for the family as long as his daughter gave him a $5 bill for the pharmacist.

Dr. Scrooge’s cardiologist was well read. He prescribed only the most recent and most effective heart medications. The drugs he prescribed, because they were new, and no generic variations were yet on the market, were extremely expensive. Much to the shock of Dr. Scrooge they were also so new that he had none in his supply of drug samples. The drug salesmen knew he was retired and refused to provide him with any further samples.

Five months after Dr. Scrooge started his plan of saving on prescription drugs, the detective was called into his captain’s office.

“When was your last physical?”

“About a year ago, Captain. Why do you ask?”

“I’m concerned about your health, Wilson.”

“No reason, Captain, my health is perfect. The doctor gave me a clean bill and said that I had cholesterol levels equal to a person ten years younger than me.”

“He did, did he. Wilson, do you use a doctor named Scrooge?”

“Well, I don’t really use him as my physician. He lives in my house. He’s my father-in-law.”

“Wilson, I have a report here from our health insurance administrator telling me that Dr. Scrooge has written prescriptions for blood thinners, blood pressure mediation, diuretics and nitroglycerin, in your name. These drugs are only prescribed for people with a serious heart condition. Are you taking those drugs?”

“Dad, have you been writing prescriptions for your heart medicine in my name?”

“Yes.”

“Why?”

“Because they only cost $5 on your insurance plan, and they cost $25 on mine.”

“Don’t you remember what I do for a living? Have you no idea what you have done? You have committed fraud in my name!”

“But no one was hurt, the insurance company pays these bills all the time.”

Wilson, the next day, was forced to speak to his captain and inform him that his father-in-law had attempted to save some money on his own insurance by making his prescriptions out in Wilson’s name. He convinced the Captain that, although technically the old man had committed a crime, it would serve no purpose to put him in prison at his advanced age. It might even please the old man because, in prison, he would get the medicine for free.

Wilson’s record was noted, his next promotion was delayed by twelve months. His father-in-law refused to fill his own prescriptions and pay the extra $20. Because he did not have the medication to take, he had a real heart attack and was hospitalized for three weeks.

Dr. Scrooge still believes that no one is hurt by insurance fraud.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Never Settle a Proactive Suit Against Fraudsters

Anti-SLAPP Suit Effective When Plaintiff Unable to Prove Lack of Probable Cause

When nine insurers sued a doctor for conducting a scheme to defraud them they folded after a partial summary judgment was granted by a US District Court leaving other charges of fraud available. The insurer plaintiffs then settled with Dr. Ajay Mahabeer only to be sued for maliciously prosecuting the suit against him. In Ajay Mohabeer v. Farmers Insurance Exchange, et al, A172057, 318 Or.App. 313, Court of Appeals of Oregon (March 16, 2022) the Oregon Court of Appeals ruled on the insurers’ Anti-SLAPP Motion.

BACKGROUND

Plaintiff brought this action against nine insurance company defendants (collectively Farmers) and Farmers’ attorneys, Cole, Wathen, Leid & Hall, P.C., and Ryan J. Hall, for wrongful use of civil proceedings, alleging that defendants filed insurance fraud claims against plaintiff in federal court, which were ultimately settled, but which were brought with malicious intent and without probable cause. The Defendants filed a special motion to strike the claims under ORS 31.150, Oregon’s Anti-Strategic Lawsuits Against Public Participation (anti-SLAPP) statute, contending that plaintiffs claims seek damages for conduct that is protected under ORS 31.150(2), and that plaintiff could not present substantial evidence that he would prevail on his claim.

Defendants appealed.

THE SLAPP MOTION

The special motion to strike, ORS 31.150(1) provides:

A defendant may make a special motion to strike against a claim in a civil action described in subsection (2) of this section. The court shall grant the motion unless the plaintiff establishes in the manner provided by subsection (3) of this section that there is a probability that the plaintiff will prevail on the claim. The special motion to strike shall be treated as a motion to dismiss under ORCP 21 A but shall not be subject to ORCP 21 F. Upon granting the special motion to strike, the court shall enter a judgment of dismissal without prejudice. If the court denies a special motion to strike, the court shall enter a limited judgment denying the motion.

A defendant making a special motion to strike has the initial burden to make a prima facie showing that the plaintiffs claim is of the type described in Oregon statutes. If the defendant meets that burden, the burden shifts to the plaintiff in the action to establish that there is a probability that the plaintiff will prevail on the claim by presenting substantial evidence to support a prima facie case.

Plaintiff is a licensed medical doctor who practiced medicine in association with First Choice Chiropractic clinics. In 2013, defendants filed several claims in federal court naming as defendants First Choice Chiropractic clinics, plaintiff, and several other individuals, based on allegations that the clinics and individual defendants had committed insurance fraud by making false reports of alleged symptoms and exaggerated findings designed to make it appear that the patient either had or continued to have injuries/ symptoms which did not actually exist.

Farmers and plaintiff subsequently settled Farmers’ remaining claims against plaintiff in the underlying action and stipulated that plaintiff would be considered the prevailing party.

On appeal, it is undisputed that plaintiffs claim falls within ORS 31.150(2Xb). The allegations of plaintiffs claim are based solely on written statements and documents provided to the federal court in the context of the underlying action. The only dispute on appeal concerns whether plaintiff has met his burden to present prima facie evidence as to each element of his claim of wrongful use of civil proceedings.

DISCUSSION

One element of the claim of wrongful use of civil proceedings is an absence of probable cause to prosecute the underlying action. “Probable cause” means that the person initiating the underlying action “reasonably believes” that there is a good chance of prevailing, viz., the person “has that subjective belief and that belief is objectively reasonable.” Defendants assert that plaintiff has not sustained his burden to present prima facie evidence that Farmers lacked probable cause to bring the underlying action.

Oregon’s anti-SLAPP statute provides “an expedited procedure for dismissal of certain nonmeritorious civil cases without prejudice at the pleading stage.” [Neumann v. Liles, 358 Or. 706, 723, 369 P.3d 1117 (2016).]

When facts are in dispute, proof of the absence of probable cause in establishing a claim for wrongful use of civil proceeding is a mixed question of law and fact. In the context of the special motion to strike, however, the existence of prima facie proof of the elements of the claim being challenged by the motion is something that the court determines as a matter of law, based on the pleadings and supporting and opposing affidavits stating the facts upon which the liability or defense is based. It is, therefore, not premature for the court to decide whether prima facie evidence of the elements of the claim has been presented before full discovery or for a party to raise the issue on appeal of the denial of a special motion to strike.

Defendants contended that the summary judgment ruling of the federal district court in the underlying action either conclusively establishes that Farmers had probable cause to bring the underlying action or gives rise to a rebuttable presumption of probable cause.

The federal district court concluded that Farmers had demonstrated genuine issues of material fact as to whether plaintiff (1) made material misrepresentations, either knowingly or recklessly, by signing off on falsified chart notes; (2) engaged in a pattern of racketeering by committing indictable acts through wire and mail fraud; (3) engaged in a conspiracy to commit racketeering; and (4) was unjustly enriched by fraudulent claims made to Farmers by falsified chart notes.

The Court of Appeal adopted a categorical rule that the denial of a motion for summary judgment in the underlying litigation conclusively established or created a rebuttable presumption of probable cause. Independent of the federal district court’s summary judgment ruling in the underlying action, there was ample evidence in the record that defendants had probable cause to name plaintiff as a defendant in the underlying action, including affidavits of former clinic employees, who described plaintiffs participation in a scheme to over-treat patients and overbill insurance.

Plaintiff disputed that evidence but has not rebutted it with evidence to support his position.

The Court of Appeal concluded, therefore, that plaintiff did not met his burden to present prima facie evidence of a lack of probable cause, and that the trial court erred as a matter of law in denying defendants’ special motion to strike.

ZALMA OPINION

Insurance companies that proactively file suit against people they believe have perpetrated fraud against them should be commended. However, the insurers bringing such actions – whether direct or under qui tam statutes – must have the courage of their convictions since insurance fraudsters have no morals. In this case, after entering into a settlement with the doctor they faced a suit from the doctor which could have been avoided if they insisted on taking the federal fraud case to trial. Since the USDC refused to grant the doctors summary judgment motion there was obviously probable cause to bring the action.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Video Number 72

Levon Sogomonian v. Imperial & Lloyd’s

Arson-for-Profit Fails Because of Rescission

See the full video at  https://rumble.com/v14clro-true-crime-of-insurance-fraud-video-number-72.html?mref=6zof&mrefc=2 and at https://youtu.be/7kExtQHAK14

Since I began writing these stories in 1990 I have changed the names of the parties to protect the guilty. This is an exception.

In 1981, Levon Sogomonian, a person who claimed to be a refugee from Soviet Armenia purchased a homeowners policy from Imperial Casualty. Simultaneously he purchased a Personal Articles Floater (PAF) from Underwriters at Lloyd’s, London insuring him up to a limit of liability in excess of $2 million for the loss of his house and its contents. Shortly after receiving the policies, an arson fire occurred destroying the house and its contents.

On investigation Mr. Sogomonian’s insurers proved that he had lied on the applications for insurance to Imperial Casualty and Lloyd’s. The Superior Court granted the insurers’ motion for summary judgment. The Court affirmed the insurers rescission of the policies from their inception. Mr. Sogomonian appealed, and that decision is reported as Imperial Casualty v. Sogomonian 198 Cal.App. 3d 169, 243 Cal. Rptr. 639 (1988)

The Appellate Court, noting that the trial court failed to determine how much money Mr. Sogomonian owed to the insurers as a result of his fraud sent the case back down to the trial court for a determination of the amounts owed by Mr. Sogomonian.

Judge Miriam Vogel (now justice of the Court of Appeal) tried the case without a jury. Mr. Sogomonian contended that he should not be obligated to repay any funds to the insurer. He claimed the insurers’ acted in bad faith by losing the debris from the fire Sogomonian valued at $2,000,000.

Imperial and Lloyd’s had, to protect the evidence, collected all of the debris of the personal property destroyed in the fire and stored it at Bekins Van & Storage. Sogomonian claimed the loss of the valuable debris was a malicious act that should deprive the insurers of any reimbursement.

After hearing several days of sworn testimony, Judge Vogel made the following conclusions:

The fire at the Sogomonian residence was an arson that was probably committed by, or at the direction of Mr. Sogomonian.

After viewing the debris at Bekins Van & Storage she concluded that nothing was missing and, even if it was missing, the debris was valueless.

Mr. Sogomonian was required to reimburse Imperial and Lloyd’s for all of the money expended by them in making advance payments, making payments to innocent mortgagees, and for attorney’s fees and costs incurred in the declaratory relief action a sum over $500,000.

Mr. Sogomonian, in a cross-complaint against his insurance agent managed to convince that agent’s insurer to pay the damages in exchange for a release of the agent.

Sogomonian, however, was unwilling to acknowledge his loss. He was angry and desired retribution. He concluded that his loss of the $2 million he expected to make from his fraudulent insurance claim was due to the activities of the investigators retained by Lloyd’s and Imperial, the late Leslie M. Schifrin of Schifrin, Gagnon & Dickey, in Van Nuys, California.

Sogomonian filed a lawsuit, in propria persona, in the Los Angeles Superior Court naming Mr. Schifrin and his firm as defendants. Sogomonian alleged that Mr. Schifrin had converted, lost or stolen $2 million in valuable fire debris that Judge Vogel had decided was not lost and had no value. Mr. Schifrin hired counsel to defend himself and his firm from this frivolous lawsuit and obtained, after spending more than $10,000 in attorney’s fees, a judgment in his favor.

Mr. Schifrin, and his counsel, concluded that Mr. Sogomonian should not profit from his wrongful activities. Mr. Schifrin, therefore, filed a complaint with the Superior Court accusing Sogomonian of maliciously prosecuting the lawsuit against Schifrin.

At the first settlement conference called, the settlement judge was livid. He advised Mr. Sogomonian, from the bench, that his actions in suing Mr. Schifrin were despicable and an absolute misuse of the judicial system for the sole purpose of revenge. He advised Mr. Sogomonian to settle for any amount Mr. Schifrin was willing to accept. Sogomonian responded that he, not Schifrin, was the victim and that Schifrin had stolen his merchandise. The judge threw up his hands in desperation and closed the hearing.

On June 1, 1994, after several continuances because of Mr. Sogomonian’s alleged ill health, the case was scheduled to come to trial in Van Nuys Superior Court. The day before the trial a check arrived on counsel’s desk for the amount of Mr. Schifrin’s demand. The trial did not go forward. Mr. Schifrin, after receiving three death threats and thirteen years of spurious and frivolous activities by Mr. Sogomonian, received a small amount of justice.

The lawyer who advised Sogomonian to file the original suit failed to appear for trial because he was in jail for exchanging shots with a person who owed him legal fees.

It took 15 years but some justice was done to a person involved in a fraud.

ZALMA OPINION

It is important when faced with an arson-for-profit scheme and insurance fraud it is essential that the insurers who have sufficient evidence to prove the fraud to insist on resolving the invariable bad faith suit from the arsonist to the highest courts in the land. Mr. Sogomonian was persistent but eventually failed totally and was required to pay restitution to the insurers. The state of California refused to even consider criminal prosecution.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Convicted Fraudster Frivolously Keeps Trying to Avoid Jail

Those who Commit Insurance Fraud Have Funds to Issue Interminable Motions & Appeals

Insurance fraud convictions are unreasonably rare and when the perpetrator is convicted the convicted defendant seems to have unlimited funds to appeal the convictions. Imtiaz Shareef, after his conviction, unsuccessful in his first appeal filed a new appeal claiming his lawyers failed him.

In Imtiaz Shareef v. United States Of America, Nos. 3:22-cv-001144-RJC, 3:18-cr-00157-RJC-DCK-3, United States District Court, W.D. North Carolina, Charlotte Division (May 4, 2022) the USDC put a stop to Shareef’s appeals.

BACKGROUND

On April 19, 2018, a federal grand jury indicted Petitioner Imtiaz Shareef, along with three coconspirators, on one count of wire fraud and bank fraud conspiracy in violation of 18 U.S.C. § 1349 (Count One) and one count of money laundering conspiracy in violation of 18 U.S.C. § 1956(h) (Count Two). As to Count One, the Indictment charged that, “[f]rom in or about April 2009 through in or about April 2018, … [Petitioner and the coconspirators] did knowingly … conspire … to commit offenses against the United States, including violations of Title 18, United States Code, Sections 1343 (wire fraud) and 1344 (bank fraud).”

Title 18, Section 1349 provides:

Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy. [18 U.S.C. § 1349].

Petitioner proceeded to trial and the jury convicted him on both counts. On Count One, the jury specifically found that “wire fraud, in violation of 18 U.S.C. § 1343” and “bank fraud, in violation of 18 U.S.C. § 1344” were objects of the conspiracy. Petitioner was sentenced to a term of imprisonment of 57 months on each count to be served concurrently.

On appeal, Petitioner argued that “the insurance fraud scheme supporting the wire fraud object of the conspiracy concluded prior to the running of the statute of limitations and, even if the charge was timely, insufficient evidence supported the jury’s verdict.” United States v. Shareef, 852 Fed. App’x 92, 93 (4th Cir. 2021).  The Fourth Circuit affirmed the USDC’s judgment. He also unsuccessfully argued that prior acts evidence was inappropriately admitted against him and that his trial counsel was ineffective for failing to request a “reliance-on-expert” jury instruction.

