Zalma’s Insurance Fraud Letter — July 1, 2019

Insurance Fraud Should Not be a Retirement Plan

 Zalma’s Insurance Fraud Letter   

The Current Issue Contains the Following:

  • Insurance Fraud Should Not be a Retirement Plan
  • Fake Law Firm’s Defeated and Ordered to Pay Allstate $6 Million
  • No New Trial After Conviction & Appeals
  • Good News from the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Excellence in Claims Handling Courses From

Insurance Fraud Should Not be a Retirement Plan

Insurance Fraud Gets Three Squares and a Cot   

Every insurer is required by its shareholders, members, state statutes and state regulations to do everything possible to deter and defeat attempts at insurance fraud. Most insurers, therefore, have a staff of fraud investigators working under their Special Investigation Unit (SIU) and the SIU works to train the claims handlers to recognize the indicators or red flags of fraud.
Much to the surprise of the public, lawyers, and even some judges, defrauding an insurance company is a crime. In most states, insurance fraud is a felony that could subject the perpetrator to as much as five years in state prison plus serious fines. If the fraud is attempted by use of the mail or telephone, internet, e-mail or against a federal insurance program like Medicare, Medicaid and the National Flood Insurance Program (NFPA) it can also be a federal felony.
Insurance fraud is a crime that should be easy for a prosecutor to prove since all that is required is to prove the insurance criminal knowingly presented a claim for the payment of insurance contract benefits to which the perpetrator is not entitled or the submission of a single false document or oral statement in support of the crime. However, state prosecutors are reluctant to prosecute the crime, regardless of the state where it is committed, because they believe it is their duty to prosecute violent crimes. Financial crimes, like insurance fraud, they believe only hurts rich insurance companies and are not worthy of their efforts.
Because of the lack of aggressive prosecution insurance fraud attempts often succeed. No one knows how much money insurance fraud takes from the insurance industry because not all fraud attempts are discovered. The best estimates of insurance fraud professionals about the cost of insurance fraud conclude that fraud takes between $80 billion and $300 billion every year. Even those who are convicted are ordered to make restitution of less than the amount they probably stole, are given probation or a short time in jail. Those who are imprisoned will still have part of their ill-gotten gains left to live well. Many, after arrest or conviction work to run more fraudulent claims to pay the ordered restitution.
A Change in those Who Commit Fraud
In my 52 years in the insurance claims business most insurance fraud perpetrators were young and some were middle-aged. It seemed that none were of retirement age or elderly. Claims presented by the elderly were paid with little or no investigation.
Today, as people in the pre-Baby Boom generation and the Baby Boom generation (those born after the end of World War II in 1945) move toward retirement they find that they have spent everything they earned in their youth to support their children and elderly parents and a comfortable life style. When they decide it is time to stop working, they are shocked to find that they have nothing left to support them. Since they are quickly becoming physically unable to continue to work their moral compass spins out of control.
A person 65-years-old and older can’t afford to live on Social Security benefits. Because the felony of insurance fraud is seldom prosecuted – prosecutors claim they are compelled to deal with injury causing violent crimes – before a crime against an insurer for nothing more than
money. I have been writing Zalma’s Insurance Fraud Letter (ZIFL) twice a month for more than 23 years and have seen that more and more people who are convicted of insurance fraud are above the age where they can collect Social Security. Many are professionals: Doctors, Chiropractors, Nurse Practitioners, and lawyers.
It appears clear that these senior citizen professionals are using insurance fraud to fund their retirement. Celebrating a 65 birthday as a professional, still working and in relative good health, finding that her or she had little or nothing saved the person realizes he or she can’t live on high earnings forever or even the next few years. The acknowledgment that he or she should have saved for retirement comes too late. With only a mortgaged house, a Mercedes leased for two years, and no liquid assets it finally dawns on the professional senior citizen that he or she will need serious assets to retire in relative comfort. Since normal earnings – even if five or ten times the national average – cannot be saved quickly enough to provide later income in the short productive time remaining to the professional another means is needed to fund a comfortable retirement.
Those who determine the only way they can gather sufficient funds to support a comfortable retirement is to engage in insurance fraud have not read the criminal statutes making insurance fraud a crime or the federal statutes making it a crime to take advantage of government created quasi-insurers like Medicaid and Medicare. As a result, some are caught, prosecuted and convicted of insurance fraud, wire fraud, or health care fraud. Most are not.
The Insurance Claims & SIU Investigators Must Consider the Elderly as a Potential Fraud
