Fairly Debatable Action by Insurer

Reasonable & Arguable Reason to Deny Claim not Bad Faith

Post 4778

See the full video at https://rumble.com/v4ow4tt-fairly-debatable-action-by-insurer.html  and at https://youtu.be/46hejNuhMRQ

William A. Lemons, Jr., M.D., a doctor who specialized in obstetrics and gynecology (“OB/GYN”), sued Principal Life Insurance Company (“Principal”) for breach of contract and bad faith for its refusal to pay him disability benefits under a “regular occupation rider” provision contained in his insurance policy with the company. A jury returned a verdict in favor of Lemons on the breach of contract claim and in favor of Principal on the bad-faith claim.

William A. Lemons, Jr. MD v. Principal Life Insurance Company, No. 22-12064, United States Court of Appeals, Eleventh Circuit (April 5, 2024)

FACTUAL BACKGROUND

Lemons decided to open his own OB/GYN practice, which he called Covenant Gynecology & Wellness, P.C. (“Covenant”). In October 2015, during Covenant’s business development phase, Lemons worked for Blue Cross Blue Shield (“BCBS”) as an insurance claims consultant. A few months later, in February 2016, he began working at the Birmingham Metro Treatment Center, an opioid addiction treatment and recovery facility. A month later, he started working at the Fritz Clinic, another opioid treatment clinic.

In April 2016, Lemons opened Covenant and started seeing patients. He did not deliver babies or otherwise engage in obstetrics, and he did not submit any insurance claims for any obstetrics-related work. Eventually, Lemons devoted most of his time and resources to Covenant, and he reduced the number of hours at his other jobs to concentrate more on his OB/GYN practice. Lemons’ solo medical practice was unsuccessful. On July 15, 2016, he closed Covenant because he was not seeing enough patients. Lemons’s deteriorating health also played a significant role in his decision to close Covenant. Beginning in 2013, Lemons started developing hand tremors and was officially diagnosed with a neurological condition in March 2016.

In November 2016, Lemons completed a disability claim form and reported that, as of July 15, 2016, he was totally disabled and could no longer work as an OB/GYN. Lemons was interviewed and stated that he was working at BCBS approximately 15 hours per week, at Birmingham Metro approximately 12-18 hours per week, and at the Fritz Clinic 4 hours per week. He maintained that, at the time of his disability, his regular occupation was as an OB/GYN and, therefore, Principal should approve his claim under the “regular occupation rider.” The claims person responded that because Lemons was working other non-OB/GYN jobs when he became disabled, Principal could not just look at his occupation as an OB/GYN and would need to consider his other jobs in evaluating his claim.

Principal eventually approved Lemons’ claim under a “loss of earnings” provision in the policy based on the reduction to Lemons’s income as a result of his disability. A few weeks later, on February 9, 2017, Principal denied Lemons’s claim for benefits under the “regular occupation rider” provision. Principal explained that, because Lemons regularly worked at BCBS, Birmingham Metro, and the Fritz Clinic prior to the onset of his disability, he was not “totally disabled from all occupations that [he was] engaged in prior to [d]isability” as the regular occupation rider required.

ANALYSIS

The Supreme Court of Alabama has made clear that mental anguish damages are unavailable for breach of contract claims related to long-term disability insurance policies. Therefore, the Eleventh Circuit affirmed the district court’s ruling as to Lemons’s recoverable damages.

The “Benefit Update Rider” Claim

Lemons acknowledges that he did not specifically plead a separate claim related to the “benefit update rider” provision. It is undisputed that Principal sent letters to Lemons regarding the “benefit update rider” provision in 2004, 2007, and 2010. The 2004 letter explained that his benefits had increased to $10,000 per month, and the subsequent letters informed him that his benefits had been capped at that amount.

The Bad-Faith Claim

The Eleventh Circuit concluded that the district court did not err in denying Lemons’ motions. At trial, Lemons testified that he spent most of his time working at Covenant prior to the onset of his disability. He admitted that he did not derive any income from his practice at Covenant and did not submit any insurance claims for OB/GYN services to patients. The jury also could have found that Principal had an arguable reason for not issuing Lemons benefits pursuant to the “regular occupation rider” policy provision because the evidence showed that Principal gathered-as part of its decisional process-information suggesting that Lemons’s regular occupation was not as an OB/GYN.