Not deterred by his failure at the Fourth Circuit, on March 30, 2022, Petitioner filed a new motion in the USDC and made two claims:

  1. prosecutorial misconduct for the Government submitting 18 U.S.C. §§ 1343 and 1344 to support Petitioner’s conviction without submitting such statutes to the grand jury; and
  2. ineffective assistance of trial and appellate counsel for failing to adequately introduce into the record evidence showing that Petitioner was indicted only for violations of 18 U.S.C. § 1349 and 18 U.S.C. § 1956 (h), and allowing the Government to convict or maintain a conviction for Title 18 U.S.C. 1343 and 18 U.S.C. 1344 unconstitutionally.

Shareef asked that his conviction be vacated for what he alleged were many due -process violations.

DISCUSSION

Prosecutorial Misconduct

The Verdict Form submitted to the jury mirrored the charges set forth in the Indictment. And, consistent with the Indictment, the jury found that “wire fraud, in violation of 18 U.S.C. § 1343” and “bank fraud, in violation of 18 U.S.C. § 1344” were objects of the conspiracy. There was, therefore, no prosecutorial misconduct relative to the sufficiency of the Indictment or the way the charges were presented to the jury.

Ineffective Assistance of Counsel

The Sixth Amendment to the U.S. Constitution guarantees that in all criminal prosecutions, the accused has the right to the assistance of counsel for his defense. To show ineffective assistance of counsel, Petitioner must first establish a deficient performance by counsel and, second, that the deficient performance prejudiced him. In making this determination, there is a strong presumption that counsel’s conduct falls within the wide range of reasonable professional assistance. Furthermore, in considering the prejudice prong of the analysis, the Court can only grant relief if the result of the proceeding was fundamentally unfair or unreliable. Under these circumstances, the petitioner bears the burden of affirmatively proving prejudice. [Bowie v. Branker, 512 F.3d 112, 120 (4th Cir. 2008)].

If the petitioner fails, as did Shareef, to meet this burden, a reviewing court need not even consider the performance prong.

Appellate counsel is not required to assert all non-frivolous issues on appeal. Rather, it is the hallmark of effective appellate advocacy to winnow out weaker arguments and to focus on more promising issues.

A decision with respect to an appeal is entitled to the same presumption that protects sound trial strategy. Additionally, the petitioner still bears the burden of showing that there is a reasonable probability that but for counsel’s failure to raise an issue on appeal, the result of the proceeding would have been different; i.e., that he would have prevailed on appeal.

The Indictment plainly set forth that the objects of the conspiracy were the violation of 18 U.S.C. §§ 1343 and 1344 and Petitioner was convicted accordingly. There was no deficient performance by Petitioner’s trial or appellate counsel for their failure to raise or attempt to support a frivolous argument.

Petitioner’s Motion to Vacate, Set Aside or Correct Sentence under 28 U.S.C. § 2255 [Doc. 1] was denied and the USDC refused to allow further appeal.

ZALMA OPINION

The USDC refused to properly allow Shareef to abuse the judicial process a second time and kept him jailed in accordance with his conviction.  The court, in addition, to ruling on this frivolous motion should have sanctioned Shareef and his lawyers for wasting the time of the court with a frivolous appeal.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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True Crime of Insurance Fraud Video Number 71

Miscarriage Manipulation for Money

See the full video at https://rumble.com/v147vii-true-crime-of-insurance-fraud-video-number-71.html and at  https://youtu.be/-ynljKEcopw

Rita was five months’ pregnant. Her entire family greeted her condition as an opportunity to make sufficient money for a happy Christmas in sunny Hawaii.

For four generations Rita’s family has lived luxuriously on insurance claims. Their last names changed more often than their underwear. Wherever they go, they carry a small plastic valve of soapy liquid and a small razor. Depending on the size of the town they are visiting, they stay a week, a month or a year. One member of the family will claim to have slipped and fallen in a restaurant or grocery store. With the razor they will induce bleeding at their hairline or on an arm or leg. They will be pleasant victims with no interest in profit. Grocers, and their insurers, rapidly and fairly settle their claims in fear that their injuries will increase.

Rita had been a professional claimant since she was eight. She fell in the most luxurious restaurants in Las Vegas, New York City, Baltimore, Washington, D.C., St. Louis, Missouri, and Beverly Hills, California. Shortly after she began to walk, her family taught her how to slip and look like she was hurt without actually causing any physical damage. By the time she was five she could limp on either leg, hold one arm limp, wince with pain when touched and give all the symptoms of a severely injured person.

By the time she was ten she had a clear knowledge of anatomy and knew all of the symptoms of soft tissue injury. Now, at 22, pregnant with the child of a sailor she met in San Diego whose name she does not remember, Rita is ready to move into major, profit making scams. Her brother Aaron would pose as her husband as they worked the major hotels and restaurants of Sacramento, California. At the Holiday Inn, she fell in a puddle of water in the lobby restroom where two innocent women ran to her assistance.

“Oh, my God!” Rita moaned. “Did I hurt the baby.”

Rita rode to the hospital with her “husband” sitting in the ambulance beside her, wringing his hands. They left their name, a mail drop address and a telephone number which connected to the family cellular telephone, with the hotel. She and the baby were found healthy and allowed to leave, although the doctor, because of the family history of miscarriage, noted on the hospital record that here condition was “guarded” and that she should cautiously watch for any spotting or other indication of a potential miscarriage.

In the next four days Rita fell in five hotels, two department stores and three restaurants in greater Sacramento. She rode to the hospital in an ambulance twice and visited a local chiropractor known to her family four times.

The family lived, and traveled, in three sixty-foot motor homes equipped with cellular telephones, a computer and all the comforts of a luxurious home. The family knew better than to be greedy. They never presented more than 10 claims each in any one city.

Rita and Aaron were reasonable people. They told the adjusters they did not wish to hire a lawyer. Although they were afraid they might lose the baby, the doctors had assured them that the baby was unhurt by the fall.

The adjusters, sensing an ability to settle the claim quickly before the baby was born, with possible extra damage, worked quickly to gain the confidence of Rita and Aaron. They wanted a release that would protect their clients.

They had no knowledge of Rita’s family history. Liability was clear. Independent witnesses observed a slick, soapy substance on the floor and on Rita after she fell.

Rita and Aaron were professional claims presenters. They played upon the innocence and good faith of the insurance adjusters. They would tell the adjusters:

“We don’t want money. We just can’t afford to pay the doctors’ bills. Please pay those for us and we’ll be happy.”

The adjusters, knowing the law and knowing that if litigation was filed Rita would be entitled to money for her pain and suffering, insisted that Rita take more money than the medical bills. Most of the claims were settled for between $6,000 and $25,000, depending on the generosity or gullibility of the individual adjusters.

Rita’s potential miscarriage brought her family over $100,000 for their stay in Sacramento. Her brothers, sisters, cousins and nephews falling all over the city generated another $100,000 in claims payments.

Their welcome in Sacramento worn thin, the family motor homes traveled west to San Francisco.

The motor homes were parked in a long term secure parking lot and the entire family boarded airplanes for a three week holiday in Maui.

ZALMA OPINION

The reason why a group of professional slip and fall claimants can succeed is due to the failure of insurers to conduct a full and thorough investigation of a claim presented. Had the adjuster’s investigated Rita’s claims and had they checked the All Claims Data Base the crime would have failed.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Homeowners Policy Provides no Cover for Killing Child by Leaving her in a Hot Car

Louisiana Court of Appeals Concludes that Leaving Child in Hot Car to Die is Excluded Use of Auto

Family Security Insurance Company, appealed the trial court’s judgment denying its Motion for Summary Judgment and granting Katty Calderon, natural mother of decedent Avril Sanabria’s Motion for Partial Summary Judgment on the Issue of Insurance Coverage.

In Katty Calderon, Natural Mother Of The Decedent, Avril Sanabria  v. Lezly Sanabria, Suly Sanabria, Jonathan Rivera, ABC Insurance Company, DEF Insurance Company, And GHI Insurance Company, No. 21-CA-579, Court of Appeals of Louisiana, Fifth Circuit (May 4, 2022) resolved the appeal.

FACTUAL BACKGROUND

This litigation arises out of the tragic death of two-year old Avril Sanabria (“Avril”), who remained secured in a car seat’s harness in the rear of a vehicle that was parked in the residential driveway of 494 Carolyn Drive in Destrehan, Louisiana for over six hours, when the external temperature was ninety-seven degrees Fahrenheit.

Suly Sanabria (“Suly”), the decedent’s paternal grandmother, picked up her daughter, Lezly Sanabria (“Lezly”), and her two-year-old granddaughter and Lezly’s niece, Avril Sanabria (“Avril”). Avril was seated in a car seat with the harness secured. Suly then drove Lezly and Avril to her residence. Suly parked her vehicle in the driveway and entered her home alone, leaving Lezly, Jonathon and Avril at the car. According to Suly, she was unable to fasten or unfasten Avril in her car seat because of disabling arthritis in her hands.

Neither Suly nor Lezly removed Avril from the vehicle. More than six hours later, Suly and Lezly realized that neither of them had Avril. Upon returning to her vehicle, Suly discovered Avril was still in the vehicle. As a result, Avril sustained injuries to her mind and body that led to her death.

Katty Calderon, sued Lezly Sanabria, Suly Sanabria, Jonathan Rivera, and three unknown insurance companies.

UPC filed a Motion for Summary Judgment on the issue of insurance coverage. Relying on a motor vehicle liability exclusion contained in the homeowners’ policy, UPC averred that Avril Sanabria’s death arose “out of the occupancy,” “use” and/or “unloading,” of a motor vehicle, as well as the “failure to supervise and/or negligent supervision,” of the child by Suly and Lezly involving a motor vehicle, which precluded coverage for any of Ms. Calderon’s damages.

The trial court determined that the homeowners’ policy issued by UPC provided indemnity coverage for Avril’s death and denied UPC’s Motion for Summary Judgment.

LAW AND DISCUSSION

UPC averred that the trial court erred in ruling that UPC’s homeowners’ policy affords coverage for Avril’s death when the language of the policy unambiguously excludes coverage for an incident arising out of the:

  • occupancy,
  • unloading, and
  • use of a vehicle.

Whether an insurance policy provides or precludes coverage is a dispute that can be properly resolved within the framework of a motion for summary judgment. An insurer has the burden of proving that a loss comes within a policy exclusion. Additionally, an exclusionary clause in an insurance policy must be strictly construed. However, an insurance policy, including its exclusions, should not be interpreted in an unreasonable or strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion.

UPC’s Motor Vehicle Liability Exclusion

The appellate court found that the Motor Vehicle Liability exclusion under the homeowners’ policy is unambiguous and should be applied as written.

The Motor Vehicle Liability exclusion of the homeowners’ policy functions to broadly exclude coverage for bodily injury and property damage “arising out of the occupancy, use, unloading, and failure to supervise or negligent supervision.”

Arising Out Of Use

To conclude that an injury arose out of the use of the automobile, a court must find the vehicle essential to the theory of liability. In this regard, a court should apply a common sense approach to determine whether the duty breached by the insured flows from the automobile’s ‘use’ under the policy language.

Duty

As a custodian, Lezly had a general duty to supervise and protect Avril.  The record establishes that Lezly frequently babysat Avril, typically three days per week. On the date of Avril’s tragic death, Lezy testified that Avril was in her care and was to stay overnight at her apartment.

In addition to her general duty, the court found that Lezly, as a custodian, also had a specific duty to protect Avril against the risks of harm that can arise out of the “use” of a motor vehicle by children who are left in or with access to the vehicle.

The specific duty relative to parents’ or custodians’ specific duty the “common sense” approach, was applicable to determining whether the operation or use of a motor vehicle is essential to the alleged breach of the specific duty. The complained-of-conduct was Avril remaining secured in her car seat in the rear of Suly’s vehicle, and thereafter, being left unattended in the vehicle, which was unventilated and trapped heat, for several hours, which led to Avril sustaining injuries that caused her death. Based on the record it is clear that Lezly breached both her general duty to supervise and her specific duty to protect Avril from the danger associated with abandoning a minor child in a vehicle under extreme heat conditions.

Suly breached her duty as a host driver by failing to protect her minor guest passenger, Avril, from being placed in a dangerous predicament – being abandoned in a hot vehicle.

Both Suly’s and Lezly’s negligence was a legal cause of the accident in question when Suly and Lezly failed to exercise the required degree of caution and care toward Avril under the specific circumstances of this case.

Use

Use of the vehicle in this case is an essential element to the theory of liability – Lezly’s and Suly’s failure to supervise or negligent supervision of Avril involved use of the motor vehicle.

Louisiana jurisprudence has given a broad interpretation to the words “arising out of the … use of the automobile.” The totality of the circumstances surrounding or leading up to an accident should be examined in determining if the accident arose out of the “use” of the automobile. Avril’s injuries occurred while the vehicle was used for a purpose inherent to vehicles, that is, to transport persons or things from one location to another.

While the vehicle was no longer being operated when Avril was left unattended, it is well established that one need not be actually operating or driving a vehicle in order to be using it. The vehicle was the catalyst for the heat-chamber-like conditions that arose which may not have occurred without the vehicle.

Avril’s injuries arose from the use of the vehicle since she was restrained in her car seat in the rear of Suly’s vehicle for the purpose of being transported. Suly’s and Lezly’s breach of their duties flows from the use of the vehicle when Avril was left unattended in the hot vehicle for several hours.

Arising Out of Occupancy

The plain meaning of “occupancy” refers to “the act, state, or condition of holding, possessing, or residing in or on something.” Black’s Law Dictionary, 10th Ed. 2014. Applying the ordinary, plain, and usual meaning of the term at issue, Avril was “occupying” or “in” the vehicle under the facts of this case, and that the Motor Vehicle Liability exclusion creates no ambiguity with respect to the coverage or lack of coverage contemplated by the homeowner’s policy.

Arising Out of Unloading

Applying the common sense approach to the instant matter, Lezly’s and Suly’s negligence in failing to unload Avril from the vehicle caused Avril to sustain fatal injuries after being left unattended in the rear of the vehicle for several hours. Accordingly, the Motor Vehicle Liability exclusion was triggered.

Arising Out of Failure to Supervise/Negligent Supervision

While the court was empathic towards the parties regarding the tragic incident that led to Avril’s death, it could not say that this homeowners’ policy and the exclusion at issue would lead to absurd consequences or that it is contrary to public policy.

Therefore, the judgment was reversed and UPC’s Motion for Summary Judgment was granted, and Ms. Calderon’s Motion for Partial Summary Judgment on the Issue of Coverage was denied.

ZALMA OPINION

The Louisiana Court of Appeal concluded, logically, and with both legal and common sense, that leaving an infant strapped into a hot vehicle sufficient to cause the child’s death was clearly a negligent use of an automobile. Since the claim against a homeowners policy specifically excluded injuries caused by, or arising from the use of an automobile, there was no possibility of coverage under the homeowners policy.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Video Number 70

The Golden Taxi

See the full video at https://youtu.be/TBKSePrOXMA and at https://rumble.com/v143exy-true-crime-of-insurance-fraud-video-number-70.html

Mischa came to Houston in 1990 directly from the old Soviet Union. His dream was to be a cowboy. He became a cab driver.

Mischa picked up the English language quickly and memorized the convoluted streets of Houston. Within a year of his arrival, he could find with ease any hotel, restaurant or bar in the overgrown small town that was Houston, Texas.

Mischa made a reasonable living driving a cab, making the forty-five-minute run in from the airport at least three times a day. He bought a small three bedroom house outside Houston and was building his way toward the American dream. Mischa was not a criminal. He drove his cab twelve hours a day, six days a week to support himself and his young wife.

