Zalma’s Insurance Fraud Letter – April 15, 2020


April 15, 2020 

 Buyer’s Remorse with Plea Agreement Results in Frivolous Claim of Inadequacy of Defense Counsel

Insurance Criminals Have No Shame

People who commit the crime of insurance fraud are prime examples of moral turpitude. They cannot be trusted and will do everything they can to annoy prosecutors, insurance defense lawyers and the courts of the state to reduce a sentence on conviction.
In the People of The State of Illinois v. Kenneth Steward, No. 1-17-0487, 2020 IL App (1st) 170487-U, Appellate Court of Illinois First District Sixth Division (MARCH 20, 2020) Kenneth Steward appealed from the summary dismissal of his pro se petition for relief. On appeal, the defendant contended that the circuit court erred by dismissing the petition when it presented an arguable claim of ineffective assistance of counsel. Specifically, the defendant contends that his trial counsel’s erroneous advice that certain sentences would run concurrent to each other rendered his guilty pleas unknowing and involuntary.


A seventeen-year federal prison sentence that would then be followed by an additional seven years of state court sentence for aggravated insurance fraud, theft, wire fraud and federal and state crimes was appropriate and accepted by the defendant. Acting as a jail house lawyer he wasted the time of the trial and appellate court with a frivolous motion that was totally and irremediably refuted by the record in the trial court deserved additional punishment but since he must serve 24 years it seems the appellate court found the punishment to be adequate.

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

Threat of A Bad Faith Suit Adds Proof of Fraud

An insurer asserts 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. The insurer seeks to recover the settlement payment from its insured.
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 (March 18, 2020) the Tenth Circuit decided whether the insurer could recover from its insured for defense and indemnity payments made under a reservation of rights.


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. If not, even with the judgment the fraud succeeded.

Read the full article here. 

Insurance Fraud By Insurers

Insurance fraud is not limited to fraud by insureds against their insurers. Much to the shame of the insurance industry, the reverse also happens.
The poster child of fraud by an insurer was Martin Frankel who created a scheme he masterminded to “loot” more than $200 million from seven insurance companies that he controlled. Franklin American Corporation, and its wholly-owned subsidiary, Franklin American Life Insurance Company were controlled by another entity, a Tennessee trust named the Thunor Trust. The Trust had purchased an 85% interest in Franklin American in 1991. In subsequent years, the Thunor Trust purchased five other insurance companies, which were domiciled in the states of Mississippi, Missouri, and Oklahoma.
Between June 29, 1999 and January 14, 2000, the insurance companies mentioned above were ordered into liquidation by the courts in the four states in which they were domiciled. Martin Frankel, the man who allegedly controlled a financial empire that included the insurance companies, a securities trading firm, a non-profit foundation, and the Thunor Trust, was indicted in both state and federal courts for fraud, criminal conversion, and for allegedly looting at least $215 million from the assets of the insurance companies.
Frankel’s scheme to defraud the insurance companies, those it insured and its investors began in 1991, lasted nearly ten years, involved the participation of dozens of co-conspirators and ultimately resulted in the insolvency of the Insurance Companies. In broad terms, the scheme worked in this way:
Frankel obtained control of the Insurance Companies and once in control, placed two of his co-defendants in positions of authority as CEO and CFO, respectively. Those defendants then stole the Insurance Companies’ money through a series of financial transactions. To commit their fraud without detection, Frankel created sham companies, used alias identities and had numerous mailing addresses for phony companies and identities. These defendants transferred the money from the Insurance Companies to banks or brokerage houses in the United States and from there, transferred the money to foreign banks, usually in Switzerland. They then transferred the money back to the United States where it was converted to untraceable cash for their own use and to fund their fraudulent scheme.
Frankel was convicted of multiple crimes. He appealed his conviction and the following decision followed his conviction.

What Happens When the Insured Refuses to Testify at EUO?