The verdict in this case was not against the clear weight of evidence given the genuine issue of fact as to whether a breach of contract occurred. The Eleventh Circuit affirmed the district court’s judgment.

ZALMA OPINION

Lawyers representing people whose claim was rejected in whole or in part will always include a cause of action for the tort of bad faith and seek exemplary as well as tort damages. However, if, as in this case the insurer honors the claim that was available to the insured and refused to provide benefits related to his specialty of OB/GYN because he tried but never acted as an OB/GYN and admitted he made no money from the failed practice. They paid what they owed and there was neither a genuine dispute about the coverage nor were the actions of the insurer fairly debatable.

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Pro Se Plaintiff’s Qui Tam Suit Fails

Private Citizen May Not Compel Enforcement of a Criminal Law

Post 4774

See the full video at https://rumble.com/v4olbw5-pro-se-plaintiffs-qui-tam-suit-fails.html  and at https://youtu.be/1AwpmNfjQek

Ronald Rothman appealed from an order of the District Court dismissing his complaint with prejudice and remanding a foreclosure proceeding to state court.

In Ronald S. Rothman v. CABANA SERIES IV TRUST; IGLOO SERIES IV TRUST; U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee; WELLS FARGO BANK, N.A.; BALBEC CAPITAL, L.P.; SN SERVICING CORPORATION; FRIEDMAN VARTOLO, LLP; QUENTEN GILLIAM, ESQ., No. 23-2455, United States Court of Appeals, Third Circuit (April 2, 2024) the USCA, 3rd Circuit resolved the dispute.

FACTS

In June 2023, Rothman sued the defendants alleging that defendants violated federal civil and criminal laws in connection with an “invalid mortgage loan.” Rothman claimed that the loan was obtained by his son in 2006 to finance the purchase of a property from Rothman, that the “Notice of Settlement” for the loan was improperly recorded, and that the defendants illegally collected (or benefitted from) insurance payments on the “invalid” loan. The action was based on the False Claims Act and numerous criminal statutes, including the RICO Act. Rothman sought “declaratory judgments,” nullifying the mortgage loan and the sale of the property, and requiring restitution of the insurance payments.

In July 2023, Rothman filed a letter with the District Court, seeking to remove a 2022 foreclosure action (which stemmed from an alleged default of the mortgage loan) from the New Jersey Superior Court, Chancery Division, to the District Court. In a Memorandum Order entered July 31, 2023, the District Court granted Rothman’s motion to proceed in forma pauperis, and screened and dismissed the complaint with prejudice pursuant to 28 U.S.C. § 1915(e)(2)(B).

JURISDICTION

Appellees contend the Third Circuit lacked jurisdiction to review the order remanding the foreclosure matter. The complaint was not a notice of removal but rather an original action, and the District Court appropriately treated it as such.

In its Memorandum Order, the District Court considered the claims and dismissed them. That determination was final. It is reviewable by the Third Circuit. A district court cannot prevent appellate review of a final order by contemporaneously remanding a case to state court.

THE COMPLAINT

The complaint sought to hold defendants civilly and criminally liable for insurance fraud. Rothman claimed that the suit was “in the [p]ublic [i]nterest” because the defendants were depriving the “American [p]ublic and [c]itizens” of the federal funds.

The Third Circuit agreed with the District Court that Rothman, in essence, asserted a False Claims “qui tam” suit. In such cases, the Government is the real party in interest. Although a private person (the relator) may bring the suit on behalf of the Government circuit courts agree that a pro se litigant, like Rothman, may not. Nor could Rothman, as a private citizen, compel enforcement of criminal law. The District Court properly dismissed the complaint.

ZALMA OPINION

Qui tam suits are a powerful tool against insurance fraud. However, as the Third Circuit made clear, a private citizen acting in pro se may not nor may a private citizen compel enforcement of criminal law. The case established the old saying that “he who represents himself has a fool for a client.”

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Who’s on First?

