Ignore Court Orders at Your Peril

Frivolous Litigation and Frivolous Appeal Causes Default to Be Entered

Post 4744

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PROOF OF FRAUDULENT CLAIM REQUIRED SUIT

Plaintiff-Appellee Transamerica Life Insurance Company (“Transamerica”) sued Defendants-Appellants Akop Arutyunyan and his daughter Anahit Arutyunyan for allegedly engaging in a conspiracy to defraud Transamerica into paying benefits under a long-term care insurance policy.

In Transamerica Life Insurance Company v. Akop Arutyunyan; Anahit Arutyunyan, No. 22-55199, United States Court of Appeals, Ninth Circuit (February 22, 2024) Transamerica sued to avoid paying benefits to a fraudulent disability claim.

FACTS

In March 2016, Transamerica issued a life insurance policy to Anahit, which covered her father, Akop, as the “Insured.” The policy included a “Comprehensive Long Term Care Insurance Rider,” under which Transamerica generally agreed to “pay a Monthly Long Term Care Benefit when the Insured has incurred expenses for Qualified Long Term Care Services.” One of the requirements for triggering this long-term care coverage was that the Insured qualify as a “Chronically Ill. Individual.”

In December 2018, Akop filed a claim for benefits under the rider, alleging that he had torn his “left rotator cuff” and suffered from “spinal arthritis.” The following month, a nurse conducted an “onsite assessment” of Akop at his home in order “to determine whether Akop was eligible to receive benefits under the [r]ider.” Anahit also provided written confirmation to Transamerica that  he hired Mr. Pzdikyan as his caregiver.” In light of the information provided by Defendants, Transamerica approved the claim and began paying Akop benefits.

Over the next several months, Transamerica conducted surveillance of Akop in order to determine whether the representations made in support of the claim for benefits were accurate. The surveillance revealed that Pzdikyan never visited Akop’s home, in spite of the fact that “[o]n each date of surveillance, Akop represented to Transamerica in signed and certified Proof of Loss statements that he received between three and eight hours of care services from Mr. Pzdikyan in the home.”

Based on this initial surveillance, Transamerica invoked its rights under the rider to require Akop to submit to an independent medical evaluation. The doctor who performed the evaluation, Dr. Molinar, examined Akop in April 2019. Because the IME determination was sufficient to support Akop’s continuing claimed eligibility for long-term care benefits, Transamerica continued paying benefits to Akop.

Further surveillance allegedly confirmed that Pzdikyan “did not provide care to Akop on the dates represented by Akop to Transamerica.” Transamerica’s further surveillance also purportedly showed that Akop was continuing to engage in activities that were inconsistent with his claimed level of impairment.

ABUSE OF TRIAL COURT ORDERS

Concluding that Defendants had repeatedly failed to obey court orders related to the discovery process, the district court ultimately entered default judgment against them. Defendants have timely appealed the judgment, but the Ninth Circuit concluded that their arguments in the court were frivolous. Moreover, when called upon to defend his disregard of the district court’s orders, Defendants’ counsel at oral argument in the court made multiple blatantly false statements about his and his clients’ responses to those orders.

In May 2020, Transamerica sued Defendants, alleging that they had obtained insurance benefits through fraud. Specifically, Transamerica asserted monetary claims based on fraud, civil theft, civil conspiracy, and restitution.

Defendants filed their response to the OSC on September 13, three days late. Defendants challenged the district court’s ultimate decision to enter a default judgment as a sanction for Defendants’ violations of court orders.

The district court applied a measured and gradational approach in responding to Defendants’ non-compliance with the court’s orders and the local rules. The Ninth Circuit found it is abundantly clear that the result is obvious and the appellants arguments were wholly without merit.

Moreover, at oral argument for this appeal, Defendants’ counsel repeatedly minimized, if not misrepresented, his lack of compliance with the district court’s orders in this case. For example, at one point during argument, counsel asserted that, “[i]n terms of our compliance with the court’s orders, at no point did we ignore or flout our responsibility to respond to discovery.” It may well be that, when it comes to evaluating these multiple misstatements, this case may ultimately call for the application of what has been called “Hanlon’s Razor”: “Never attribute to malice that which is adequately explained by stupidity.”

In view of the frivolous nature of this appeal and the multiple misstatements made by counsel at oral argument, the Ninth Circuit ordered Defendants and their counsel, by separate order filed contemporaneously, to show cause why the court should not impose sanctions against them. Defendants’ counsel is likewise ordered to show cause why this court should not refer this matter to the State Bar of California.

The Ninth Circuit upheld the district court’s order deeming defendants’ objection to certain items of discovery to be forfeited and requiring production of those items. By failing to present any sufficient argument in their opening brief as to why the district court’s stated grounds for that decision were erroneous, defendants forfeited any challenge to that order on appeal. In addition, it held that the district court did not abuse its discretion in entering a default judgment as a sanction for defendants’ violations of court orders. Finally, the Ninth Circuit held that the appeal is frivolous.

ZALMA OPINION

Transamerica was the victim of a blatant fraud. Surveillance established that the disability claimed by the defendant did not exist and so Transamerica sued to end the payment of benefits to the defendants only to be met with recalcitrant defendants and defense lawyer who refused to obey any court order, lied to the trial court and to the Ninth Circuit and may find criminal charges pending and a law license in jeopardy. The actions of Transamerica actions should be emulated by every insurer faced with a fraudulent claim and the California Bar should take action against the lawyer if he cannot show good cause for his actions and the US Attorney should consider the criminal conduct.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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