Insurance and Bankruptcy Fraud Go Together Like a Horse and Carriage

Insurance Claims Prove Insureds Committed Bankruptcy Fraud

Every investigation of a major fire loss should include questions concerning bankruptcy filings by the insured and review of bankruptcy court filings. In United States Of America v. Roscoe Benton, III and Desi Najuana Benton, United States Court of Appeals, Sixth Circuit, Case Nos. 16-1774, 2017 WL 2772174 (6/26/17) State Farm failed to investigate the Benton’s bankruptcy filing and failed to even confirm ownership of the real and personal property only to erroneously pay out $400,088.72.

The United States, upset about the failure of the Bentons to report their assets honestly to the court arrested Roscoe Benton, III, and his wife Desi Najuana Benton and after a jury  trial on charges of bankruptcy fraud and mail fraud each were found guilty of some but not all of the charged offenses.

The Bentons resorted to bankruptcy protection when they were unable to keep up with their residential rent payments. In late 2009, the owner of the house they were renting took action in state court to evict the Bentons for nonpayment of rent. In a judgment dated December 3, 2009, the Bentons were found to owe $12,635 in past due rent and costs and, barring payment in full by December 14, 2009, they would be ordered to vacate the home.

In response, the Bentons petitioned for relief under Chapter 13 of the Bankruptcy Code. The filing stayed the impending eviction. The bankruptcy court approved the Bentons’ Chapter 13 Plan on June 10, 2010. It required the Bentons to pay the bankruptcy trustee $1,834 per month over the course of sixty months. The trustee would then, among other things, pay the $1,100 monthly rental amount to Carey, plus $110 per month to make up the arrears.

Less than a month after confirmation of their bankruptcy plan, the Bentons applied for homeowner’s insurance on the house they were continuing to rent from Paul Carey. The State Farm homeowner’s insurance policy became effective July 16, 2010, affording coverage for replacement value of the home in the amount of $267,000 and personal property coverage in the amount of $200,250.

On May 16, 2011, the Grand Blanc house on Jamestown Place was severely damaged by fire. Within two months, State Farm had paid the Bentons $184,726 for damage to the dwelling and the policy limit of $200,250 for loss of personal property. On August 8, 2011, the Bentons used the insurance proceeds to purchase a house in Desi’s name at 5260 Fairway Trail in Grand Blanc for $180,574 in cash.

They did not use the insurance proceeds to make good on the payments owed to the bankruptcy trustee.  As a consequence of these actions the Bentons were indicted in the Eastern District of Michigan on four counts of bankruptcy fraud and one count of mail fraud. They also concealed from the bankruptcy court that the house and its contents had actually been destroyed by fire, for which they had received at least $373,426.72 in insurance payments. Count five charged them with falsely representing in a bankruptcy filing that they were making monthly rent payments of $550 at a time when they were living in a Grand Blanc house they had purchased with cash and were not actually making any rent payments.

Defendants were sentenced on May 5, 2016. Roscoe Benton was sentenced to a prison term of 48 months on each convicted offense, to be served concurrently, and was ordered to pay restitution to State Farm in the amount of $400,088.72. Desi Benton was sentenced to a prison term of 24 months on each convicted offense, to be served concurrently. She too was ordered to pay restitution in the amount of $400,088.72. The court ordered the two defendants’ prison sentences to be served consecutively to each other: Desi’s sentence to be served first, and Roscoe’s to commence upon Desi’s release. The staggering of the sentences was designed to allow one of the two defendants to remain in the family household caring for Roscoe Benton’s infirm mother, who was living with them.

PROSECUTORIAL MISCONDUCT

The indictment did not include any charges or even any allegation of insurance fraud by arson against either defendant. No evidence presented at trial touched on the cause of the Jamestown Place fire, much less that it was caused by arson. This, however, did not hinder counsel for the government, the Bentons contend, from repeatedly and gratuitously alluding during trial to “things could that could burn up in a house fire.” The references were claimed by the Bentons to have been part of a deliberate scheme to plant the seed in the jurors’ minds that the house fire had been started intentionally.

To prevail on a claim of prosecutorial misconduct, it is not enough for the Bentons to show that the prosecutor’s comments were improper; they must establish that the comments so infected the trial with unfairness as to make the resulting conviction a denial of due process. No objection was made during trial concerning the prosecutors statements.

A conviction should be reversed under plain-error review only in exceptional circumstances, such that the trial judge would be deemed derelict in having countenanced the unobjected-to misconduct. The Bentons’ prosecutorial misconduct claim came up woefully short. The prosecutor advised the jury that the defendants told the bankruptcy court that they only had personal property that could burn in a fire was worth $1750 when a year after the bankruptcy court had approved the Bentons’ plan, counsel continued, the house they were renting and its contents were destroyed by fire. Following the house fire, counsel explained that the Bentons submitted an insurance claim for damage to their household goods and that claim was that those goods were worth $277,000 in round numbers. Now, they had told the bankruptcy court that their household goods were worth $1,750. They tell State Farm, it was on the order of two hundred times that money. Counsel’s characterization of personal property in the household goods category as “everything that could burn up in a fire,” far from being “improper,” appears to have been entirely appropriate, given the facts of the case.

The prosecutor also explained to the jury the concept of “insurable interest” when he said: “You cannot take out insurance on a neighbor’s house and hope that they are going to burn the house down. Because you don’t have any insurable interest in their house. If their house burns down, you haven’t lost anything. That’s the concept of insurable interest. You can’t get insurance on somebody else’s property.”

The fact that each of the questioned comments, as the Bentons concede, had a legitimate purpose in the trial. Even if it was not strictly necessary for the prosecution to use the characterizations it did, the comments were not clearly improper.

The trial court acknowledged Desi Benton’s argument based on the second element that there was no evidence that she “knowingly made or caused” the materially false or fraudulent representation contained in the August 12, 2011 filing. But the court recognized that the August 12 filing was part of a larger scheme to defraud in which, the evidence showed, “the Bentons were working together, that they were cooperating with one another as a team.”

Among other things suggesting Desi Benton’s involvement, as the district court noted, was the Bentons’ October 17, 2011 bankruptcy court filing.

ZALMA OPINION

Bankruptcy filings are made under oath. Insurance claims are resolved by a sworn statement in proof of loss. If State Farm examined the Benton’s Under Oath and determined that they had sworn to the court than their personal property was worth $1750 they would never have paid them about $200,000. If they learned that the Benton’s did not own the real property they probably would never have issued a homeowners policy. The Bentons intent was obvious: they would defraud the bankruptcy court and State Farm. They belong in jail and will serve the time ordered. State Farm will have a difficult time getting the money ordered as restitution.

 

 

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests 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 and expert witness 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 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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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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