Insurer Files Interpleader to Allow Claim Payment to Proper Competing Claims Against Funds

Post 4773

See the full video at https://rumble.com/v4of8jo-whos-on-first.html  and at https://youtu.be/mCY8rYGqSGc

In an interpleader action arising out of a jury trial in Hanover Am. Ins. Co. v Tattooed Millionaire Entertainment, LLC, No. 2:16-cv-02817-JPM-tmp (W.D. Tenn. 2016) (“Hanover I”).  In Hanover I, a jury trial was held on “insurance claims submitted to Hanover [by Defendants in the instant case] in connection with a 2015 arson fire and alleged theft at the House of Blues recording studio located on Rayner Street in Memphis, Tennessee.”

In Hanover American Insurance Company v. Tattooed Millionaire Entertainment, LLC, Christopher C. Brown, and John Falls, No. 2:20-cv-02834-JPM-cgc, United States District Court, W.D. Tennessee, Western Division (April 4, 2024) the USDC distributed the available funds.

PUBLIC POLICY CAN BAN PAYMENT

The Hanover I jury held that:

  1. Christopher C. Brown (“Brown”) and Tattooed Millionaire Entertainment, LLC (“TME”) were indistinguishable; and
  2. Brown/TME made material misrepresentations with the intent to deceive and committed unlawful insurance acts during the claims process, and thus Hanover was entitled to recover the advance payments made to Brown/TME.
  3. The Hanover I jury also held that Falls did not make material misrepresentations or commit unlawful insurance acts, and thus awarded him the maximum amount covered by his policy: $2.5 million in Business Personal Property (“BPP”) and an additional $250,000 in Business Income (“BI”).

After the jury trial concluded, the USDC granted Hanover’s Rule 50(b) motion for judgment notwithstanding the verdict and entered an amended judgment denying Falls’ recovery. The Sixth Circuit, however, reversed the post-trial ruling and remanded with instructions to reinstate the jury verdict as to Falls, which the USDC did.

INTERPLEADER & DECLARATORY RELIEF ACTION

In the current action: “Hanover II,” Hanover filed its Complaint for interpleader and declaratory relief. Hanover claims that the $2.5 million BPP insurance awarded to Falls is subject to multiple competing claims. Hanover’s Declaratory Relief Complaint seeks a declaration that the $2.5 million BPP award is null and void as a matter of Tennessee public policy. It also pleads in the alternative that the Court must resolve the various competing claims to the BPP insurance proceeds and declare to whom, and in what amount, those funds should be paid.

Stipulated to Facts

Prior to trial the Parties stipulated to the following facts during pre-trial conference:

  • John Falls leased Studio B at the former House of Blues studio located on Rayner Street in Memphis, Tennessee, and the equipment therein from Christopher Brown who owned TME.
  • Falls obtained insurance from Hanover that included, inter alia, $2.5 million in coverage for BPP and $500,000 in coverage for BI.
  • Brown/TME had a separate policy that covered, inter alia, the structure of the studio building.
  • On November 5, 2015, an arson fire occurred at the House of Blues recording studio located on Rayner Street in Memphis, Tennessee, causing substantial damage to the building and the BPP therein.
  • The evidence presented at the trial of the original action (Hanover I) established that Brown/TME falsified documents and submitted fake invoices, phony receipts, and doctored bank account statements in connection with the insurance claims following the fire.
  • In the appeal regarding the original action, the Sixth Circuit wrote: “The jury awarded Falls $2,500,000 as the amount of insurance he was owed, up to his policy limit, for Business Personal Property coverage …. The BPP payment covers the loss of the gear in Falls’ studio. However, Brown is the ultimate owner of the lost gear, on which Falls had a perpetually renewable leasehold.”

The public-policy argument, an ancient equity maxim that no one should benefit from his own wrongdoing does not mean that Falls takes nothing of the $2,500,000 BPP award.

The Court’s Previous Rulings

The Court ruled on several Summary Judgment motions and held that claim preclusion prevents Hanover from asserting claims or arguments against Falls regarding his interests in BPP but does not prevent Hanover from pursuing claims and arguments against TME/Brown. The Court also dismissed TME/Brown’s counterclaim for conversion against Hanover.

ANALYSIS

The key determination in this case is whether and what type of interest did Falls have regarding the BPP. As the Sixth Circuit already noted “Falls had a property interest in the ‘gear,’ in the form of his leasehold with unlimited renewal options. Leaseholds have been held to be insurable interests.”