Most of the elderly professionals, by definition, are high earners who had income sufficient to invest and save for their retirement. There seems to be no logical reason that such a professional would even think about insurance fraud. However, many of the people in my age cohort – those born after the onset of World War II – had it too good. They earned a lot and spent everything they earned and borrowed money allowing them to spend more than they earned.
Defrauding insurers or Medicaid or Medicare can gain millions of dollars without having to work to earn it. Insurers, and governmental entities like Medicaid and Medicare have few fraud investigators, less available criminal investigators, and even fewer prosecutors available to prosecute the crime.
It can appear to the senior professional to be the perfect crime with little or no chance to be caught and prosecuted because the average insurance or criminal investigator have the reverse prejudice that leads them to believe an elder could never commit insurance fraud.
Insurers must train their claims and SIU personnel to disabuse them of the prejudice that brings about the belief that an elder will not consider defrauding the insurer.
Any one or more of the fraudulent claims events that fit within the definition of insurance fraud must be discovered by every insurer and reported to the state’s Department of Insurance or prosecutors. Those reports, if made effectively with admissible evidence, should result in an arrest, conviction and imprisonment of the person presenting the fraudulent claim or obtaining an insurance policy by a fraudulent application for insurance. Unfortunately, arrests and convictions are rare, police and prosecutors also apply the prejudice against arresting or convicting an elderly person, allowing those who perpetrate fraud to escape prosecution.
Professionals have been known to profit from insurance fraud in different categories like Medical Professional Fraud, property insurance fraud, and legal professional fraud.
Medical Professional Fraud
Unfortunately for those who are tempted to commit insurance fraud to fund retirement, the U.S. Government has become upset at how much of the benefits go to fraud perpetrators. Doctors who bill for services never performed, pharmacists billing for drugs never delivered, medical device providers billing for wheelchairs never given to a patient all, albeit slowly, find their way to the investigation efforts of an FBI agent or an HHS fraud investigator.
The few who are caught have done little to deter other professionals from attempting fraud to fund their retirement, perhaps because each of those convicted succeeded for at least five years before an arrest. The following examples, if provided to senior professionals, who are tempted to try the crime, may effectively deter those who decide to commit fraud:
    1.     A Southfield, Michigan-based doctor pleaded guilty for his role in a scheme involving approximately $2.5 million in fraudulent Medicare claims for home health and physician services that were medically unnecessary, not provided and procured through the payment of illegal kickbacks. A medical doctor, 65-years-old, of Farmington Hills, Michigan, pleaded guilty to one count of conspiracy to commit health care fraud before U.S. District Judge Sean F. Cox of the Eastern District of Michigan.
    2.     A neurologist from Mandeville, Louisiana, pleaded guilty for his role in a scheme to unlawfully prescribe controlled substances, namely oxycodone and hydrocodone, without performing required face-to-face examinations, and his role in a scheme to commit health care fraud. A 62-year-old physician, pleaded to one count of conspiracy to unlawfully distribute and dispense controlled substances and one count of conspiracy to commit health care fraud.
    3.     A Baton Rouge, Louisiana-based doctor was sentenced to 37 months in prison followed by two years of supervised release for his role in a scheme to defraud Medicare and other health care insurers. A 66-year-old doctor from Baton Rouge, Louisiana was also ordered to pay $254,962.80 in restitution.
    4.     A 71-year-old physician was sentenced, by U.S. District Court Judge David L. Bunning, to serve 60 months in federal prison for health care fraud and false statements. The doctor performed invasive heart procedures on patients who did not need them. In order to justify these unnecessary procedures, the doctor falsified patients’ medical records, exaggerating their medical condition and making it appear that the heart procedures were necessary and qualified for payment.
These examples, based on press releases from the U.S. Department of Justice (DOJ) indicate what happens to the few fraud perpetrators who are arrested, tried and convicted.
Most professionals who commit insurance fraud are neither caught nor jailed. They build up a nice nest egg, retire, and live off the income honestly invested. Those who are greedy, those who allow the FBI or HHS to notice the fraud are the ones who are caught.
Most of those caught and convicted were greedy and kept the fraud up for five or more years.
Most health insurance fraud perpetrators should be easy to catch if the insurance company SIU, the DOJ, the FBI and HHS investigators had the funds to properly and effectively investigate the crimes.
The methods used by health care providers to defraud insurers and Medicare, Medicaid or other government programs include, but are not necessarily limited to:
    1.     Providing an assistant with signed prescriptions for illicit drugs like morphine, oxycodone, etc. for which the physician is paid $500 each without ever seeing the “patient.”
    2.     Submitting bills to the insurer for service to “patients” never seen by the physician with often 50 to 100 patients seen in a day claiming the physician spent as much as 30 minutes face to face each day.