Mischa’s life changed when the dispatcher called him to the home of Sophie Mendelson. Sophie, an eighty-year-old Medicare patient, needed a ride to her doctor’s office, four miles from her home.

Upon arrival at the doctor’s office Sophie gave Mischa the information necessary to bill Medicare direct for his services. He complied and within weeks received a check from the US Treasury. It seemed all that Medicare required before it sent a check was information concerning the patient, a Medicare number, and whatever he wanted for the miles driven. Mischa satisfied Medicare if the fare reasonably related to the amount of miles he claimed.

Mischa was an intelligent man. He grew up in the Soviet Union, so he had no respect for government. In fact, as a child and as an adult living in the Soviet Union, he learned that the only way to survive was to deceive the ever-present government.

He was surprised to learn how unlike the Soviet government was the U.S. government. Rather than expecting deceit from its citizens, the U.S. government seemed to believe everything told to it by its residents.

The ride he gave Sophie Mendelson gave Mischa a plan to obtain a fortune. Mischa advised his dispatcher that he would volunteer to take all the Medicare, Medicaid, and welfare patient rides called into his cab. Since the other drivers did not like to wait for the payments from the government, Mischa received all of the calls. Within a month he had created a ledger containing 100 names, addresses and Medicare numbers.

With a calculator, a tax rate table and a pad of receipts, Mischa started on his journey to earn his first million dollars. He created receipts for five doctor visits for every one he actually drove. Mischa extended the distance to each doctor by a factor of three. In his first year he collected more than a million dollars from the United States, state and county governments. The next year his collections (since his number of welfare and Medicare recipients had increased in his ledger) had gone to two million dollars.

Mischa sold his three bedroom house and bought a 500-acre ranch with a four thousand square foot, six bedroom ranch house and stables. He began to live his dream of being a cowboy. Mischa bought 500 head of long horn steers and three quarter horses.

Mischa, the Russian cowboy, continued his profitable taxi business for three more years. An auditor for the State of Texas, Department of Social Services first noticed that Mischa’s cab company had taken a client to the doctor who had died a month before the trip.

The auditor then found each receipt submitted by Mischa to the State of Texas and Harris County. When he was done, the auditor found that in 1994, if the records were accurate, Mischa had driven the 1992 Chevrolet Caprice taxi cab a total of 1,250,000 miles.

The auditor concluded Mischa needed to drive more than 3,000 miles a day, sixteen hours a day, 365 days a year at more than 200 miles an hour to justify his claims. Belatedly, the government caught on to Mischa’s fraud.

The Texas Attorney General arrested, tried and convicted Mischa of defrauding the State of Texas and Harris County Texas. The Judge ordered that he pay a fine of $50,000 and to serve ninety days in jail. Because he was a first offender, Mischa was placed on probation for five years.

Mischa continues to live his dream as a cowboy, breeding Texas long horn cattle on his ranch outside Houston. The United States government, although advised of the crime by Harris County officials, refused to prosecute since the fraud would seriously embarrass the Medicare system.

Everyone involved, especially Mischa, believed that justice had been served.

ZALMA OPINION

When a person is convicted of insurance fraud there is no deterrence shown if the only punishment is to allow the criminal to be placed on probation and allow him or her to keep the fruits of the crime. Justice should never include allowing someone like Mischa to profit from the crime.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Liability Insurance Does not Continue Ad Infinitum

Occurrence After Expiration of Policy Not Covered

Consumers Insurance USA (“Consumers”) sought a declaratory judgment that it had no duty to insure, defend, or indemnify Defendants Huntleigh Dealership Services, Inc., and Huntleigh Bus Sales, Inc. (collectively, “Huntleigh”), for any claims or causes of action arising out of a May 2017 motor vehicle accident (“the accident”). Huntleigh opposed Consumers’ interpretation, and asserted it is covered under the terms set forth in Policy No. AD 29160359-4 (“the Policy”), as well as the subsequent renewal policy.

In Consumers Insurance USA v. Huntleigh Dealership Services, Inc. et al., Civil Action No. 19-1853, United States District Court, E.D. Pennsylvania (May 5, 2022) an accident with a vehicle sold to another in an accident two years after expiration of a policy the seller sought coverage from the expired policy.

BACKGROUND

Huntleigh is in the business of buying and selling new and used buses. It sought an insurance policy for its business from Consumers who issued to Huntleigh a “Garage Policy” that insured Huntleigh’s “garage operations, ” including its inventory of unsold buses. The Policy contained, in relevant part, the following clauses:

The policy was effective from November 30, 2014, until November 30, 2016. After the expiration of the policy Consumers no longer insured Huntleigh in any capacity.

In 2015, while the Policy was still in effect, Huntleigh sold a school bus to FKW, Inc., a/k/a Werner Bus Lines (hereinafter referred to as “Werner”). Huntleigh transferred title of the bus to Werner, which operates a charter bus business in the Philadelphia area.

Nearly two years later, Werner contracted with the Philadelphia School District to provide Charles W. Henry Elementary School with a charter bus for an 8th grade field trip to Washington, D.C. Werner provided the bus and an employee driver. While traveling on Interstate 95 in Maryland, the bus was involved in an accident in which all the children and adults on board were injured.

As a result, at least seventeen of the passengers filed suit in the Philadelphia Court of Common Pleas seeking personal injury damages as a result of the bus accident. As it pertains to this case, the claimants allege theories sounding in product liability (strict liability, negligent product liability, breach of warranties) against Huntleigh. In particular, the claims against Huntleigh include allegations that it sold a defective product to Werner in 2015 since the bus did not have any seat belts and the windows were improperly laminated.

In response to Huntleigh’s claim for the accident, Consumers denied coverage. Consumers stated that the allegations asserted against Huntleigh did not describe the operation, maintenance, or use of a covered auto in Huntleigh’s garage operations, since the bus was sold to Werner more than two years before the accident occurred and thus occurred outside the policy period.

Consumers moved for summary judgment. Huntleigh filed a response to Consumers’ motion and its own motion for summary judgment.

DISCUSSION

In this case, the USDC was charged with interpreting the language of the requisite insurance policy and determining whether coverage is provided based on the particular facts before it. Pennsylvania and Missouri share similar law in interpreting insurance contracts. T

Missouri courts undertake a similar analysis as Pennsylvania court. Courts in Missouri are charged with interpreting and enforceing an insurance policy as written, not to rewrite the contract. As in Pennsylvania, the court may not unreasonably distort the language of a policy or exercise inventive powers for the purpose of creating an ambiguity when none exists.

An occurrence, for purposes of an insurance contract, happens when the injurious effects of the negligence first manifest themselves in such a way that would put a reasonable person on notice of the injury. An occurrence takes place not the time the alleged wrongful act was committed, but is the time when the complaining party was actually damaged. Based on the above, there is no conflict of law regarding whether an occurrence under an insurance policy has taken place, since both jurisdictions agree that an occurrence has transpired not when the event occurs, but when its effects are apparent.

The Policy Does Not Cover Defendant’s Claim

Consumers argued that Huntleigh is not covered by the Policy because Huntleigh did not “own, maintain, or use” the bus as stated in the policy. Since the bus was sold by Huntleigh to Werner in April, 2015, Huntleigh did not own, maintain, or use the bus in any fashion at the time of the accident in May, 2017. Consumers logically argued the accident occurred after the Policy expired.

As a threshold matter the USDC concluded the policy was an occurrence-based policy. An “occurrence” policy protects the policyholder from liability for any act done while the policy is in effect. In view of the Policy’s unambiguous language and considered in its entirety, the Policy is an “occurrence” policy.

It is clear, based on unambiguous language, that only qualifying occurrences transpiring during the coverage period are covered. The Policy specifically focuses on the act causing injury as the coverage “trigger” and specifically requires this injury to occur during the applicable policy period.

Since the accident occurred outside of the relevant policy period, the USDC concluded that coverage should be denied. Huntleigh did not have an effective policy with Consumers at the time of the accident on May 15, 2017.

Huntleigh could not have been “using” the bus at the time of the accident when Huntleigh neither owned nor operated the bus, nor did it employ the driver responsible for the accident.

Consumers and Huntleigh entered into a contract for indemnification for events that transpired during a specified time period, as is common in the insurance industry. By attempting to twist the term “use” into a limitless conveyor of unspecified liability, Huntleigh turned a blind eye to other logical sections of the policy that clearly provided limits to coverage.

Insurance coverage does not extend ad infinitum, and more specifically, ceased before the date of the accident.

Therefore, Consumers’ Motion for Summary Judgment was granted, and Huntleigh’s Motion for Summary Judgment was denied.

ZALMA OPINION

An “occurrence” policy provides indemnity and defense to an insured for an accident-occurrence that happens while the policy was in effect. No one was injured as a result of the sale of the bus in question two years before the accident. Therefore, there can be no coverage for defense or indemnity to an insured for a loss that occurred two years after expiration of the policy.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Video Number 69

She Did It!

See the full video at https://rumble.com/v13zkw8-true-crime-of-insurance-fraud-video-number-69.html  and at https://youtu.be/Z8-Oj1s1908

How a Thorough Fraud Investigation Dealt With False Charges of Fraud

Being a good neighbor is hard work. Sometimes it’s impossible. Marsha was not a good neighbor. She would “borrow” things from her neighbors and never return them. Most of her small kitchen appliances arrived because of such loans. Marsha had an extensive collection of CDs and long-playing records, none of which she purchased. Marsha would invite herself to lunch, but never invite her neighbors to her home for lunch.

She would play her stereo at its highest volume level at all hours of the day and night. Everyone who lived within six houses of Marsha lost sleep because of her actions. None of her neighbors liked Marsha.

Marsha kept a bull terrier named “Jaws” whom she did not allow in her house. Jaws, however, would escape the backyard weekly. Neighborhood cats, rabbits and small dogs disappeared with some regularity.

The entire neighborhood universally detested Marsha and Jaws. If Marsha ever decided to move, the neighbors would throw a going away party to which they would not invite her. Everyone in the neighborhood was afraid of Marsha and Jaws. They tolerated her because they did not know how to remove her from the neighborhood.

One summer evening while Marsha was attending a concert, burglars entered her house. Jaws, sensing the burglars in the house, barked furiously but could do nothing since Marsha tied him up in the backyard. The neighbors ignored Jaw’s barking since they were afraid to offend Marsha by complaining about the noise. Marsha lost her jewelry, two television sets, two VCR’s, her stereo set and her microwave oven.

The neighbors when questioned by the police about the burglary could only report that they heard the dog barking but saw nothing. Most smiled upon learning of the burglary and whispered under their breath their pleasure at Marsha’s loss.

Two days later Marsha’s adjuster arrived and parked in front of her house. On the adjuster’s car was a sticker identifying the company for which she worked. The adjuster spent an hour interviewing Marsha and considered the report to be that of a routine burglary. The adjuster asked Marsha to complete a form listing all of the personal property stolen, its purchase date, purchase price, replacement cost and its actual cash value. Once the adjuster received the list, she expected to go through the list, arrive at an actual cash value for the items and negotiate a quick settlement with Marsha.

Marsha’s neighbors had other plans. Harry and Louise, who lived next door, looked up the address of the insurance company in their telephone book. They then sat at an old Underwood manual typewriter and wrote a letter to the insurance company that said:

“We are neighbors of Marsha, the person you insure. We know she has reported a burglary at her house to the police and is making claim for losses due to that burglary.

“The claim is a fraud. Marsha’s house was not burglarized. She did not have the items she is claiming stolen.

“If you need further detail please call us at 555- 5555.”

They then signed their names. Three other neighbors did the same.

The insurance company, faced with the accusations, had no option but to report Marsha’s claim to the fraud division of the State of California Department of Insurance as a suspected fraudulent claim; assign investigation to its special investigation unit (SIU) and conduct a thorough investigation into the facts alleged.

The SIU investigator interviewed Harry and Louise and all of the other neighbors. They convinced the investigator that Marsha was not a credible person. The investigator believed Marsha was a despicable person. He knew she was the one who the three neighbors spoken to believed to be a fraud.

The insurance company retained the services of a lawyer to examine Marsha under oath and confront her with the accusations of fraud. The fraud division, faced with the compelling evidence of the statements of the neighbors, started its own investigation and presented the case the district attorney for prosecution.

Marsha, totally innocent and the victim of a crime, was dumbfounded. Her insurance company would not pay her claim and insisted on interrogating her endlessly in front of a court reporter. She could not understand the reasons for the interrogation. She explained to the lawyer for the insurance company why her claim was valid.

Marsha faced the lawyer for the insurance company with her sworn testimony that her claim was legitimate. He also had available the reasonable and the unsworn testimony of the three neighbors. There seemed to be compelling evidence that the claim was a fraud and equally compelling evidence it was a valid burglary claim.

The lawyer, the SIU investigator and a court reporter, went back to the home of Harry and Louise. They asked Harry and Louise to give testimony under oath to establish the fraud they had reported. Harry and Louise agreed to the sworn testimony and were ready to continue with their false accusations until the lawyer for the insurance explained to them the penalties of perjury. Harry and Louise decided that although Marsha deserved punishment for her lack of neighborliness, to have her punished was not worth prison. They told the truth. They explained to the lawyer why they had told the SIU investigator that they believed Marsha had committed fraud.

On the advice of counsel, the insurance company settled Marsha’s claim promptly. The Fraud Division was advised of the false report. Harry and Louise were not punished. No one told Marsha why it took so long to resolve her claim.

If the insurance company and its lawyers took Harry and Louise’s statement at face value and denied Marsha’s claim, the insurer would have faced a lawsuit from Marsha for falsely accusing her of the fraud.

The law of California, and several other states, now require that insurers have special fraud investigation units. The law requires that those specially trained investigators investigate claims of fraud to protect the insurer and the public from the crime. The SIU investigators, however, must remember that they are also claims people whose duty is to pay all legitimate claims and to investigate the basis for any denial thoroughly.

It was this thorough investigation, including the examination under oath of Marsha and the attempted sworn statement of the neighbors that saved Marsha from a possible criminal prosecution and the insurer from a bad faith lawsuit.

Every professional claims person understand that not all obvious frauds are fraud, not all innocent claims are innocent, and it is the obligation of every claims person and SIU investigator to thoroughly investigate every claim with the intent to find that a claimed loss is appropriate and compensable.

If fraud is proved by a thorough investigation then the claim should be denied and the person making the claim should face the ire of the local prosecutor or the US Attorney.

ZALMA OPINION

Although SIU investigators are charged with conducting a thorough investigation to defeat insurance fraud, it is also their obligation to establish that an honest claim must be paid. I have personally taken hundreds of examinations under oath at the request of insurers and found, as a result, that a great majority of those claims – like Marsha’s – was determined to be a claim that needed to be paid. Insurers should never accept a charge of fraud without corroborating evidence.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Prosecution Proper for Accident in Missouri and Fraud in Kansas

Crossing a State Line to Present a Fraudulent Claim Doesn’t Work

Under K.S.A. 2020 Supp. 21-5106(a)(1) and (b)(3), a Kansas court has jurisdiction over a crime partly committed in Kansas by a criminal actor who commits either (1) an act that constitutes a constituent and material element of the offense or (2) an act that is a substantial and integral part of an overall continuing criminal plan and the act causes an effect or consequence in Kansas close enough in time or cause to be a proximate result. Two courts found no jurisdiction but the Supreme Court read the whole statute and found jurisdiction in State of Kansas v. Ivan Rozell, No. 121, 094, Supreme Court of Kansas (April 22, 2022)

PRELIMINARY HEARING

The State’s burden of proof at a preliminary hearing is not proof beyond a reasonable doubt, only probable cause. Probable cause at a preliminary examination signifies evidence sufficient to cause a person of ordinary prudence and caution to conscientiously entertain a reasonable belief of the accused’s guilt. To determine whether the State has met this burden, a preliminary hearing judge does not pass on credibility, and, when evidence conflicts, the judge must accept the version of the testimony most favorable to the State.