Public Policy Question

Because the jury in Hanover I found Brown/TME to be interchangeable and Brown himself admitted to fraud in connection with Studio B, awarding Brown/TME any of the BPP profits would go against long standing public policy of not benefiting the wrongdoer for his own wrongdoing. Therefore, the Court held that Brown is not entitled to any of the BPP profits.

Summary of Court Findings

The Court found:

  • Hanover is precluded from arguing against Falls’ recovery;
  • Falls’ lease for Studio B and equipment therein did not terminate with the fire;
  • Loss Payable Clause modifies the language of the Schedule in Fall’s insurance contract, requiring Hanover to pay BPP jointly to Falls and Brown/TME as interests may require;
  • Falls is entitled to recover $2,066,217.30 for the destroyed/missing BPP;
  • The decision in the State Court Action is not binding on this Court;
  • Brown/TME are not entitled to recover any part of BPP, as such recovery would violate longstanding Tennessee public policy; and
  • Intervenor’s claim is moot, given that Brown/TME are unable to recover any of the BPP.

CONCLUSION

The Court ORDERED as follows:

  • Hanover SHALL pay John Falls $2,066,217.30 of the BPP;
  • Hanover SHALL NOT pay or credit the remaining $433,782.70 to Brown/TME; and
  • Intervenors’ claim is DISMISSED WITH PREJUDICE.

ZALMA OPINION

Insurance disputes are often difficult to resolve as established by this case that started with a jury verdict, a judgment notwithstanding the verdict, an appeal reversing the USDC, an interpleader action to determine who was on first and could recover more than $2 million, who shall not recover because of public policy and whether any competing claims could recover anything, and Hanover was able to keep$433,782.70 because no one was entitled to the funds. It took many years to resolve and we can only hope this is the end of a case where an insurer is required to pay an innocent person when the named insured was found to have committed fraud in an arson-for-profit scheme.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Court Slaps Down SLAPP Suit

Lawyers Fraudulent Billing is not Pre-Litigation Protected Petitioning Activity

Post 4772

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Strategic Lawsuits Against Public Participation (SLAPP suits) are meritless lawsuits designed to harass parties for engaging in protected activities (the right of petition or free speech). A party can move to dismiss a SLAPP suit by filing an anti-SLAPP motion. The movant must show the purported SLAPP suit arises from its protected activities; if shown, the respondent can defeat the motion by showing its lawsuit has merit.

In OC Media Tower, L.P. et al. v. Louis Galuppo et al., G062372, California Court of Appeals, (March 28, 2024) the Court of Appeals resolved the dispute.

FACTS

Plaza Del Sol Real Estate Trust (Plaza) made $67 million in loans to OC Media Tower, L.P., and OCR Land LLC (collectively, OC Media). The loans were secured by deeds of trust and promissory notes in which OC Media agreed to pay Plaza’s attorney fees for any needed collection efforts. OC Media defaulted on its loans. Plaza agreed to accept a lower payoff amount (about $50.5 million), contingent on OC Media selling its encumbered real estate. During escrow, attorney Galuppo submitted an invoice stating its fees (about $25,000) for its client Plaza. At the close of escrow, Plaza was paid the agreed upon payoff amount and Galuppo was paid its stated attorney fees.

Plaza later sued OC Media for fraud and other causes of action. Plaza alleged it learned after the close of escrow that OC Media had made false statements about its real estate sale to induce Plaza to accept less than what it was owed. OC Media filed a cross-complaint against Plaza and Galuppo for fraud and another cause of action. OC Media alleged Galuppo’s attorney fees were false and unsupported.

Galuppo filed an anti-SLAPP motion to dismiss OC Media’s cross-complaint. Galuppo asserted its invoice stating Plaza’s attorney fees was a prelitigation demand for payment (protected petitioning activity). The trial court denied Galuppo’s anti-SLAPP motion because “an allegedly false invoice for payment generally does not constitute petitioning activity under the anti-SLAPP statute.”

DISCUSSION

In an anti-SLAPP motion, the trial court should distinguish between speech or petitioning activity that is mere evidence related to liability and liability that is based on speech or petitioning activity.