    3.     Submitting billings to insurers for motorized wheelchairs for “patients” who were paid $50 each for the use of the Medicare or Medicaid numbers that were never delivered.
    4.     Submitting billing for surgeries never performed.
    5.     Acquiring from a hospital a list of all Medicare and Medicaid patients and then claiming providing medical services to each person on the list never seen by the physician.
    6.     Claiming to provide home health services to disabled seniors who were never seen by the person making the claim.
    7.     Paying runners or cappers for patients who have insurance or access to Medicaid or Medicare and then billing for services never provided.
    8.     Paying runners or cappers for people involved in motor vehicle accidents who were not injured but the professional bills for providing health care services, X-rays, diagnostic services and equipment, never used.
Because the government medical assistance programs are bleeding cash the DOJ is becoming more aggressive in their efforts to stop fraud. They are limited, by funding, to investigate cases in major metropolitan areas.  As a result, most health insurance crimes are not prosecuted.
Property Insurance Fraud
Insurance companies, bound by the implied covenant of good faith and fair dealing and state insurance department regulations, are required to believe those who seek insurance, about the value of the property the risk of loss of which the insurer agreed to insure. A Professional would not be questioned if he or she presented a request to insure jewelry, furs, sculptures, paintings, or antiques with high valuations. If the insurer’s underwriters actually demand appraisals from a professional appraiser, something usually not required, a false appraisal is easy to obtain since the U.S. does not license personal property appraisers. In fact, with the use of a word processing program like Microsoft Word or WordPefect, an official looking appraisal can easily be created that looks better than one prepared by a true professional art or jewelry appraiser.
The professional, seeking to build a nest egg for retirement from an insurer will obtain an appraisal from a less than honorable antique dealer who will value household goods, jewelry, art, sculptures, antiques, etc. by taking the true value and adding two zeros to the end of the value. The creative professional will create an appraisal on his or her home computer, on a typewriter or in long hand.
The insurer, obligated to treat an insured or potential insured with the utmost good faith and fair dealing, will accept the appraised value and agree to pay the insured the amount of the appraisal in the event of a total loss.
The scheduled personal property insurance policy called the Personal Articles Floater (PAF) is an all risk of loss policy with few conditions or exclusions. If an insured has a schedule of $2 million in jewelry based upon a fictitious appraisal, the policy can be turned to cash by advising the insurer that the jewelry was lost.
In a case I dealt with as a lawyer several years ago the insured claimed he took the scheduled and described jewelry on a trip on a yacht owned by a friend. He claimed there was some chop as the yacht travailed from San Pedro on the way to Catalina Island, jostled the insured, the bag of jewelry became slippery and he claimed it accidentally fell into the Pacific Ocean. Such a loss was clearly an insured against loss and the only way the claim could be defeated was to prove fraud. His claim was for $100,000. The insurer suspected fraud but had no proof. An offer of $10,000 was made, accepted and by the acceptance, the fraud was established but was still partially successful. The insurer paid because if the fraudster was wiser the insurer had no defense to his $100,000 claim.
Today, since the claims are intended to be sufficient to support the insured in retirement, the amount insured is in the millions of dollars and include:
    1.     A fake burglary claiming everything of value stolen.
    2.     An arson-for-profit fire where everything scheduled was destroyed in the fire.
    3.     Purchasing low value homes, insuring them for high values, and destroying the home with a leaking pipe. The insurer pays to replace the home and the fraudster profits when it is sold after the insurer pays to make the house new.
    4.     Claiming high valued art lost by movers when the insured moves to a new residence.
    5.     Claiming that high value furs and jewelry lost by an airline.
    6.     Sending a high value automobile – a Rolls Royce, Ferrari, or Bugatti – to be sold in China or the Middle East and after it is sold reporting the vehicle stolen. The insured collects the full value from the
sale and again from the insurer.
    7.     Creating a completely false appraisal of property not owned or possessed, obtaining an agreed value policy based on the false appraisal, and after waiting a month or two, reporting the property lost.
Insurance claims investigators have little ability to defeat such claims if the person insured is cool, calm and professional when he or she meets with the claims person.
A few years ago, I represented an insurer who was faced with an unusual theft claim presented by an 85-year-old grandmother who claimed her major schedule of antiques, silver, china and fine arts were stolen by a cleaning person she had hired from a notice on her grocery store bulletin board. She claimed the cleaning solution fumes had caused her to faint and when she came back to her senses the cleaning person – “Juanita” whose last name was unknown – was gone and all the grandmother’s property left with Juanita.