FACTS

Rozell committed no acts related to the insurance fraud charges while physically in Kansas. Given that, Rozell argues the Wyandotte County District Court lacked jurisdiction to prosecute him because Kansas laws have no extraterritorial effect.

Crimes sometimes involve multistate conduct. And the United States Supreme Court has recognized that “[a]cts done outside a jurisdiction, but intended to produce and producing detrimental effects within it, justify a state in punishing the cause of the harm as if [the defendant] had been present at the effect.” [Strassheim v. Daily, 221 U.S. 280, 285, 31 S.Ct. 558, 55 L.Ed. 735 (1911).]  Both the district court and the Court of Appeals disagreed with the State.

Rozell was in a minor vehicle collision with Saul Lopez at an intersection in Kansas City, Missouri. Lopez did not obey the right of way and hit Rozell’s vehicle, but any contact between the vehicles was minimal. Lopez gave Rozell insurance information. Rozell told Lopez he was fine and declined Lopez’ offer to call police.

Lopez’ father held title to and insured the vehicle Lopez was driving at the time of the accident. His father lived in Kansas City, Kansas, and was insured under a Kansas insurance policy issued by State Farm Insurance through an agent based in Kansas. Lopez also lived in Kansas City, Kansas.

Rozell faxed a copy of a hospital bill to State Farm. The bill was for services received at Research Medical Center in Missouri. The State Farm representative thought the amount of the bill-around $52,000- was disproportionate to the severity of the collision. He contacted Rozell and asked whether Rozell had submitted the correct document. Rozell confirmed he had. The representative transferred the claim to a special investigations department at State Farm.

The special investigator, Michael Haire, was based out of a State Farm office in Kansas. Haire reviewed the original medical bill Rozell had submitted to State Farm and a second one Rozell sent after his initial claim. Haire determined the first bill was for medical expenses incurred two days before the vehicle collision.

A records custodian for Research Medical Center also reviewed the original bill and noticed its discharge date did not match the hospital records. State Farm declined to pay Rozell’s claim and submitted a fraud report to the Kansas Insurance Department. The State then charged Rozell with insurance fraud and making a false information.

The preliminary hearing judge found probable cause to bind over Rozell for trial for insurance fraud and making a false information.

A different judge than the one who heard the preliminary hearing conducted a hearing on Rozell’s second motion. The judge granted the motion to dismiss based on lack of jurisdiction.

The State appealed arguing Kansas courts had jurisdiction. Rozell did not file briefs or appear during the appeal. The Court of Appeals affirmed the dismissal, holding the State had not established jurisdiction. The State timely petitioned for review, which the Supreme Court granted.

ANALYSIS

The issue presented to the district court was whether the State presented sufficient evidence at the preliminary hearing to establish probable cause that Kansas had jurisdiction. Resolving this issue required the Supreme Court to interpret the statutes.

Legal Framework For Proximate Cause Jurisdiction

Rozell focused on constitutional and statutory provisions about a defendant’s right to have a trial in the county or district where the crime, or one or more elements of the crime, were committed.  Consistent with Strassheim, 221 U.S. at 285, the United States Supreme Court has held that this Sixth Amendment provision does not defeat a state’s territorial jurisdiction over a crime partly committed in multiple states. The Court considered United States v. Rodriguez-Moreno, 526 U.S. 275, 281, 119 S.Ct. 1239, 143 L.Ed.2d 388 (1999) which held that “‘[W]here a crime consists of distinct parts which have different localities the whole may be tried where any part can be proved to have been done.'”).

For a Kansas court to have jurisdiction under K.S.A. 2020 Supp. 21-5106(b)(3), there must be a direct connection or nexus between the defendant’s act or acts outside Kansas and the result in Kansas.

The State charged Rozell with crimes that do not necessarily require someone, or something, to suffer harm. Rozell can be found guilty of both charged crimes even though the insurance company denied his claim.

Under K.S.A. 2020 Supp. 21-5106(a)(1) and (b)(3), a Kansas court has jurisdiction over a crime partly committed in Kansas by a criminal actor who commits either (1) an act that is a constituent and material element of the offense or (2) an act that is a substantial and integral part of an overall continuing criminal plan and that act causes an effect or consequence in Kansas close enough in time or cause to be a proximate result.

Insurance Fraud

The crime requires that a person:

  1. communicates information to an insurer, here communications about medical records and bills alleged to be related to treatment for injuries incurred in the automobile accident;
  2. knows the communication contains materially false information, here, for example, the alleged alteration of the date on which Rozell received medical care;
  3. submits the false information in support of an insurance claim or benefit or insurance application, here Rozell’s claim against Lopez’ father’s insurance; and
  4. acts with the intent to defraud, which a reasonable person might infer from Rozell’s submission of the allegedly altered bill.

The State argues that “it is indisputable that the insurance company that issued the policy is harmed when it is subject to a fraudulent claim.” State Farm’s investigator in Kansas, testified to steps he took in Kansas to investigate the claim, which included interviews with Lopez and Lopez’ father and taking photographs of the damage to the car Lopez drove. The referral of the fraud investigation to the Kansas investigator and the follow-up appointment with the Kansas insured both occurred within one month of the accident and directly flowed from Rozell’s submission of paperwork documenting his claim. And these actions were integral to State Farm’s review of Rozell’s claim. A reasonable inference may be drawn in the light most favorable to the State that Rozell’s submission of an allegedly fraudulent claim was an act that caused proximate results in Kansas.

Making A False Information

The evidence at the preliminary hearing was sufficient to establish the allegedly altered paper made its way to Kansas where the investigating agent drew conclusions about whether State Farm should pay or deny Rozell’s claim. This evidence is sufficient to cause a person of ordinary prudence and caution to conscientiously entertain a reasonable belief Rozell’s actions led to the consequence or result in Kansas of attempting to influence Haire to approve Rozell’s claim.

Jurisdiction

The Supreme Court concluded that the State presented sufficient evidence to establish probable cause that Rozell’s actions of submitting an allegedly false claim, which he supported with allegedly altered documents, with the alleged intent to defraud State Farm caused a consequence or effect in Kansas close enough in time or cause to the alleged criminal acts of insurance fraud and making a false information to qualify as a proximate result that allows Kansas to exercise jurisdiction.

ZALMA OPINION

The Supreme Court of Kansas found that the two lower courts allowed a technicality – an activity in the sister-city of Kansas City, Missouri to Kansas City, Kansas defeated criminal jurisdiction although the investigation and expenses incurred by State Farm happened in Kansas, was an act of form over substance. Rozell will be tried for insurance fraud in Kansas and should be convicted since the medical bills submitted were obviously fraudulent and for services provided before the accident.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Video Number 68

The Flying Carpet

See the full video at  https://rumble.com/v13mrvl-true-crime-of-insurance-fraud-video-number-68.html?mref=6zof&mrefc=2 and at https://www.youtube.com/watch?v=gHnpO0GAWU0&feature=youtu.be

Omar T. Tentmaker had immigrated from Iran shortly before the fall of the Shah. Persian money was difficult to take out of the country. Omar purchased an entire inventory of Persian rugs and shipped them, with the rest of his household goods, to the United States. On arrival he rented a small shop in Beverly Hills, California and began selling the rugs at retail.

Omar had purchased nothing but the best. He sold the rugs to his American customers at a profit. He made a fair living but had difficulty turning his inventory into sufficient cash to live in the manner he had grown accustomed to when in Iran as a Minister in the Shah’s government.

Within six months of his arrival, living in a small apartment in West Los Angeles, Omar met a fellow immigrant who explained insurance to him. Insurance was a wonder of American society with which he was totally unfamiliar. The immigrant informed Omar that for $500 he had purchased a policy to insure his household goods. When he was the victim of a burglary, his insurer, with apparent glee, gave him a check for $20,000. It seemed the insurer paid merely because $20,000 was the first value he put down for his goods.

Omar and his fellow immigrant both knew that in their tradition one never opens a negotiation with the number one wishes to receive. His acquaintance informed him that he had demanded, for his small prayer rug, $20,000 from his insurer. He expected the insurer to negotiate the price down to its true value of $2,500. To the great surprise of Omar and the acquaintance, the insurer paid the amount demanded merely because a rug dealer had given the acquaintance an appraisal stating that the value of the prayer rug was $20,000.

Omar decided to take advantage of the great American insurance industry. In no other place in the world could Omar convert a $500 investment into a $20,000 payment. He gathered a group of his fellow Persian immigrants, most of whom were struggling in their new country. Omar provided them with a means by which they could earn money and he could become wealthy. His plan was simple. Each of his fellow immigrants would get, if they had not already done so, a policy of homeowners or tenants homeowners insurance with limits of $20,000 or more. They would wait thirty to sixty days after delivery of the policy. Each would then report that their home had been burglarized. Omar would provide each of his co-conspirator’s photographs of two to four Persian rugs taken from his inventory. They would each have an appraisal of those rugs written by Omar valuing them at between $5,000 and $20,000 each. There was no need for the rugs to leave Omar’s shop. Each co-conspirator would break one pane of a rear window in their house or apartment; report the burglary to the police; that their rugs had been stolen; and then make claim to the insurance company. For his service Omar would receive 60% of the amount paid by the insurance company to reimburse the co-conspirators for the loss of their rugs. Each co-conspirator would keep 40%. Everyone would be happy and Omar would soon be rich.

Each immigrant received instruction how to deal with their insurance company and how to authenticate the existence of the rugs they claimed stolen. They would tell the insurance company that they had no receipts. The rugs, each would claim, had been purchased in Iran. When the Shah fell, they brought them with them as household goods.

Since U.S. Customs makes no record of the goods immigrants bring with them, other than the fact that household goods entered, there was no record of the ownership or transport of the rugs from Iran. The claimants would then tell the adjuster or investigator that, being unfamiliar with the United States and the value of things in the United States, they had sought the professional opinion of a rug merchant in Beverly Hills who had provided them with an appraisal. Surprised at the dollar value of the rugs, they had purchased insurance to protect themselves.

The insurance company, faced with a seemingly valid appraisal and an insured who could establish his possession of the rugs by photographs, had no option but to pay the claims.

Omar, being a wise man, alternated the different types and kinds of rugs he gave to his co-conspirators. No two co-conspirators reported the loss of the same rug.

By the time ISO, and the insurance industry realized what was happening and changed their policies, Omar had purchased for cash a $3,000,000 house in Beverly Hills. He became the owner and operator of a new Rolls Royce Silver Cloud. His business moved to a storefront on Rodeo Drive in Beverly Hills. He sold the rugs his co-conspirators had reported stolen to various wealthy individuals in Beverly Hills for four times their actual value. He continued his conspiracy for several years until insurers changed their policies and limited the payment for the theft of a Persian rug to $1,000. In addition, his sales were good and his collection began to shrink. Omar decided to retire.

Omar purchased a business-owners policy (BOP) insuring his entire inventory for $2,000,000 based upon an appraisal performed by himself. He sold his entire inventory for $200,000 to an Armenian rug dealer from London, England. He then reported a burglary at the Rodeo Drive store. Omar claimed his entire inventory was stolen. The insurer who had agreed to the appraisal performed by Omar at the time he bought the policy, although suspicious, paid the claim in full. It saw no escape from a bad faith suit.

Mr. Tentmaker now spends his days in his garden and his nights playing cards with his fellow immigrants at the Persian- American Cultural Center. He is considered a leader of the community.

Before the ISO changed the homeowners program to include a special limit of liability for theft of antique rugs, homeowners insurers found themselves faced with reports of the thefts of thousands of antique Persian rugs valued between $10,000 and $20,000 each. Although most of the claims appeared suspicious, the insurers were unable to prove the nonexistence of the rugs and were compelled to pay claims.

When the special limit of liability was adopted, the rash of Persian rug thefts stopped. It was as if a ring of burglars suddenly left the country.

The fraudulent Persian rug claim industry ceased doing business.

Immigrant communities in Los Angeles, New York, Chicago and other major cities found other ways to earn money.

ZALMA OPINION

Sometimes, the easiest way to avoid fraudulent claims is to take away the subject matter. The immigrant community found a way to get rich off Persian rugs and that scheme was defeated by changing the policy to the limit that could be recovered for theft of a Persian rug.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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A Pox on Both Your Houses

Deciding to Deny a Claim Based on Investigation and the Report of an Expert is not Bad Faith

Plaintiff Rosemarie Wheeler (“Wheeler”) and Defendant Safeco Insurance Company of Indiana (“Safeco”) regarding a claim for damage to Wheeler’s residence, which she contends was caused by a hailstorm in San Antonio, Texas on or about May 28, 2020. In Rosemarie Wheeler v. Safeco Insurance Company Of Indiana, No. SA-21-CV-00343-XR, United States District Court, W.D. Texas, San Antonio Division (April 29, 2022) the USDC was faced with motions for summary judgment by the insured for damages and bad faith and the insurer’s motion to remove the bad faith cause of action.

BACKGROUND

Doug Lehr (“Lehr”), an inspector for Safeco, inspected the property after a claim for hailstorm damage.  Lehr observed hail indentations to the roof. As Wheeler’s Policy contains a cosmetic-damage exclusion for damage to the metal roof, Lehr retained an engineering firm, Rimkus Consulting, to determine whether the damage to the metal roof was cosmetic or structural. Erik Valle, an engineer inspected the property and determined there was non-cosmetic damage to the metal roof’s ridge and high-cap panels, but the other dents to the roof panels were cosmetic and had not affected the roof’s functionality.

After receiving Valle’s report, Lehr prepared an estimate addressing damage to Wheeler’s residence, including the exterior elevations, repairs to the window screens, front and back decks, personal property items, stucco, garage door panel, shingles and trim on the detached home, air condenser, and to the main home’s roof’s ridge and high-cap panels. Safeco issued payment to Wheeler based on Lehr’s estimate and denied coverage for the damage to the metal roof panels based on the Policy’s cosmetic-damage exclusion.

Wheeler then retained public adjuster Elvis Spoon, who prepared an estimate including a complete roof replacement, which totaled $140, 617.62. Spoon disagreed that the roof damage was cosmetic but did not provide any additional information to dispute Valle’s determination. Safeco stood on its earlier denial.

Wheeler’s complaint was twofold:

  • Safeco’s application of the cosmetic-damage exclusion and
  • Safeco’s position that she is not entitled to replacement cost benefits under the Policy unless she spends the money for replacement costs in excess of the actual cash value of her claim, accounting for her deductible.

DISCUSSION

Wheeler’s request for declaratory relief is duplicative of her affirmative causes of action pending before the Court.

The key issues to be decided in this case-whether the damage sustained to the Property is covered by the Policy and if Safeco properly handled Wheeler’s claims-are based on actions that have already occurred and have been presented as affirmative causes of action to the Court. The Court, therefore, denied Wheeler’s request for declaratory relief.

Plaintiff’s Motion for Summary Judgment

The burden of establishing coverage rests upon the insured. The burden of establishing an exclusion to coverage rests upon the insurer.  Safeco points to the Policy’s exclusion for any cosmetic loss or damage to the metal roof. The Policy defines “cosmetic loss or damage” as “any loss that is limited to the physical appearance of a metal roof surface.”

Whether the adjuster’s actions calculating the loss based on the expert’s report violated the Policy-in other words, whether the damage to the roof was non-cosmetic-is a question of fact. Summary judgment is an inappropriate to resolve a factual issue.