The Court of Appeals found that the record does not support Galuppo’s assertion that its invoice was a prelitigation demand for payment. Further, the basis of OC Media’s cross-complaint is not that Galuppo made a tortious demand for payment. Rather, OC Media claims the amount of attorney fees actually billed by Galuppo was fraudulent.

Appellants claimed the demand for $24,433.08 in attorney fees was a communication preparatory to and in anticipation of filing litigation. In an anti-SLAPP motion, the movant bears the burden of establishing the challenged claims arise from its protected activity. The essential elements of fraud that give rise to a cause of action for deceit or intentional misrepresentation are:

  1. misrepresentation (false representation, concealment, or nondisclosure);
  2. knowledge of falsity (or scienter);
  3. intent to defraud, i.e., to induce reliance;
  4. actual and justifiable reliance; and
  5. resulting damage.

The Cross-Complaint and Anti-SLAPP Motion

OC Media and OCR Land LLC sued Plaza, Galuppo, and Morris Cerullo World Evangelism for fraud and the common count of money had and received. OC Media alleged that prior to the close of escrow it had asked Galuppo to provide the amount of attorneys’ fees and costs that Plaza had incurred in connection with the sale of the Property at 625 N. Main. OC Media stated that on October 16, 2020, Galuppo transmitted by email a document purporting to be an invoice through which it was represented that Plaza had incurred $24,433.08 in legal fees. OC Media alleged that the invoice was fraudulent.

The trial court denied appellants’ anti-SLAPP motions to dismiss or strike OC Media’s cross-complaint in a written order. Cross-defendants did not demonstrate litigation was genuinely contemplated and was more than a possibility at the time the invoice amount was communicated. Cross-defendants failed to establish that cross-complainants’ claims or the other challenged portions of the cross-complaint arise from cross-defendants’ protected petitioning activity.

Mr. Galuppo’s subjective intent to file a lawsuit in the event OC Media breached its contractual obligations was merely theoretical (i.e., it was not under serious consideration); therefore, Galuppo’s e-mailing of the invoice to the title insurance company was not protected prelitigation activity under the anti-SLAPP statute.

There are simply no documents from Galuppo – or any other attorney representing Plaza-directed to Harrah, OC Media, or its counsel attempting to resolve outstanding legal disputes. Therefore, the Court of Appeals rejected Galuppo’s claim that the invoice was part of an ongoing series of prelitigation demands communicated to OC Media as part of a lawsuit that was under serious consideration.

OC Media’s cross-complaint is not a SLAPP suit. The judgment was affirmed.

ZALMA OPINION

Galuppo attempted to avoid the position of a cross-defendant by filing a SLAPP motion by claiming his bill to his client for the sale of real property was protected petitioning activity. In fact the Court of Appeals noted that the people suing Galuppo used his billing as evidence of fraud. A false and fraudulent lawyers bill is not a protected activity subject to dismissing what is claimed to be a SLAPP suit.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Real Property Damage Required for Defense

“Property Damage” Must Be Actual Not Potential

Post 4771

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Breach of Construction Contract Not an Insured Peril

After the plaintiff’s motion for summary judgment was rejected and the defendant insurer’s motion for summary judgment was granted the plaintiff appealed. In Westchester Modular Homes Of Fairfield County, Inc. v. Arbella Protection Insurance Company, No. AC 45433, Court of Appeals of Connecticut (April 2, 2024) and the Court of Appeals resolved the dispute.

FACTS

On or about April 27, 2016, the plaintiff entered into a contract with Diana Lada L’Henaff and Jean Jacques L’Henaff for the construction of a new modular home on property located in New Canaan (property). During construction, disputes arose between the L’Henaffs and the plaintiff. Ultimately, the L’Henaffs terminated their contract with the plaintiff on December 14, 2016. The plaintiff filed a mechanic’s lien on the property on or about February 3, 2017, and commenced an action to foreclose on the lien on or about April 7, 2017 (underlying litigation).

The L’Henaffs filed a counterclaim that alleged that they “desired to build a modern home and had very carefully and specifically specified the type of insulation, materials, and finishes that they required the builder that won the job to satisfy.” The L’Henaffs alleged that work on the project progressed slowly and with constant problems. The L’Henaffs alleged that the plaintiff had breached the construction contract.

