Fraud Doesn’t Pay
Insurance fraud comes in many varieties. Usually it is a person insured attempting to get money from an insurer to which the insured is not entitled. However, insurance fraud also occurs when people conspire to take money from others who wish to invest in an insurer or reinsurer.
In Mazzarelli, J.P., Kahn, Kern, Singh, JJ. 6396 Wimbledon Financing Master Fund, Ltd., v. Weston Capital Management LLC, et al., Leonard De Waal, et al. on appeal from trial Court, the Supreme Court New York County (Shirley Werner Kornreich, J.), entered orders on July 18, 2017 and August 1, 2017, which, to the extent appealed from a denied the motion of defendants Leonard De Waal and Arie Bos (defendants) to dismiss the amended complaint as against them in its entirety pursuant to CPLR 3211(a)(1), (3), (7), and (8), unanimously modified, on the law, to dismiss the cause of action for unjust enrichment, and otherwise affirmed, without costs.
The Supreme Court properly concluded that defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York (CPLR 302[a]; Lawati v Montague Morgan Slade Ltd., 102 AD3d 427, 428 [1st Dept 2013]; see also LaMarca v Pak-Mor Mfg. Co., 95 NY2d 210, 217-219 ).
Defendants were directors on Gerova’s board during most of the time when Gerova was involved in a fraudulent scheme. The amended complaint details the conspiracy to commit fraud using Gerova, the agreements between Gerova and Weston board members and insiders, among others, to loot the reinsurer, Wimbledon, and Wimbledon’s resulting insolvency. Although defendants did not reside or do business in New York, other Gerova defendants were in New York or interacted regularly with New York, including one of the masterminds of the fraudulent scheme, John Galanis.
Regarding their overt acts in furtherance of the conspiracy, defendants’ approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of “hush money” to ignore certain red flags at Gerova, and their failure to correct misrepresentations or disclose material information to the public sufficed at this stage. Although defendants did not mastermind the conspiracy, their receipt of “hush money” allows the reasonable inference that they exerted “control” to the extent that the fraud could not have been accomplished without their acquiescence to the proxy and other misconduct.
The Supreme Court correctly found that plaintiff had standing to bring the fraud claim because it alleged that it was the target of the conspiracy and sued directly to recover damages for the looting and theft of its assets.
To the extent that plaintiff alleges that de Waal and Bos were aware of misrepresentations and omissions in the Gerova proxy statement, knew but failed to disclose to Wimbledon or its investors that Galanis, who was prohibited from serving as an officer or director, controlled Gerova, and knew that Gerova was functionally insolvent, the complaint adequately pleads fraud with the requisite particularity.
Even if defendants did not themselves include the misrepresentations in the public filings, one can rationally infer that as Gerova directors, they knew of the falsity of facts therein, did not disclose material information, and allowed the misrepresentations to be publicly stated.
Defendants do not suggest that plaintiff’s assets were located in or channeled through Florida accounts or that any relevant meetings or other conduct occurred in Florida. Moreover, plaintiff alleges that its assets were stolen from New York bank accounts and New York is thus where the economic loss occurred.
Since plaintiff sufficiently alleged fraudulent inducement in entering into a settlement agreement which contained a written release of claims against defendants, which would appear to cover de Waal and Bos the court correctly observed that the release did not warrant dismissal of the complaint, as a release procured by fraud is not enforceable.
In this unique insurance fraud case investors in a reinsurance business were defrauded because the reinsurer was insolvent at the time the investments were obtained; a settlement was reached based on more fraud; and the victims were allowed to pursue their fraud case because a release based on fraud is unenforceable.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Books from Full Court Press
Full Court Press continues to publish expert secondary content. This time it’s a new collection of ew insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.
Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 50 years in the insurance business. We welcome his deskbooks as the first published under our Full Court Press imprint. Three titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.
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California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.
Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.
An annual subscription to secondary content on the Fastcase platform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books. Details on the three new e-books are available at https://www.fastcase.com/product-category/fcp/ Subscribers to fastcase.com can search the three books as they do case law.
An annual subscription to secondary content on the Fastcase platform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.
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