Wheeler argues that Safeco’s experts’ opinions are not relevant and offer no probative value as to whether the damage to Plaintiff’s roof is confined to ‘cosmetic’ as that term is defined in the Policy. Thus, Wheeler contends, Safeco has not met its burden to demonstrate the cosmetic-damage exclusion arguably applies in this case.

The experts reports about the the roof are relevant to the suit. However, this does not change the Court’s opinion. Safeco has met its burden to show an exclusion to coverage may apply.

Because there is genuine dispute of material fact as to whether the damage to Wheeler’s metal roof panels was cosmetic or non-cosmetic, and thus whether Safeco failed to perform under the contract, the Court denied summary judgment as to Wheeler’s breach of contract claim.

Defendant’s Motion for Summary Judgment

Safeco moved for summary judgment as to Wheeler’s extra-contractual claims. Wheeler’s claim that Safeco unreasonably investigated her insurance claim is not supported by any evidence.

An insurer is obligated to adequately investigate a claim before denying it. An insurer fails to reasonably investigate a claim if the investigation is conducted as a pretext for denying the claim. An insurer’s reliance on an expert’s report will not support a finding of bad faith unless there is evidence that the report was not objectively prepared or the insurer’s reliance on the report was unreasonable.

There is no conflict in evidence because there is no evidence that Valle’s report was not objectively prepared or that Safeco’s reliance on the report was unreasonable. The undisputed evidence in the record shows that soon after Wheeler reported the hail damage to the roof, Safeco took reasonable steps to investigate Wheeler’s claim. Lehr retained a professional engineer, Valle, because he was unable to determine whether the damage to the metal roof was cosmetic or non-cosmetic after his visual inspection. Valle inspected the roof and took photographs, looking for any chipping or scratching in the roof’s protective coating and distortion or separation in the panel seams.

An insurer does not act in bad faith if they are incorrect as to the proper construction of the policy. Where the dispute concerns “the factual basis for the claim, the proper legal interpretation of the policy, or both, ” such claims are subject to a breach of contract analysis rather than bad faith. Safeco investigated the claim, and while there is a dispute over whether Safeco properly denied coverage, Safeco may deny coverage based on a misapplication of the policy without being subject to bad-faith liability.

There is no evidence that Safeco denied coverage when its liability was reasonably clear under the Policy.

Texas courts have repeatedly held that evidence showing only a bona fide coverage dispute does not, standing alone, demonstrate bad faith. Wheeler has only presented evidence that a bona fide coverage dispute exists. Safeco was permitted to rely on its expert report in denying Wheeler’s claim.

For the foregoing reasons, Plaintiff’s motion for declaratory and summary judgment was denied. Defendant’s motion for summary judgment was granted as to the claim of bad faith and Plaintiff’s Chapter 541 and section 542.003 claims were dismissed with prejudice.

Plaintiff’s breach of contract and Texas Prompt Payment Act claims remain pending.

ZALMA OPINION

Neither party were total winners. Both lost parts of their motions for summary judgement. The suit, with such a simple difference of coverage opinion wasted the time of the parties and the court. The two may now go to trial on the breach of contract claim.

 


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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How to Educate a Claims Staff of Insurance Professionals

Available from ClaimSchool

Some of the Newer books include:

Ethics for the Insurance Professional – Third Edition Available as a Kindle blook. Available as a paperback.  Available as a hardcover.

Insurance Fraudsters Deserve No Quarter, a New Book That Explains How to Defeat or Deter Insurance Fraud Available as a paperback here.  Available as a hardcover here. Available as a Kindle Book here.

The Examination Under Oath to Resolve Insurance Claims  Available as a Kindle book Available as a paperback. Available as a hardcover.

Insurance Fraud – Volume I & Volume II Second Edition; Volume I Available as a Kindle book; Available as a Hardcover;  Available as a Paperback and Volume II Available as a Kindle bookAvailable as a HardcoverAvailable as a Paperback

Eight Volumes of Construction Defects and Insurance

Ten Volumes of Insurance Claims Third Edition

Insurance Fraud Costs Everyone Available as a Kindle Book and Available as a Paperback from Amazon.com.

California SIU Regulations 2020 Available as a Kindle book here.  Available as a paperback here.

The California Fair Claims Settlement Practices Regulations 2020 Available as a paperback Available as a Kindle Book

“Zalma’s Mold & Fungi Handbook” Kindle Edition Paperback Edition

The Compact Book of Adjusting Property Insurance Claims – Third Edition Available as a Kindle book. Available as a paperback.

The Compact Book on Adjusting Liability Claims, Third Edition Available as a Kindle book Available as a paperback.

Free Videos from Barry Zalma, Esq., CFE

There is now available more than 425 insurance claims, insurance law, insurance fraud, insurance coverage and true crime of insurance fraud videos running from five to twenty minutes at https://rumble.com/zalma, on youtube.com/zalma or as a podcast wherever you listen to podcasts.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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True Crime of Insurance Fraud Video Number 67

Policy Obtained by Fraud Requires Insured to Reimburse Insurer for Defense and Indemnity

See the full video at https://rumble.com/v13iw9q-true-crime-of-insurance-fraud-video-number-67.html and at https://youtu.be/z_MSwzqJtLw

Diverting from stories where I was personally involved this story comes from the U.S. Tenth Circuit Court of Appeal.

An insurer asserted claims against its insured for fraud and unjust enrichment. The Tenth Circuit was asked to determine if Colorado law permits an insurer to recover a settlement payment made on behalf of its insured for fraud.

The insured fraudulently obtained an insurance policy for its inpatient-drug-treatment center, and when the insured was sued by a former patient, the insurer assumed the insured’s defense, subject to a reservation of rights. Even after learning that the insured had fraudulently obtained the policy, the insurer settled with the former patient under pressure from the insured and threats of bad faith litigation. The insurer sought to recover from its insured the settlement payment.

In Evanston Insurance Company v. Aminokit Laboratories, Inc., No. 19-1065, D.C. No. 1:15-CV-02665-RM-NYW, United States Court of Appeals for The Tenth Circuit (decided March 18, 2020). Aminokit Laboratories, Inc., a Colorado Corporation, owned and operated an addiction-treatment center in Lone Tree, Colorado. On October 19, 2014, Aminokit procured an insurance policy for this treatment center from Evanston Insurance Company. The policy covered “outpatient drug/alcohol rehab services[.]” To secure the policy, Aminokit made several material misrepresentations and omissions.

For example, Aminokit failed to disclose that it maintained overnight beds for its patients, instead claiming that it operated its business solely between 10:00 a.m. and 5:00 p.m. Aminokit also falsely denied that any of its employees had ever been evaluated or treated for alcoholism or drug addiction and misrepresented the circumstances by which its CEO had lost her chiropractic license.

Brandon Lassley, a former Aminokit patient, sued Aminokit, Dr. Jonathan Lee (Aminokit’s Medical Director), and Tamea Rae Sisco (Aminokit’s CEO) in the District of Colorado. Evanston initially declined to provide a defense to Aminokit, concluding that the claims were outside the scope of coverage, because they alleged intentional and fraudulent conduct.

Lassley amended his complaint, adding state claims against Aminokit and Dr. Lee for negligence and breach of fiduciary duty. Evanston, which again concluded that no coverage was afforded for the Lassley suit but, because of the amendment, Evanston accepted Aminokit’s defense “subject to a full reservation of rights—including the right to withdraw the defense and the right to pursue reimbursement from Aminokit . . . while it s[ought] a declaration of its rights and duties under the policy.”

At a mediation Aminokit’s attorney, Jerad West, pressured Evanston to pay the full $260,000 settlement amount demanded by the plaintiff Lassley by threatening to bring a bad-faith claim against Evanston. In the communications that followed, Evanston made clear to West that if it settled the case, it would “seek reimbursement for the entire cost of defense and indemnity.” Faced with the deadline and threat of bad faith litigation Evanston agreed to fund the $260,000 settlement, while reserving the right to seek full reimbursement from Aminokit.

In a declaratory relief action filed before the payment Evanston had sought a declaration that no defense or indemnity coverage was owed pursuant to Aminokit’s insurance policy for the Lassley Suit and asserted unjust enrichment and sought recovery of Litigation Expenses and Settlement Payment in the Lassley Case from Aminokit, Dr. Lee, and Sisco, because the claims and damages were not covered or cannot be covered pursuant to Colorado law and public policy.

The final two claims alleged that Aminokit and Sisco had made fraudulent misrepresentations and concealments in Aminokit’s insurance-policy application and sought damages for this fraud, including the settlement payment.

Aminokit’s lawyers withdrew and Aminokit failed to gain new counsel. The insurer, in due course, obtained a default against Aminokit and the district court entered judgment that held Aminokit liable to reimburse Evanston for the settlement payment as damages for both fraud and unjust enrichment for $427,280.30 ($286,407.36 for the settlement payment, $63,304.07 for defense costs, and $77,568.87 for prejudgment interest).

When challenging a default judgment, a defendant admits to a complaint’s well-pleaded facts and forfeits his or her ability to contest those facts. But even in default, a defendant is not prohibited from challenging the legal sufficiency.

Under Colorado law, the defrauded party may recover such damages as are a natural and proximate consequence of the fraud. The damages must stem from the plaintiff’s reliance on the fraud. To claim damages from allegedly fraudulent statements, the plaintiff must establish detrimental reliance on the statements.

Evidence established that Evanston would not have issued the policy had Aminokit disclosed or communicated the true facts of its operation. Aminokit argued that because Evanston knew of the fraud when it settled, it could not have relied on the fraud when it agreed to fund the settlement. Generally, a defrauded party cannot recover damages for the period after the victim discovers the fraud, because he no longer has any basis for relying on the misrepresentations. But where the defrauded party discovers the fraud after substantial performance or where it would be economically unreasonable to terminate the relationship, he may affirm or continue the contract and then bring suit for his entire damages.

The Tenth Circuit concluded that it would have been “economically unreasonable” for Evanston to refuse to pay the settlement because doing so would have placed Evanston at risk of a bad-faith lawsuit and its insured of a verdict larger than the settlement amount if the case went to trial.

An insurer owes its insured a duty of good faith and fair dealing. Violation of this duty can result in a “bad faith” claim against the insurer, judged by a reasonableness standard. In this case, Evanston was rightfully concerned about a potential bad-faith suit by Aminokit given the threats made by its attorney after Evanston originally balked at paying the settlement. After learning of the fraud, Evanston was in no position to abandon its defense without risking substantial liability, or at least incurring substantial litigation costs from defending a bad-faith lawsuit. Given these considerations, the Tenth Circuit concluded that the settlement payment was a natural and proximate consequence of Aminokit’s fraud.

Colorado has adopted a general policy against insurance fraud. Allowing insureds to receive the benefit of insurance coverage, even when they have fraudulently obtained it, would foster—not deter—insurance fraud. It would signal to potential fraudsters that if they can convince their insurance company to settle via the threat of bad-faith litigation, they will benefit from their fraud. Such a result would not comport with Colorado public policy. Therefore, the Tenth Circuit concluded that Evanston can recover the settlement payment made on behalf of Aminokit as fraud damages.

Insurance fraud perpetrators should never be allowed to profit from the fraud. Since the policy was subject to rescission or voidance as a result of a blatant and admitted fraud, the insured had no right to defense or indemnity. However, since the fraud was not detected until after the insurer agreed to defend subject to a reservation of rights, it had no good way to escape the obligation without facing a bad faith lawsuit seeking both contract and tort damages. The insured’s threat forced the insurer to fund the settlement and seek reimbursement.

The Tenth Circuit enforced the right to reimbursement and, hopefully, the defendants have sufficient funds to pay the judgment. Since Aminokit did not respond to the insurer’s suit and allowed a default judgment to be rendered, the chances of collecting the judgment are slim.

If the insurer is unable to collect the judgment the fraud succeeded.

ZALMA OPINION

The tort of bad faith often prevents, because of the threat of punitive damages, insurers to allow themselves to be willing victims of fraud. In the case where the victim gets a judgment against the fraudsters is a deterrent, it is only useful if the fraudsters have any assets that the insurer can collect. Best to ignore the threat and take your chances if the insurer has sufficient evidence to establish it was defrauded.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Doctor Attempts to Back out of Favorable Plea Deal When Sentenced to Jail

Doctor Who Defrauded Health Insurers Tried to Back out of Plea Deal

In State Of New Jersey Amgad A. Hessein, No. A-0983-20, Superior Court of New Jersey, Appellate Division (April 26, 2022) Dr.  Amgad A. Hessein, a physician facing a thirty-eight-count indictment alleging billing fraud related to his medical practice, was on the verge starting his trial after completion of jury selection when he pled guilty to second-degree theft by deception, N.J.S.A. 2C:20-4(a), and second-degree health care insurance claims fraud, N.J.S.A. 2C:21-4.3(a).

As part of the plea agreement, the prosecutor gave a gift to Dr. Hessein by dismissing the remaining thirty-six counts because  defendant entered into a consent order requiring forfeiture of $2,000,000 and directing that he pay restitution in the amount $235,093.75.

Prior to sentencing defendant to an aggregate eight-year prison term and ordering forfeiture of funds and restitution, Judge John M. Deitch denied defendant’s motion to withdraw his guilty pleas.

FACTS

In March 2020, defendant filed a motion to withdraw his guilty pleas and vacate his sentence. Before the motion was heard, defendant filed a verified petition for post-conviction relief (PCR) alleging trial counsel was ineffective by permitting him to enter guilty pleas including “an illegal civil consent order . . . forfeit[ing] property and money without . . . a restitution hearing,” and by allowing him to plead guilty “to second[-]degree health[] care insurance fraud instead of proceeding on a theory third[-]degree reckless health[ ]care insurance fraud.”

Defendant also made claims against appellate counsel, contending ineffective assistance of counsel by not challenging: the legality of the forfeiture consent order and the lack of a restitution hearing; and the factual basis of the guilty plea to second-degree health care insurance fraud. Judge Deitch issued an order denying defendant’s motion and his PCR petition without an evidentiary hearing.

DISCUSSION

To withdraw a guilty plea after sentencing a defendant, to establish vacation, it is necessary to correct a manifest injustice. In considering whether relief is appropriate, the motion judge must weigh the four factors identified in State v. Slater, 198 N.J. 145, 157-58 (2009):

  1. whether the defendant has asserted a colorable claim of innocence;
  2. the nature and strength of defendant’s reasons for withdrawal;
  3. the existence of a plea bargain; and
  4. whether withdrawal would result in unfair prejudice to the State or unfair advantage to the accused.

Applying Slater, Judge Deitch properly exercised his discretion in determining that these factors did not weigh in defendant’s favor and thus denied defendant’s motion because there was no showing of a manifest injustice.

As for the first factor, the judge held that defendant – as the judge did in denying defendant’s previous motion to withdraw guilty pleas affirmed by this court on direct appeal – failed to set forth any colorable claim of innocence.

As for the second factor, the judge rejected defendant’s argument that there was a strong reason for plea withdrawal and that the court’s forfeiture order was illegal because it was based on a “civil consent judgment” used by the State to gain an unfair upper hand in criminal plea negotiations. Defendant’s consent order addressed both restitution and forfeiture of defendant’s property in the context of criminal proceedings, and there was no reference in the order to a civil judgment or any judgment being entered against the defendant.

As for the third factor, the judge noted that defendant reached a plea agreement, which typically isn’t “given great weight in the balancing process,” and highlighted that defendant had the “heavier burden in seeking to withdraw pleas entered as a part of a plea bargain.” The factor therefore weighed against defendant.