The plaintiff, as a named insured under a commercial general liability policy issued by the defendant (policy), filed a claim for coverage with the defendant which was refused. The defendant disclaimed coverage on the basis that the first revised counterclaim filed in the underlying litigation did not allege “property damage” caused by an “occurrence” and, therefore, it did not trigger coverage under the policy.

The trial court determined that the pleadings in the underlying litigation did not allege property damage. As to the extrinsic documents submitted to the defendant by the plaintiff, the court determined that such evidence established only the existence of possible defective work that could lead to future property damage if not remedied but that it did not demonstrate the existence of current property damage.

DISCUSSION

Because there are no factual issues in dispute in the present case, the court was only faced with the legal question whether the defendant had a duty to defend the plaintiff. Specifically, the defendant contended that the extrinsic documents suggested, “at most, that the construction deficiencies could potentially result in water damage to nondefective areas of the property if not fixed.” (Emphasis in original)

The Plaintiffs alleged construction defects and did not allege damage that the defects caused to other, nondefective property. Since the plaintiffs expert testified that he had identified defective work that, if not remedied, could lead to property damage in the future but identified no damage, Plaintiffs failed to allege facts bringing the underlying litigation seeking property damage that would have required a defense.

The Court of Appeals made clear that repairs to structural deficiencies, made for the purpose of preventing physical injury to tangible property before the alleged deficiency has caused property damage are not within the insuring agreement’s definition of property damage.

Because there was no indication of water damage at all. At most, the construction deficiencies could potentially result in water damage to nondefective areas of the property if not fixed. Damage to nondefective property in the form of rot or mold caused by water intrusion would be property damage within the terms of the policy language. However, the plaintiff did not present any evidence of actual damage or case law holding that the presence of water, in the absence of actual damage, amounts to covered physical damage.

The Court of Appeals concluded that the notification of the mere presence of water, without some corresponding physical damage, did not provide the defendant with actual knowledge of facts establishing a reasonable possibility of coverage because the presence of water does not constitute property damage within the terms of the policy.

Accordingly, the defendant did not have a duty to defend the plaintiff in the underlying litigation, and the court properly rendered summary judgment in favor of the defendant.

ZALMA OPINION

When an insured breaches the terms of a construction contract it will invariably be sued by the other party to the contract for damages resulting from the breach. Westchester Modular Homes breached its contract by creating a defective modular home that would, in the future, if defects were not cured, suffer physical damage. Since there was no physical damage to the structure – just the potential of damage – coverage did not apply and Westchester was obligated to defend and indemnify itself to the allegations of the underlying litigation.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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To Plead Fraud Plaintiff Must Identify Acts of Fraud

Suspicion of Fraud Cannot Support Qui Tam Action

Post 4770

See the full video at https://rumble.com/v4ngeyi-to-plead-fraud-plaintiff-must-identify-acts-of-fraud.html and at https://youtu.be/V8lmqgXsMNU

Richard Campfield, suing for the State of California, appealed the trial court sustained the demurrer of defendants Safelite Group, Inc. and its subsidiaries, Safelite Solutions LLC and Safelite Fulfillment, Inc. (collectively, Safelite) without leave to amend. Campfield contends he adequately alleged a cause of action under the Insurance Fraud Prevention Act (Ins. Code, § 1871 et seq.) (IFPA) within the statute of limitations.

In State Of California, ex rel. Richard Campfield v. Safelite Group, Inc., et al., A168101, California Court of Appeals, First District, Fourth Division (March 29, 2024) explained the requirements to plead a Qui Tam action under the IFPA.

BACKGROUND

Campfield owns a windshield repair company that licenses and sells products for repairing vehicle windshield cracks. Safelite is the nation’s largest retailer of vehicle glass repair and replacement services. Safelite also serves as the third party administrator for over 175 insurance and fleet companies, including 23 of the top 30 insurers in California and the country, for processing and adjusting policyholders’ vehicle glass damage claims, and it has direct electronic access to over 20 insurance company databases.