The claim was for more than $1,750,000 and was supported by an appraisal with detailed descriptions, hand drawn images of each item appraised and signed by the appraiser. It took my investigator three months to locate the appraiser. The appraiser, regardless of the date stated on the appraisal, had died in the attack on Pearl Harbor and was buried in Oahu in December 1941.
The claim was denied. The grandmother contacted multiple lawyers who would call every three months or so threatening to sue the insurer but gave up when I advised the lawyer of how the fraud was detected. Eventually she gave up.
Another insured, with a house full of property insured on a detailed schedule valued at more than $2,500,000, had paid an antique dealer to create a false appraisal valuing cheap photo-offset prints as oil paintings, valuing dishware purchased at Target as fine European china, comic books as first edition collectors items, and statuary purchased at a Big Lots store for five dollars each as bronze sculptures by famous artists. The insurer accepted the appraisal, issued a policy, only to find it all destroyed in a massive fire and explosion. The claim would have been successful but for the fact that I also represented the insurer of the publisher of one of the prints who paid for the smoke damage to the original and took in salvage 1500 copies of the prints (appraised as an oil painting) that sold for $1 each at retail. That fact resulted in a thorough investigation that would not have happened but for the serendipitous fact that the lawyer represented two different clients that provided evidence of the fraud.
The Lawyer Based Fraud  
Lawyers, like everyone else, can be tempted to commit insurance fraud to add to their retirement funds. The methods used are fairly simple to pursue with little chance of arrest and conviction. In that regard consider the following:
    The Crash for Cash Scheme  
The lawyer, using runners or cappers, recruit the down-and-out, illegal aliens, or homeless people to participate in an auto accident as victims. The runner or capper will place four or five people in a low value automobile, have it drive on a highway and merge to run in front of a high value automobile or tractor trailer (all of which would be insured) and then make a quick stop causing the high value vehicle to strike the vehicle in the rear. All four or five occupants of the crash will claim soft tissue injuries and all will retain the lawyer to represent them in presenting a claim. All will treat with a physician or chiropractor – part of the scheme – who will create reports indicating major treatment of each accident “victim.” The lawyer will make a quick settlement with the insurer’s adjuster who has no choice but to conclude that the insured who rear ended the crash for cash car and will be ready to pay, especially if the lawyer suggests the settlement is a bargain because his clients need cash quickly.
Of course, each of the victims only receive a one-time fee of $50 to $500 and the lawyer and medical provider keep the rest of the settlement funds.
    The Independent Counsel Fraud  
The lawyer, alone or in a conspiracy with other lawyers and individual insured people, cause lawsuits to be filed against the insured in such a manner that, because intentional and negligent torts are alleged, the insurer is required to pay the insured’s selected independent counsel. The lawyers then report active litigation, discovery, depositions, and law and motion actions to the insurers that they bill aggressively. Most of the actions did not occur and the lawyer, in the scheme, with multiple independent counsel cases will bill each insurer for no more than an eight hour day, but will actually bill dozens of insurers for the same eight hour day getting paid, often, for as much as 80 to 200 hours billed in a single day.
Insurance claims adjusters, special investigation unit investigators, claims management, Fraud Division investigators, FBI Agents, HHS agents must all understand that because a person is elderly is not a reason to conclude a claim is honest. The professional claims person should never believe it is impossible that an old man or woman would commit fraud. Rather, the insurance claims professional should understand that there is a higher probability that a major claim presented by an elderly person is an attempt at fraud than a claim presented by Millennial.
Regardless of the age or profession of the person making a claim, if three or more red flags of fraud appear in the claims investigation, a detailed and extensive insurance fraud investigation is required and if it establishes that a fraud is being attempted the claim must be rejected and any lawsuit that follows from the insurance fraud perpetrator settlement should be refused and trial required.
  Fake Law Firm’s Defeated and Ordered to Pay Allstate $6 Million
The following is the full text of a case from the California Court of Appeal that affirmed a judgment in favor of Allstate Insurance Company, suing on behalf of the People of the State of California for felony insurance fraud. It is detailed and should give an impetus to other insurers who are victims of insurance fraud in California to take the profit out of the crime. Read the case and see if you, or your company, has available similar cases that can be brought und California Insurance Code section 1871.7.

Full text here in full color Adobe Acrobat

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© 2019 – 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 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 and

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Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.


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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