As for the fourth factor the judge explained that when there are colorable reasons for withdrawal, coupled with an appropriate assertion of innocence, arguments against permitting withdrawal of a plea prior to sentencing weaken considerably absent unfair prejudice or advantage. The judge held that as defendant did not offer proof of the other three factors to support withdrawal of his plea, and the State showed it would be prejudiced if a withdrawal was granted because “many of [its] witnesses [were] elderly or infirm and could no longer be available at trial.” Hence, the factor weighed against defendant.

To succeed on a PCR claim, a defendant must demonstrate: (1) counsel’s performance was deficient, and (2) the deficient performance actually prejudiced the accused’s defense. Strickland v. Washington, 466 U.S. 668, 687 (1984); see also State v. Fritz, 105 N.J. 42, 58 (1987) (adopting the two-part Strickland test in New Jersey).

There was no deficient performance by trial counsel which prejudiced defendant, therefore appellant counsel was not ineffective for failing to raise an issue that would not have constituted reversible error on direct appeal. Defendant’s criminal consent order requiring the forfeiture of money was legal. The judge aptly reasoned that since “there was no illegal plea bargain to warn [d]efendant against accepting,” trial counsel was not ineffective, and thus “there was no issue for appellate counsel to raise.”

Regarding appellate counsel’s alleged failure to argue that trial counsel erred in permitting defendant to plead guilty to second-degree health care insurance fraud rather than advancing a theory of third-degree reckless health care insurance fraud, the judge properly noted defendant “knowingly and intelligently pled guilty to second[-]degree health care [insurance] claims fraud,” as evidenced in the trial record. The judge further commented that the factual sufficiency of defendant’s plea was raised and rejected on direct appeal.

The trial judge properly found that defendant failed to demonstrate there was any evidence supporting a third-degree reckless health care insurance claim fraud instead of a second-degree offense.

Finally, Judge Deitch did not abuse his discretion in not conducting an evidentiary hearing. There were no disputed facts regarding entitlement to PCR that could not be resolved based on the existing record and defendant failed to set forth a prima facie case of ineffective assistance of counsel.

ZALMA OPINION

Insurance criminals have no honor. Dr. Hessein was facing a great deal of jail time, fines and restitution orders and a trial charging him with thirty two counts of major fraud. He pleaded guilty to one count and agreed to restitution. After he was sentenced to jail on the plea he changed his mind and wanted to withdraw his plea and not go to jail because most of the witnesses against him were dead or infirm. It wasn’t even a good try and he obviously used the fraudulent money he gained that were not taken by the court to fund this stupid, second appeal, trying to withdraw his plea. Hopefully he will be able to help the health of his fellow prisoners.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Number 66

Lucy and the Tsar

See the full video at https://rumble.com/v13emlt-true-crime-of-insurance-fraud-number-66.html?mref=16emn&mrefc=2 and at https://youtu.be/haUZ2IajEVY

Lucy served as second officer on a 747 operated by Trans-Oceanic Airlines. Twice a week she flew from Dallas to Leningrad; with brief layovers in New York and Brussels. She had been a second officer for five years. Lucy was looking forward to promotion to first officer. She would be the second woman to command a 747 for Trans-Oceanic.

Her performance reviews were always exceptional. Never had Trans-Oceanic Airlines treated her differently than any other pilot. The glass ceiling seemed nonexistent.

Lucy, as a highly paid professional airline pilot, owned a beautiful 5000 square foot home in Dallas where she lived with her son, daughter and a full- time housekeeper/nanny. She was happy. Her future was unlimited. At forty years of age she was approaching the apex of her professional career.

Her layover in Leningrad was usually two days. Lucy would recover from the inevitable jet lag by visiting the great museums of the time of the Tsars. Her favorite was the Hermitage, which was once the Tsar’s summer palace.

To the museum she always brought along her Nikon single lens reflex camera that recorded each picture with very high resolution. She used the Nikon to photograph the magnificent treasures stolen by the Bolsheviks from the Tsar. The fast lens and digital enhancement allowed her to obtain images without using a flash. Lucy would spend evenings in her hotel sorting her photographs into categories on her lap top.

She had collections of close-up shots of Faberge royal Easter eggs; of oil paintings by Gaugin, Degas, Van Gogh and Picasso; and photos of fine works of art made by native Russian craftsmen unknown in the West.

Lucy converted the settlement check to US currency Travelers Checks. She placed the Travelers Checks in her overnight bag on the airplane. When she landed, as part of a well-known airline crew, her luggage was not inspected by the local customs officials. The Travelers Checks, better than cash, entered the new Russia without hindrance. Lucy immediately went to the dealer appointed by the Hermitage and purchased the Fabergé bird she lusted for paying only 200,000 US Dollars in Travelers checks.

With the remaining $50,00 she purchased two Fabergé silver cigarette cases and a small Picasso drawing in pencil signed and dated by the artist. The bird is displayed prominently over Lucy’s mantelpiece and she used the Fabergé cigarette case to hold note papers and a fountain pen.

Lucy was lucky. If anyone at Edward Lloyd’s Insurance Company had gone to the Dallas public library, they could have found similar photographs of the same items in any one of several books on the Hermitage collection housed at the library. They did not.

Lucy was promoted to Captain. She now commands a Trans-Oceanic 747 that flies three times a week nonstop from Dallas to London’s Heathrow airport.

She is starting a collection of photographs from the Queen’s Museum at Buckingham Palace.

ZALMA OPINION

It is time for the insurance industry to invest in a team of insurance claims professionals who know how to investigate a claim, interpret an insurance policy, and deal with a false and fraudulent claim to keep people like Lucy for enjoying a life of successful crime.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Self-Insured-Retention Must be Fulfilled for Each Occurrence

Excess Workers’ Compensation Policy is not a Workers’ Compensation Policy

Neville Chemical Company (“Neville”), appealed from the District Court’s order granting summary judgment to its excess workers’ compensation insurer, TIG because of a failure to meet the self-insured-retention (SIR).  In Neville Chemical Company v. TIG Insurance Company, successor-in-interest to Transamerica Insurance Company, No. 21-1616, United States Court of Appeals, Third Circuit (April 26, 2022)

FACTS

Neville, a Pittsburgh hydrocarbon resins manufacturer, maintained a self-insured workers’ compensation program. To supplement this program, Neville purchased a “Specific Excess Workers Compensation Policy” (“Policy”) from TIG. Under this Policy, after Neville provided workers’ compensation benefits up to the Self-Insured Retention (“SIR”) limit of $500,000 per occurrence, TIG was required to indemnify Neville for all workers’ compensation benefits exceeding the SIR limit. Neville renewed this Policy each year until at least January 1, 1994.

The injuries sustained by Lawrence Kelley occurred on three occasions during his employment with Neville. Neville accepted liability and began paying him benefits.   Kelley again saw the company doctor, who instructed him to refrain from work and referred him to an orthopedist. On August 15, 2003, an MRI of Kelley’s spine showed “degenerative discs [at] L3-L4, L4-L5 and L5-S1” and L3-L4 intervertebral disc bulging. The MRI did not show “evidence of disc herniation or canal stenosis,” which previously appeared on scans after his 1993 injury.

Kelley did not submit a new workers’ compensation claim. Instead, Neville paid him workers’ compensation benefits under his June 24, 1993 claim. Kelley unsuccessfully attempted to return to work on January 3, 2005. An orthopedist deemed Kelley fully disabled on January 20, 2005.

Neville paid Kelley’s workers’ compensation benefits for over a decade at his 1993 pay rate. (showing benefits paid to and on behalf of Kelley from January 17, 1994 through June 14, 2018). By grouping the payments made due to the three injuries together, Neville believed that it had reached the SIR limit of $500,000, and notified TIG that it would seek indemnification under the Policy. TIG denied Neville’s claim.

The District Court denied Neville’s motion and granted summary judgment for TIG. The District Court rejected Neville’s argument that the second and third injuries were “recurrences” of the first injury. It concluded that each injury was an “occurrence” so that the SIR was never reached and also that if the injuries were deemed an “occupational disease” under the Policy, the Policy had lapsed before coverage would have been deemed to commence.

DISCUSSION

Contract interpretation is a question of law that requires the court to ascertain and give effect to the intent of the contracting parties as embodied in the written agreement. Courts assume that a contract’s language is chosen carefully and that the parties are mindful of the language used.

The Policy provides that “[t]he Company will indemnify the [i]nsured for loss resulting from an occurrence during the contract period,” and “‘occurrence’, [sic] as applied to bodily injury, shall mean ‘accident’.” As the District Court noted, the term “accident” is not defined by the Policy. Thus, the District Court turned, as is permitted and customary under Pennsylvania Law, to the dictionary for assistance.

The term “accident” implies a degree of fortuity as an unexpected and undesirable event, or an event that occurs unexpectedly or unintentionally. The District Court concluded that, in this case, the term “accident” meant a single, finite event of an “unexpected or unforeseen nature.” Based upon the dictionary definition and the need for fortuity, the District Court concluded that Kelley’s 1993, 2000, and 2003 incidents were each separate accidents and, thus, distinct occurrences for which coverage under the TIG policy would only have been triggered if the SIR limit of $500,000 was met as to each occurrence.

First, Neville argued that the District Court improperly referenced the dictionary to define the term “accident,” which is a term that, in turn, informs the meaning of occurrence by “bodily injury.” However, has always been and it is fully appropriate for courts to turn to the dictionary to define undefined terms.

Second, Neville argued that the District Court failed to restrict the meaning of “occupational disease” to those diseases enumerated under the Pennsylvania Workers’ Compensation Act when it determined, in the alternative, that even if the 1993, 2000, and 2003 incidents were not separate occurrences by bodily injury, that coverage would still not be available because Kelley’s injuries otherwise constituted an occupational disease occurrence which transpired after the Policy had lapsed. Neville’s argument failed because it would have the court rewrite the express terms of the Policy in contravention of the well-established proposition that courts must “give effect to the intent of the contracting parties” and “assume that a contract’s language [was] chosen carefully.” [In re Old Summit Mfg., LLC, 523 F.3d at 137]

References in the Policy to the Pennsylvania Workers’ Compensation Act do not somehow incorporate the definition of the term “occupational disease” or the concept of “cumulative injuries” under the Pennsylvania Workers’ Compensation Act. To read this term and concept into the Policy to replace the Policy’s definition and clear language would materially alter the intent of the contracting parties as embodied by the plain language of the contract.

Third, Neville argued that the District Court’s reading of the Policy created an absurdity at odds with the Policy’s purpose. The District Court’s reading of the Policy, however, far from creating an absurdity, gave effect to the purpose of the Policy as an excess workers’ compensation policy. Where the District Court’s interpretation of the Policy is consistent with the general purpose of excess workers’ compensation policies, Neville’s interpretation would equate this excess policy to a primary workers’ compensation policy.

Finally, Neville’s argument that the District Court failed to recognize that the Policy must be read to include the Pennsylvania Workers’ Compensation Act concepts of “recurrence” and “aggravation” are irrelevant to this case.

State workers’ compensation regulations do not apply to an excess workers’ compensation policy because an excess policy is not a workers’ compensation policy.

ZALMA OPINION

Excess policies are different from primary policies, especially when they are excess over an SIR. Neville, as self insured, took an injured employee who was entitled to workers’ compensation benefits for three separate and distinct injuries and accumulated them into a single claim and then tried to get the excess insurer relieve Neville of its obligation to its injured employee. The attempt failed because the District Court and the Third Circuit recognized that three separate accidents required three separate funding of the $500,000 SIR.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

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True Crime of Insurance Fraud Video Number 65

Fraud by Divine Right

See the full video at https://rumble.com/v13a5u0-true-crime-of-insurance-fraud-video-number-65.html?mref=22lbp&mrefc=3 and at https://youtu.be/S0Yxa-eNzB4

They were All-American girls. Muffy and Buffy met each other as cheerleaders in high school. They were best friends. They did everything together. The two young women shared everything from clothes to boyfriends.

When they graduated from high school, both started to work as trainee tellers at the Fresno Friendly Loan and Mortgage Corporation. They learned to handle money. More than anything else, they learned how to beat the system. When the need to shop came upon them, they called in sick simultaneously. They were the antithesis of modern liberated women. They did not do the same job that men did. They did less. They were rewarded by their male supervisors more for their tight sweaters and skinny jeans than their ability as bankers.

Muffy and Buffy needed money so they acquired an insurance policy and decided to make a fraudulent claim.

Muffy and Buffy, honestly, reported that they had not replaced a single item they had claimed stolen in their first burglary. The things taken in this burglary from their vehicle were all items they purchased before the first loss. They even provided receipts and canceled checks establishing the purchase and the date of purchase of each item. After that the adjuster was convinced. There was no doubt, they had attempted a fraud. He reported his conviction to the Fraud Division of the California, Division of Insurance, and to Buffy and Muffy.

Buffy and Muffy admitted to the adjuster that the watches were never stolen in either claim. They withdrew the claim for the two watches. They still tried to convince him that the rest of their claim resulted from a legitimate auto burglary. He was not convinced. He denied the claim on the spot. He followed up with a written denial.

He reported the claim to the Fraud Division who agreed it was a fraudulent claim and presented it to the local district attorney. The District Attorney refused to prosecute on the grounds that there was insufficient evidence to guarantee a conviction.

Muffy and Buffy went back to work at the bank. They hired a lawyer who threatened to sue if the claim was not paid in full. Since there was no arrest the insurer felt vulnerable. It paid $60,000 to obtain a general release.

Muffy and Buffy lived comfortably for a while on the money the lawyer obtained for them.  They were determined to, and continued to, commit insurance fraud once every few years, to supplement their income.

For Muffy and Buffy crime pays well.

ZALMA OPINION

Although states pass statutes making insurance fraud a crime and statutes and regulations requiring insurers to do thorough fraud investigations, until they compel local police and prosecutors to prosecute the crime and judges to sentence the perpetrators to jail and people like Muffy and Buffy will continue to live well off their crime.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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You Only Get the Insurance You Ask For

No Duty to Defend If Insurer Not Asked to Insure Against the Risk of Loss to Property

While renovating a historic Masonic Temple in Quincy, Massachusetts, workers sparked a fire that nearly burned the structure to the ground. At the time of the fire. Jay Patel, the president and sole owner of Dipika, Inc. (Dipika), was holder of a purchase and sale agreement to buy the Temple. The Supreme Judicial Court was  called upon to decide, among other things, whether Dipika’s putative liabilities arising from the fire are covered by its general liability insurance policy that only named Patel’s hotel as insured.

In Masonic Temple Association Of Quincy, Inc. v. Jay Patel & another; Leo Martin & others, third-party defendants (and two companion cases, No. SJC-13109, Supreme Judicial Court of Massachusetts, Norfolk (April 27, 2022) resolved the dispute.

BACKGROUND

Faced with financial pressure, the members of the Quincy Rural Masonic Lodge decided to sell their Temple building (Masonic Temple or Temple), a 1926 neoclassical edifice located on Hancock Street in Quincy. Title to the property was held by an affiliated charitable corporation. Masonic Temple Association of Quincy, Inc. (Masons). The Masons entered into a purchase and sale agreement with the Grossman Munroe Trust (Grossman Trust), under which the Grossman Trust would develop the building into two condominium units. The basement unit would be retained by the Masons to use as their lodge, while the Grossman Trust would become owner of the two-story upstairs unit.