In 2015, Campfield sued Safelite in federal district court in Ohio, alleging Safelite’s continued reliance on its six-inch rule violated the Lanham Act’s (15 U.S.C. § 1051 et seq.) Safelite admitted in responses to interrogatories in the Ohio action that it has never conducted studies on the safety or viability of repair of cracks longer than six inches.

Campfield filed under seal the complaint in the present action against Safelite, alleging a single qui tam cause of action for violation of the Insurance Frauds Prevention Act (IFPA). The Insurance Commissioner and the San Francisco County District Attorney declined to intervene, so in September 2022 the trial court unsealed the complaint.

Safelite demurred, arguing, among other things, that the complaint failed to allege facts constituting a cause of action under the IFPA. Campfield failed to plead his claim with sufficient particularity, and the statute of limitations barred the complaint. After briefing and a hearing, the trial court sustained the demurrer without leave to amend based on the statute of limitations and noted that Safelite had raised “substantial arguments” that the complaint had not stated a cognizable claim and that the action was barred by the IFPA’s public disclosure bar. The trial court then dismissed the action.

DISCUSSION

The IFPA was enacted to prevent automobile and workers’ compensation insurance fraud in order to, among other things, significantly reduce the incidence of severity and automobile insurance claim payments and therefore produce a commensurate reduction in automobile insurance premiums.

The sole cause of action in the complaint is based on Insurance Code section 1871.7, subdivision (b), which allows for the imposition of civil penalties and other remedies against anyone who violates Insurance Code section 1871.7 or Penal Code sections 549, 550, or 551. Campfield alleges Safelite violated Penal Code section 550, subdivision (b)(1) and (2).

As in any action sounding in fraud, an IFPA action must be pleaded with particularity.

ANALYSIS

To effectively state his IFPA cause of action, Campfield must allege facts showing that Safelite presented, or caused to be presented, a false statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy or prepared or made a false statement intended to be presented to any insurer or any insurance claimant in connection with, or in support of or opposition to, any claim or payment or other benefit pursuant to an insurance policy. Campfield alleged Safelite violated these provisions when it prepared and presented false statements to insurance companies either as insurers’ third party administrator or as a windshield repair and replacement service.

The pleading standard Campfield must meet is not onerous. Campfield must identify every fraudulent claim at the pleadings stage. However, Campfield did not identify one example of any specific fraudulent claims. As a result Safelite did not have concrete allegations to defend against. The failure of allegations of specific fraudulent claims left Safelite with the need to guess.

A lack of discovery cannot excuse Campfield’s failure to plead his IFPA claim with sufficient detail defeated his suit. The heightened pleading standard exists in part to deter the filing of complaints as a pretext for the discovery of unknown wrongs and to prohibit plaintiffs from unilaterally imposing upon the court, the parties and society enormous social and economic costs absent some factual basis.

Qui tam actions like Campfield’s under the IFPA are meant to encourage private whistleblowers, uniquely armed with information about false claims, to come forward. These insiders should have adequate knowledge of the fraudulent acts to comply with the heightened pleading requirement.  The IFPA is not intended to provide a mechanism for those with general suspicions of wrongdoing like Campfield to engage in discovery seeking to confirm their suspicions.

ZALMA OPINION

The qui tam provision of the IFPA is a wonderful tool in the battle against insurance fraud. It has acted as a way to defeat fraud that local prosecutors are unwilling to prosecute. Rather than putting fraudsters in prison the qui tam provision allows the relator and the state to take the profit out of the crime. However, as this case establishes, it is not a place to shop for evidence when a person only suspects, but has no specific acts of fraud. Insurers should file qui tam actions if they have evidence and should not if they don’t have evidence to allege fraud with specificity.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Life Insurance Can Be Hazardous to Your Health

Insurance Fraud by Board & Care Facility

Post 4769

See the full video at https://rumble.com/v4n98rz-life-insurance-can-be-hazardous-to-your-health.html  and at https://youtu.be/2z9EdkKPVUU

This is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.  Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime.

The Hungarian owned and operated a board and care facility for the aging in Carson City, Nevada. He brought his younger brother over from Hungary in 1975 to help him in the business. It was only a twenty-bed facility and with little help, the two could manage the entire business.

The oldest brother was the thinker. He got an honorary PhD from the New World Society of Abundant Consciousness that ran a school in the desert just north of Pahrump, Nevada. After receiving his honorary degree for a donation of $15,000, he insisted on the title doctor.