In Brizuela v. Calfarm Insurance Co.,116 Cal.App.4th 578, 10 Cal.Rptr.3d 661 (Cal.App. Dist.2 03/03/2004) and in California Fair Plan Association v. Superior Court of Los Angeles County, 115 Cal.App.4th 158 (Cal.App. Dist.2, 01/23/2004) the California Court of Appeal concluded that, “as a matter of law,” the insured “violated the requirement of the insurance policy that he submit to an EUO; that the insurer could on that basis deny his claim without a showing of prejudice; that the availability of a deposition in litigation does not excuse his breach of the EUO requirement; that he had no valid bad faith claim; and that the court properly dismissed his action.”
Since the EUO is an essential weapon in the insurer’s arsenal of tools to defeat insurance fraud these decisions are exceedingly important to every SIU insurance fraud investigator and insurance fraud counsel.
An insured’s failure to comply with the policy requirement to appear and testify at an EUO deprives the insurer of a means for obtaining information necessary to process the claim. The inability to obtain such information is, by definition, prejudicial, absent extraordinary circumstances.
The EUO is taken under the authority provided by a condition of the insurance policy, usually statutorily imposed as part of the standard fire policy that compels the insured to appear and give sworn testimony on the demand of the insurer.
In order to make a prima facie showing based upon the failure to appear for an EUO, an insurer is required to show that:
  1. the EUO scheduling letters were timely mailed,
  2. the date and place of the EUO was not unreasonable, and (
  3. the assignor failed to appear [Eagle Surgical v. Progressive, 21 Misc.3d 49 [App Term, 2nd & 11th Jud Dists 2008]; Stephen Fogel Psychological, P.C. v. Progessive Casualty Insurance Company, 35 AD3d 720 [2d Dept 2006])].

Health Insurance Fraud Convictions

Nurse Practitioner Guilty of Forging Prescriptions
Rebecca Nichole Moore, 33, pleaded guilty to charges of obtaining controlled substances by forgery or fraud, unlawful use of a communications facility, conspiracy, identity theft, and possession of a controlled dangerous substance. The plea took place in a remote hearing before Muskogee, Oklahoma County District Judge Bret Smith.

CEO Of Sober Homes Network Convicted In $38 Million Fraud Scheme

Sebastian Ahmed, 42, of Delray Beach, Florida, was convicted of conspiracy to commit health care fraud and wire fraud, five counts of health care fraud, conspiracy to commit money laundering, and eleven counts of money laundering. As part of the scheme, the conspirators exploited vulnerable drug addicts, the majority of whom were 18 to 26 years ago; falsified paperwork; and entered into various kickback arrangements, all in order to receive millions of dollars of falsely and fraudulently obtained funds for their own personal use and benefit. As demonstrated by the trial record, of all the conspirators, no one profited more than Sebastian Ahmed, who netted more than $2.8 million in less than three years.

Other Insurance Fraud Convictions

Mother & Daughter Guilty of Fraud

Manjit K. Singh , 48, and Harpneet K. Bath, 27, both pleaded guilty on March 23, 2020 to a single count each of conspiracy to commit wire fraud. The guilty pleas come in the wake of a March 19 indictment by a Greenup County, Kentucky grand jury. Singh’s husband, 50-year-old Gurpreet Singh Bath, was also charged of conspiracy to commit arson charge.
Authorities alleged the two tried to hire a man to burn down Wolf’s Food Mart and Pool Hall in order to collect up to a $275,000 insurance pay-out. The man they hired turned out to be an informant.

Consider Books to Show Your Appreciation to Your Insurer Clients or Claims Employees

Many insurers refuse to allow their employees to receive gifts from vendors.
If you wish to thank your insurance company clients for allowing you to represent their interest or if you wish to honor your claims personnel it is time to give them something that will be useful to them throughout the coming year and that will not offend insurer’s rules to avoid attempts to extort clients for business from insurer employees.

Videos on YouTube From Barry Zalma

Videos describing important insurance issues described by Barry Zalma and available to anyone who views or subscribes to the YouTube account. Issues include insurance fraud, definition of insurance, insurance as a contract of personal indemnity, millions for defense and not a dime for tribute and the tort of bad faith.

Read the full article here.    

The Zalma on Insurance blog has posted over 2850 digests of insurance appellate decisions and other important insurance materials and articles published five days or more a week and are available at

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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