Partway into the renovation, the Grossman Trust concluded that the project was not financially viable and assigned its interest in the purchase and sale agreement to Patel. Neither the purchase and sale agreement nor the assignment reference Dipika. Patel was the president and sole owner of Dipika, which operated a Super 8 motel in Weymouth. Patel also had prior experience, separate and distinct from his interest in Dipika, owning and operating several other hotels. He intended to convert the upstairs condominium unit in the Masonic Temple into a “boutique hotel.”

During Patel’s stewardship of the renovation, the Masons requested that he provide them with proof of insurance for the work. In response, Patel contacted Roblin Insurance Agency, Inc. (Roblin), which had acted as Dipika’s agent in acquiring its existing commercial property and general liability insurance policy for the Weymouth Super 8 motel from Union Insurance Company (Union). On July 25, 2013, Patel left a voicemail message with Dipika’s account manager at Roblin, stating: “I need to do a name, loss payee of Quincy Masonic Temple Associates, and this is something I need right away.” One minute later, he also sent Roblin an e-mail message, which read: “I need ryder [sic] for dipika inc name quincy masonic Temple association loss payee.”

Roblin responded to Patel’s e-mail message within one-half hour, transmitting a certificate of insurance for Dipika’s current policy. A Roblin account manager also followed up the next day, sending an e-mail message to Patel asking, “What is the relationship between Quincy Masonic Temple Association and Dipika? Are they asking you for a certificate?” Patel received that message but never responded to it.

The Fire

Several months later, two workers were on site, cutting metal, when a fire broke out. The damage was extensive; the Masons, through their public adjuster, submitted a claim to their property insurer for over $12 million, only about one-half of which was paid out. Shortly after the fire, Patel notified Union and requested coverage under the Dipika policy.

Union and Roblin filed motions for summary judgment against the Masons, Dipika, and Patel. A Superior Court judge granted summary judgment in favor of Union and Roblin on all counts.

DISCUSSION

Dipika’s policy contains a commercial property part and a commercial general liability part. The disagreement is over whether the insurance applies to those losses. The heart of the parties’ dispute over the scope of coverage is the designation of the named insured as “Dipika Inc. dba Super 8.”

According to Dipika and the Masons, the named insured’s designation that Dipika “dba Super 8” merely clarifies that the Weymouth Super 8 business was included within the broader Dipika coverage. Union’s stance is that the identification of the named insured as “Dipika Inc. dba Super 8” means that the policy covers only liability arising from Dipika’s activities doing business as the Super 8.

The interpretation of an insurance policy is a question of law. If the language is clear and unambiguous, courts must give effect to that language, without considering the underlying intent of the parties.

Although “dba Super 8” may not be determinative on its own, its plain meaning is not an important consideration in the court’s analysis. Here, the ordinary understanding of the phrase “doing business as Super 8” suggests that the policy covers only liability arising from Dipika’s activities that it undertakes doing business as a Super 8. For example,  the policy declarations Dipika’s “Business Description” is given as “Motel.”

Every phrase and clause must be presumed to have been designedly employed, and must be given meaning and effect. The Masons’ and Dipika’s interpretation, conversely, requires the court to render “dba Super 8” wholly superfluous, which it cannot do.

ENDORSEMENTS

The Masons and Dipika also argue that two endorsements to the commercial general liability policy expand coverage to include the Masonic Temple fire losses, pointing to schedules applying the endorsements to “ALL PROJECTS” and “ALL LOCATIONS.” The endorsements unambiguously raise the maximum dollar amount recoverable under the policy in certain circumstances, but — equally unambiguously — they do not affect what losses are covered in the first instance.

A careful reading of the endorsements reveals that they do not expand the scope of coverage to encompass occurrences not otherwise covered. Rather, the endorsements operate exactly as advertised in their titles: they create separate general aggregate limits for occurrences at different locations or involving different construction projects.

The endorsements do not, either by plain language or implication, affect what losses are covered in the first instance, and therefore do not extend coverage to include the Masonic Temple losses.

DUTY TO DEFEND

Dipika argued that, whatever the ultimate determination of indemnity. Union was at least obligated to defend it against fire-related lawsuits.

Although an insurer’s duty to defend is independent from, and broader than, its duty to indemnify, Union had no duty to defend. The factual allegations against Patel all concern the fire at the Masonic Temple. When matched to the policy’s terms unambiguously do not extend coverage to Dipika’s activities at the Temple — the allegations cannot reasonably supply even a rough sketch of a claim.

DIPIKA’S CLAIMS AGAINST ROBLIN

Dipika insists that, should it be unable to recover from Union, its losses should instead fall upon Roblin. All Dipika’s claims against Roblin, however, suffer from the same fundamental flaw: they are all premised on Patel requesting additional insurance for Dipika from Roblin. But even viewed in the light most favorable to Dipika, Patel’s asking to add the Masons as a “loss payee” was not a request for insurance.  Brokers have a duty to obtain insurance coverage that their client asks them to obtain. Roblin cannot be liable for failing to procure insurance when there was no intelligible request for it to do so.

THE MASONS’ CLAIMS AGAINST ROBLIN

The Masons asserted claims for misrepresentation and negligence against Roblin, premised on Roblin’s sending of the certificate of insurance to Patel.

In the context of a liability policy like Dipika’s, a certificate of insurance is simply a form that is completed by an insurance broker or agent at the request of a policyholder to document the fact that an insurance policy has been written. The one-page certificate furnished to Patel accurately describes his commercial general liability policy, lists the Masons as the “Certificate Holder,” and states on its face: “This Certificate Is Issued As A Matter Of Information Only And Confers No Rights Upon The Certificate Holder…”

Summary judgment was properly entered in favor of Union and Roblin, and the denial of the Masons’ motion to amend their complaint was proper. The judgments are therefore affirmed. The judgments of dismissal in the two companion cases are also affirmed.

ZALMA OPINION

The only interpretation that appropriately lends meaning to the choice of the insurer and insured to include the “dba Super 8” language when designating the named insured is that they intended to only insure against the risks of loss faced by the Super 8 motel. A professional like Mr. Patel, who owned and operated several commercial properties should have understood the need to insure against the risks he faced in the remodeling of a structure and the need of the seller for evidence that he had insurance protecting against the risk of loss faced by a structure under construction. He failed to obtain that coverage and tried to place the blame for his error on his agent and his motel’s insurer. It didn’t work.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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Zalma’s Insurance Fraud Letter – May 1, 2022

ZIFL- Volume 26, Issue 9 – May 1, 2022

See the full video at https://rumble.com/v131mpm-zifl-volume-26-issue-9-may-1-2022.html?mref=6zof&mrefc=2 and at https://youtu.be/makl4Ki6Zdc

Read all of the articles in this Issue including the Following Articles by clicking on ZIFL-05-01-2022.

Chutzpah By Insurance Criminal, Committing Insurance Fraud & Forgery While on Probation Requires Jail Time

Dustin Jungvirt, appealed the sentence imposed following his guilty plea to insurance fraud, claiming the district court failed to properly consider which sentencing option would best rehabilitate him. In State of Iowa v. Dustin Jungvirt, No. 21-1130, Court of Appeals of Iowa (April 13, 2022) the Iowa Court of Appeals resolved the dispute.

Insurer Sentenced for Fraud & Bankruptcy Violations

Jacques Andres Frym, 53, who owned businesses in the Savannah area, pleaded guilty last year to lying under oath about his income. Frym at one time owned Federal Employee Benefits LLC, an insurance company, along with real estate and other interests, federal court records show.

Indiana Travel Agent Sentenced for Insurance Fraud

Links to Fraud Bureaus, Fraud Divisions & Anti-Fraud Organizations

Good News From the Coalition Against Insurance Fraud

Health Insurance Fraud Convictions

In one of Dozens: California Chiropractor Sentenced to Five Years in Prison for Fraud.

Susan Poon, a 57-year-old former Orange County, California chiropractor was sentenced to more than 5 years in federal prison for defrauding health insurers out of around $2.2 million as part of a scheme that lasted more than three years.

Nearly a year after she was convicted of health care fraud and aggravated identity theft, among other charges, Poon submitted false reimbursement claims to several health insurance providers that included false diagnoses and claims of services that were not actually performed, as well as fraudulent prescriptions containing fake diagnoses of dependents of Costco and United Parcel Service employees.

To facilitate the fraud, prosecutors said Poon stole the personal identification information of her victims by attending health fairs at various UPS and Costco locations and soliciting the info from employees.

In a sentencing brief filed with the court, prosecutors described a scheme involving “interdependent moving parts” in which Poon “lied about visits with, diagnosis of, and treatments given to actual people and their children.”

During her sentencing hearing, Poon told U.S. District Judge David O. Carter that she was “sincerely sorry” for her mistakes and promised that “for the future I will lead with a moral compass in my soul.” Poon spoke of her family history – which included parents who immigrated to New York with nothing and established a successful restaurant – to her own work helping the hungry and homeless.

“There is not one day since this incident that I am not truly sorry,” Poon told the judge. “I mentally punish myself daily.”

Carter acknowledged what he described as Poon’s “extraordinary” family history, and said that prior to the fraud scheme she appeared to live an “exemplary life.” But the judge also noted that the fraud went on for years and required information taken from more than 500 people, including some toddlers.

“You represent a person I intuitively feel has turned a corner,” Carter said. “By the same token, the harm here is extraordinary.”

The judge ultimately decided on a sentence slightly shorter than the seven years and three months requested by prosecutors. He also ordered her to pay more than $1 million in restitution.

Does the Covenant of Good Faith & Fair Dealing in Canada Restrict Report to Police?

Other Insurance Fraud Convictions

Three Sentenced in Big Insurance Fraud Scheme to Stage Crashes

Keishira Richardson, 27, Chandrika Brown, 31, and Aisha Thompson, 44, are among 36 people convicted so far in what authorities have called “Operation Sideswipe.”

The three Louisiana women have been ordered to repay a total of $5.5 million to companies defrauded in a scheme to stage wrecks.

Each was sentenced on one count each of conspiracy to commit mail fraud.

Richardson was sentenced to five years on probation and ordered to pay $4.7 million in restitution. That’s the total paid to settle claims made by her and others for one crash staged on Oct 13, 2015.

Richardson’s father, Anthony Robinson, and his wife, Audrey Harris, were each sentenced in June to four years in prison on the same charge for that crash. They both underwent extensive medical treatment, neck and back surgeries, because they “understood that agreeing to more medical treatment would increase the value of their lawsuit,” according to a news release about their sentence.

U.S. District Judge Ivan Lemelle, who also sentenced Keishira Robinson, told her father and Harris that they and their codefendants would be responsible for paying $5 million including the companies’ attorneys fees.

U.S. District Judge Sarah S. Vance sentenced Thompson to 18 months in prison and restitution of $677,500 — the total paid in claims to several people involved in a crash with a tour bus on Oct. 15, 2015.

Vance ordered Brown to put in 100 hours community service and pay $121,000 restitution. Although Brown wasn’t in a RAV4 that hit a tractor-trailer on Sept. 6, 2017, she hired a lawyer, put in a claim for injuries and received medical treatment, a news release said.

More reports at ZIFL.

Announcement from the Justice Department re Covid-19 Fraud

New Book on Ethics for the Insurance Professional

Go To Jail, Go Directly to Jail, Do Not Pass Go

Eleventh Circuit Explains How Doctor Defrauded Medicare and Medicaid

Doctor Who Treated Georgia Patients More than 70 hours a Day While he Gambled in Las Vegas Goes to Jail

In United States of America v. Douglas Moss, Nos. 19-14548, 19-14565, United States Court of Appeals, Eleventh Circuit (April 12, 2022) the Eleventh Circuit affirmed the conviction, sentence, restitution and forfeiture of millions taken in his crime.

EXPLANATION OF MEDICARE AND MEDICAID SYSTEM

Medicare and Medicaid combined spend $1,500,000,000,000 a year, which is more than one-third of the total health expenditures in this country. Like other government health care programs, these two work on the honor system. Trust and more trust. Both programs take a pay first, ask questions later (if ever) approach. Which leads to crime and more crime, both sooner and later.

A trust-based system is only as good as the people who are trusted. Douglas Moss is one of those who was trusted but not trustworthy. As a physician, he fraudulently billed Medicare and Medicaid for millions of dollars for visits to nursing home patients that he never made.

For his fraudulent conduct, Moss was convicted of conspiracy and substantive health care fraud, sentenced to 97 months imprisonment, ordered to pay restitution of about 2.2 million dollars, and ordered to forfeit around 2.5 million dollars. He, of course, appealed, using the funds he stole to pay lawyers to challenge the convictions, sentence, restitution amount, and forfeiture amount, which is nearly every component of the judgment against him.

FACTUAL BACKGROUND

To explain Moss’ crimes the Eleventh Circuit began its analysis with how Medicare and Medicaid determine how much health care providers will be paid. It explained that Medicare and Medicaid are federally funded health care programs. Medicare pays “claims,” which are requests by a health care provider to be “reimbursed” (paid) for services provided to Medicare recipients. It also contains a code for the procedure or service performed.

The “CPT codes,” which stands for Current Procedural Terminology codes are a national uniform coding structure created for use in billing and overseen by the American Medical Association. They are used by all health insurance companies and by Medicare and Medicaid. A code represents at least two things: the procedure or service performed and the level of complexity involved in it. One type of procedure or service can have more than one CPT code because the same procedure may, in some cases, be more complex than in others. Generally, for any given category of procedure, the more complex the performance, the higher the number used for its code. In turn, a higher CPT code generally gets a higher reimbursement amount from Medicare.

Most of the fraud in this case involves claims for visits to nursing homes. For Medicare to pay a claim several requirements must be met. The service must be provided to a real patient who is properly enrolled as a Medicare beneficiary; it must be provided by a health care provider properly licensed and “enrolled” as a Medicare provider; it must be a service covered by Medicare; and it must be properly documented and billed. The service also must be reasonable and medically necessary. Health care providers sign a “certification statement” agreeing that they will comply with all of those requirements and will not submit false claims.

To properly bill Medicare at the physician’s rate for services provided in a nursing home setting, the physician must be the one in the patient’s room directly providing the service to the patient. When an assistant performs the service, the claim submitted to Medicare must disclose that fact.

THE FRAUD SCHEME

Moss was the medical director and attending physician at four nursing homes. He recruited Shawn Tywon to be his physician’s assistant and, as it turned out, his co-conspirator. Moss had Tywon help with the nursing home patients, and he trained Tywon how to conduct visits with those patients.

Between January 2012 and January 2015 Moss billed 31,714 claims to Medicare for nursing home visits; 477 were coded as 99306, the highest code for “initial nursing facility care.” And 25,468 were coded as 99309, and 5,769 as 99310, which are the two highest codes for “subsequent nursing facility care.” Those numbers suggest a staggering amount of work, a seemingly impossible amount of it. And, as it turned out, that amount of work was impossible.

The claims Moss submitted would have required him to see more than 50 patients a day for 293 of the days in the three-year conspiracy period, and even more than 100 a day on some days and more than 150 a day on other days. Not only that, but based on how long the CPT manual suggested those visits should take, Moss was sometimes billing Medicare for services that added up to more than 24 hours a day. He did that on 275 days. And on some days he billed for services that would have taken him more than 70 hours on that day. The services Moss billed on one stellar day would have required him to put in nearly 100 hours in that one 24-hour period. Moss alone miraculously stretched some of his days to far more than 24 hours. If truthful Moss proved Einstein wrong and was able to stop the running of time and work harder than humanly possible.

MIRACLES OR FRAUD

Of course, Moss’ miracle was non-miraculous, it was old-fashioned fraud.

Moss’ billing revealed he personally had seen 345 Medicare patients and 193 Medicaid patients in Georgia. Those two sets of claims are outstanding in the field of Moss’ fraudulent claims because, instead of being in Georgia treating patients on those dates, as he claimed, Moss had been in Las Vegas gambling.

In addition to submitting claims that were fraudulent because he had not performed the services that he had billed in his name and at his rate, he submitted claims that were fraudulent in another way. He also submitted claims that were fraudulent because – whoever he claimed had performed them – they were for services that were medically unnecessary or did not involve the level of complexity indicated by the CPT codes that Moss put on those claims.

Tywon, medical assistant, testified that “probably for 95 percent of the time or more” when he himself had visited a patient, “there was nothing to do.” Instead, what he would do is walk into the patient’s room, ask if everything was okay, and because a “majority of the time” the patient said he didn’t need anything, Tywon would then leave. He usually did not do a physical examination, take blood pressure, or check the patient’s pulse. As Tywon stipulated in his plea agreement, he would just “lay eyes” on the patients, spending only “3 to 5 minutes with” them during visits, except for in the uncommon event that they had some actual medical need. According to him, there was no medical purpose for most of the visits and he did not think he had any reason to be making them. Moss had him make the visit anyway and bill it at the highest code solely because Moss wanted to increase his payments from Medicare, which he did. In that way, Moss added another layer of fraud on top of billing in his name instead of Tywon’s name; he also billed for any services that were provided as if they were far more complex and time consuming than they actually were.

Moss went to trial. After a seven-day trial, a jury found him guilty on all counts. T

SENTENCING

Moss’ presentence investigation report recommended a guidelines range of 78 to 97 months. That range was based primarily on a loss of $6,701,163, which was the amount Moss had billed to Medicare and Medicaid; that factor alone caused an 18-level increase to his offense level.

The court sentenced Moss to 97 months imprisonment, the top of the guidelines range. It also ordered him to forfeit $2,507,623.69 and to pay $2,256,861.32 in restitution.

CONVICTION ISSUES

ANALYSIS

The aggregate dollar amount of fraudulent bills submitted to the Government health care program shall constitute prima facie evidence of the amount of the intended loss, i.e., is evidence sufficient to establish the amount of the intended loss, if not rebutted.

Moss intentionally billed in a way that would maximize the money he received from Medicare. As the district court put it: “[W]hile [Moss] may not have expected that Medicare . . . would reimburse him at a rate of 100 percent, it is apparent that he manipulated his billings to maximize his profits. The way Moss “maximized” his profits was by always billing his claims at a rate higher than the one in Medicare’s schedules. By billing more than the scheduled amount, Moss ensured that he always got the full amount Medicare would pay.

RESTITUTION

To no one’s surprise, Moss contends that the $2,256,861.32 the district court ordered him to pay in restitution is too much. Under 18 U.S.C. § 3663A(c), [the Mandatory Victims Restitution Act,] a defendant convicted of fraud must pay restitution to victims of the offense. Restitution must be based on the amount of loss actually caused by the defendant’s conduct and reduced by the value of legitimate medical services provided.

When services are not medically necessary, Medicare reimburses at a rate of $0. Because Moss’ estimate failed to embrace, salute, or even nod at medical necessity, the district court did not clearly err in giving it little or no value.

Given Moss’ failure to identify a single properly billed claim, he did not persuade the appellate court that the district court clearly erred.

ZIFL OPINION

The Eleventh Circuit admitted that, because Medicare and Medicaid payments are made on the “honor system” it is wide open to fraud perpetrated by health care professionals with no honor. Moss was a provider with no honor. That the scheme succeeded for many years is because the system believes all of the health care professional are honorable and just paid Moss what he asked even when a simple calculation would have shown that that he was billing for 70 hours of service in a single day. Moss made a great deal of dishonest money only to complain that he was not allowed to keep the fruits of his crime and as a kind and professional doctor was now required to practice medicine in the federal gray bar hotel – the federal prison. Hopefully this will deter other doctors from trying to emulate his crime.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

 

 

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True Crime of Insurance Fraud Video Number 64

Profits Are Where You Make Them

See the full video at https://rumble.com/v12wml6-true-crime-of-insurance-fraud-video-number-64.html and at https://youtu.be/4k0OfVecSQ0

On his 50th birthday Louie concluded he was a failure. For thirty years he sold insurance to the public. For a $40 commission Louie would often spend hours explaining a tenants’ homeowners policy to a client. The next year, because another broker promised to save the client $5 in premiums, they did not renew and he received no commission.

Louie had always been a dedicated and faithful insurance broker. He put his clients’ interest above his own. If he could save them money (even if it would cost him a commission) he placed them with the least expensive insurer. In return he saw nothing but derision and disloyalty.

Louie decided to change his life now that he was middle-aged and a member of the AARP. Considering his small earnings, retirement at age sixty-five seemed almost impossible. He needed a means to make sufficient money in a short time to retire. His knowledge of insurance and his salesman’s understanding of the greed of his customers brought him a solution.

EMPLOY IV YOU was born.

Louie went to each of his commercial insurance clients with his plan. He explained that if they allowed him to become the employer of their employees, the cost savings in benefit plans would offset his fee. The business’ overall employee cost, he explained, would be less. He would charge each customer 3% of the gross salary of each employee and the actual cost of their benefits. For the 3% fee, he would file all employment forms and issue W-4 and W-2 forms; collect from his customers all employment taxes and pass them to the government; fill out all the forms and give each employee a “cafeteria” plan of benefits. The employees would be happy and the employers would be happy. The employer would have absolute control over the employees and Louie would merely be their titular employer.

Although the idea sounded too good to be true, 80% of his customers decided to take Louie up on the proposition.

EMPLOY IV YOU then applied for, and obtained, a workers’ compensation insurance policy for all of its employees. Louie, being a frugal man, advised the workers’ compensation insurer that he had 400 employees all working in a clerical capacity (the lowest workers’ compensation rate available).

 

Other than paying the premium that he obtained in advance from each of his clients, Louie’s only other expense was issuing pay checks. A payroll service charged him only $300 a month to issue all the checks and prepair the reports for him. He paid a bookkeeper only $8 an hour to take care of all the other bookkeeping requirements of his business. EMPLOY IV YOU made more profits in the first two months of business than Louie had made in any one of the last five years.

By the time Louie was fifty-five, he had invested his profits into a portfolio of stocks, bonds and mutual fund shares conservatively valued at $3,000,000. The earning from the portfolio would support Louie in comfort through his retirement.

EMPLOY IV YOU’s workers’ compensation insurer, on receiving Louie’s reports of earnings, reduced his premium each year. Louie used the “audits” to increase his profits for five years in a row.

On the fifth anniversary of the business, Louie’s 55th birthday, he decided he had made enough money and offered the business for sale to a legitimate employee leasing business.  Louie took the $2,000,000 he received from the purchase, added to it the cash from the sale of his stock portfolio and moved it to Kingston, Jamaica.

He purchased a villa overlooking the sea and is living out his retirement happily.

ZALMA OPINION

Insurance fraud is an equal opportunity crime. It is committed by every race, religion, national origin, gender, sexual preference or occupation, even an insurance agent. It is a crime regardless of who commits the crime or how successful the criminal. A lack of investigation and unwarranted trust allowed Louie to successfully defraud multiple insures and those for whom he sold his services. When something, like Louie’s deal, seems to be too good to be true, it is.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Insured Ignores Conditions & Loses

Failure to Fulfill an Insurance Policy Condition Requiring Subcontractors to be Insured Defeats Claim

Russell Blodgett appealed an order of the Superior Court granting summary judgment in favor of the plaintiff, Cincinnati Specialty Underwriters Insurance Company (CSU). Blodgett argued that the trial court erred by concluding that the terms of a commercial general liability policy issued by CSU clearly and unambiguously excluded coverage for Blodgett’s damages in a separate personal injury action against CSU’s insured resulting from Blodgett’s fall from an alleged negligently constructed staircase.

In Cincinnati Specialty Underwriters Insurance Company v. Best Way Homes, Inc., No. 2021-0280, Supreme Court of New Hampshire (April 27, 2022) the Supreme Court read the full policy and resolved the issues raised by the parties.

FACTS

CSU’s insured, defendant Best Way Homes, Inc. (Best Way), is a general contractor. In May 2012, Best Way entered into a contract with a homeowner to perform renovations at his residence (the property). The project included constructing a deck with an attached staircase. Pursuant to an oral agreement, Best Way subcontracted the construction of the deck and staircase to Bob Wood Construction, which completed the project in 2012.

In 2017, the homeowner hired Blodgett to perform plumbing services at the property. Blodgett was injured when the staircase separated from the deck as he was descending it, causing him to fall approximately ten feet and suffer injuries. Blodgett sued alleging claims against the homeowner for negligence and against Best Way for negligent failure to inspect, warn, and remove hazards, as well as a separate claim against Best Way for negligent hiring and supervision. At the time of the injury Best Way was the named insured under the CSU policy, which was in effect from June 29, 2016 to June 29, 2017. The CSU policy covered bodily injuries caused by an “occurrence” that happened during the policy period. The policy also contained an exclusionary provision, which provided:

1.

Section IV – Commercial General Liability Conditions is amended to include the following language:

As a condition to and for coverage to be provided by this policy, you must do all of the following:

  1. Obtain a formal written contract with all independent contractors and subcontractors in force at the time of the injury or damage verifying valid Commercial General Liability Insurance written on an “occurrence” basis …

This insurance will not apply to any loss, claim or “suit” for any liability or any damages arising out of operations or completed operations performed for you by any independent contractors or subcontractors unless all of the above conditions have been met. (emphasis added)

CSU sued for declaratory judgment, seeking a declaration that it had no duty or obligation to defend or indemnify Best Way with respect to Blodgett’s negligence claims. CSU also moved for summary judgment, arguing that Best Way did not obtain a formal written contract from the subcontractor and thus did not satisfy the conditions precedent to coverage set forth in the exclusionary provision. CSU argued that, as a matter of law, the claims against Best Way were excluded from coverage by the unambiguous terms of the exclusionary provision. The trial court granted CSU’s motion for summary judgment.

ANALYSIS

Blodgett does not dispute that Best Way failed to satisfy the requirements for coverage set forth in the policy’s exclusionary provision. Nonetheless, Blodgett argued that the exclusionary provision does not preclude coverage in this case. Blodgett asserted that, based upon the plain meaning of its terms, the exclusionary provision does not apply to negligent acts that occurred before the policy’s effective date. He therefore argues that, because the subcontractor constructed the stairs in 2012 – approximately four years before the policy became effective – the exclusionary provision does not apply in this case.

An occurrence policy, like that issued by CSU, covers all claims based on an event occurring during the policy period. Here, it is undisputed that the CSU policy is an occurrence policy, which covered “bodily injury” or “property damage” that “occur[red] during the policy period.”

In Cincinnati Specialty U/W Ins. v. Milionis Const., 352 F.Supp.3d 1049, 1055 & n.5 (E.D. Wash. 2018) the USDC, interpreted an identical exclusionary provision and concluded it required the insured to meet “three explicit, unambiguous conditions” and noted that the provision was “subject to only one reasonable interpretation” and, therefore, enforced the exclusion.

The Supreme Court interpreted the present tense language in the exclusionary provision as having “no temporal reference” and meaning simply that CSU must have satisfied the preconditions to coverage in order for coverage to apply to the claim. That the conditions precedent employ present tense language does not mean that the exclusionary provision is limited to injuries resulting from the subcontractor’s work performed during the policy’s coverage period. Rather, it merely indicates that the insured must meet the conditions precedent at the time it seeks coverage in order for the policy to cover the damages. Therefore, when considered in the appropriate context, no reasonable person in the position of the insured could have construed the conditions precedent of the exclusionary provision as having a temporal reference.

Moreover, other language in the exclusionary provision not included in the conditions precedent – written in the past tense – indicate that the provision applies to negligent acts committed before the policy’s inception. Specifically, the exclusionary provision states that the CSU policy will not apply “to any loss, claim or ‘suit’ for any liability or any damages arising out of operations or completed operations performed for you by any independent contractors or subcontractors’ unless all of the conditions have been met.” (Emphasis added.)

Accordingly, the Supreme Court concluded that the exclusionary provision unambiguously applied whenever Best Way seeks coverage under the CSU policy, regardless of whether the acts or omissions that caused the damages occurred prior to the policy’s effective date.

As the trial court noted, the Supreme Court has consistently construed the term “arising out of” broadly to mean “originating from or growing out of or flowing from.” Merrimack School Dist. v. Nat’l School Bus Serv., 140 N.H. 9, 13 (1995) (quotation omitted). Ultimately, the damages alleged by Blodgett – his physical injuries – arose from the subcontractor’s allegedly negligent construction of the staircase that led to its collapse. As the trial court observed, there would be no claims against Best Way but for the alleged negligence of the subcontractor. The claims against Best Way – including those based upon its subsequent omissions after the construction of the staircase – flow from the subcontractor’s alleged negligence and establish a causal connection between the subcontractor’s work and Blodgett’s claims against Best Way. Therefore, all claims against Best Way arose out of the work of the subcontractor and the exclusionary provision precludes coverage in the underlying litigation.

ZALMA OPINION

Liability insurance is a risk spreading device. To limit the premiums charged insurers issuing CGL policies transfer the risk they take by requiring a contractor insured to require that each subcontractor maintain insurance protecting the insured contractor.  The subcontractor was not insured and did not protect the risk and as a result the insured contractor breached a material condition of the policy and had no insurance for defense or indemnity.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

 

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True Crime of Insurance Fraud Video Number 63

Fraud Isn’t Fun Anymore

See the full video at https://rumble.com/v12oc78-true-crime-of-insurance-fraud-video-number-63.html and at https://youtu.be/6Mvw_SjmBvc

Not everyone who commits insurance fraud is a hardened criminal. Not all perpetrators of insurance fraud do so to profit. Some, like the person who is the subject of this story, do it for fun.

Insurance investigators have an unearned reputation for brilliance in investigation. Movies and television paint insurance investigators as tough, highly intelligent, tenacious and almost impossible to fool. The average, contrary to the image created by television, insurance investigator is a 25-year-old graduate of a liberal arts college with little investigative experience.

The training received by insurance investigators, properly so, is directed to a determination of how much and how fast a claim should be paid. Their training in fraud detection is limited by the desire of the insurer to fulfill its obligation to pay claims fairly and promptly.

The Insured did not know about the lack of experience of the average insurance investigator. The Insured believed a person who could succeed at fraud would be brilliant. A successful fraud would be an exciting challenge.

He decided to attempt a fraudulent insurance claim. The Insured wanted the excitement in life he believed was his right to experience.

The broker, based on the excellent quality of the appraisals, had no difficulty insuring the schedule. With his connections in the Surplus Line Market the broker placed insurance with a Swiss Insurance Company he knew to be reinsured 100% by a South African reinsurer. The Swiss insurer bound coverage pending a favorable inspection of the art by an appraiser of its choice.

The Insured emptied his life’s savings and paid the required 10% installment on the $42,000 premium. He knew that the inspector would arrive soon. He did not have the rest of the premium or $1,400,000 in fine arts to show the inspector. It was necessary that the ABC Van and Storage facility be the victim of a burglary before the inspector arrived.

If the investigator had recognized the red flags, she would have interviewed each appraiser. If the appraisers had been interviewed, the falsity of the appraisals would have been discovered immediately and the claim could have been denied for fraud. Reports would have been made to the Fraud Division. The Insured may even have been arrested for Insurance fraud, violation of California Penal Code § 550. Instead, the insured, still bored, has a great deal more money than he could ever have earned working in a movie house.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

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 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 http://www.zalma.com and zalma@zalma.com.

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