The doctor had no training in any field. He had a high school diploma and had operated several restaurants before buying the board and care facility. He believed that the title conferred on him the right to prescribe medicine, to give psychological advice, and to do anything he pleased. He would get drugs for his patients from other than legitimate sources. He would bill their insurers as if they were prescription drugs prescribed by a staff physician.

His younger brother maintained the facility, cooked the meals for the residents, doubled as a nurse and ran the business. The doctor acted like royalty.

Since the small business required both to work if it was to make a profit, the business began to deteriorate. Cash flow was minimal. Patient services became almost nonexistent. The doctor skimmed as much money into his pocket as he could and keep the patients alive. Neither he nor his brother drew anything much more than subsistence monies from the business.

The dedicated younger brother made the business work. He began to cut personal corners. First, he decided to drop a $100,000 life insurance policy. With the reduced earnings of the business, he could not afford to pay the premium.

The doctor, who used the same insurance agent, was told of the intent of the brother to cancel. The doctor asked the agent to keep the policy in effect without his brother’s knowledge. The doctor would pay the premium as a business expense of the board and care facility.

The agent, not wishing to lose his commission, agreed and kept the policy in force, accepting premium payments from the doctor.

The younger brother suffered from severe hypertension. His controlled the disease by diet and medications. He trusted his older brother. He thought his older brother was wise and knowledgeable. He thought his older brother had, at least, the same level of expertise as any physician and trusted his brother more than a physician.

After the doctor had paid the first monthly premium on the life insurance policy, he explained to his brother that the hypertension drugs prescribed for him were dangerous. He told his younger brother that he had in the inventory of the board and care facility drugs that were more effective. Since they were in the stock of the facility the doctor could give them to his brother at no cost. The brother stopped taking his prescribed medicine and started taking the drugs given him by his brother. The doctor did not tell his brother that the drugs contained digitalis. Digitalis is a drug that, although useful in reducing chest pains in people with heart conditions, is poisonous in the amounts the doctor told his brother to take. It is even more poisonous to a person with hypertension.

Within two weeks of taking his brother’s drugs, the younger brother was found by his wife apparently dead, on his kitchen floor. Paramedics arrived and immediately began CPR. Because she did not know what to do after calling the paramedics, the wife called her brother-in-law. He arrived at the scene about the same time as the paramedics. He was hysterical and interfered with the paramedics. They had to forcibly remove him from his brother so they could perform CPR. They put the brother in an ambulance and began racing toward the emergency hospital with red lights and siren. The doctor followed and almost sideswiped the ambulance twice. They called for police help on their radio. A Pahrump police officer pulled the doctor off to the side of the road and restrained him for sufficient time to allow the ambulance to arrive at the hospital.

They could not revive the younger brother. They pronounced him dead one hour after arrival at the hospital. The doctor convinced the wife there should be no autopsy. His brother, her husband, had a severe heart condition that was well documented. He explained that there should be no reason to cut his body to satisfy a local ordinance.

The doctor convinced the brother’s family physician to sign the death certificate showing the cause of death as a heart attack. The family physician did so without evidence of such a heart attack. The family physician had not even seen the deceased within six months of his death. The family physician clearly violated the law. He thought the death certificate would help the family who appeared adamantly against the invasive procedures of an autopsy.

The widow was not an intelligent woman. She had limited education in her country of birth, Hungary. She could barely read or write the English language and spoke it with a thick accent. She relied totally on her brother-in-law. He handled the disposition of her husband’s estate. She signed whatever papers he put before her.

One paper he put in front of her was a claim form making claim on the life insurance policy. The claim form did not use the sister-in-law’s address but, rather, a P.O. box held in secret by the doctor. The insurance company, presented with an appropriate claim form signed by the widow and what appeared to be a proper death certificate, immediately issued its check for $100,000 plus interest, made payable to the widow, the sole beneficiary named in the policy.

The doctor received the check. He signed the widow’s name to it and deposited the money in his account. He used the money to pay the debts of the board and care facility and to buy a new home for himself on five acres of desert property outside Pahrump. The widow was left with nothing but debts. She sold the home she and her husband lived in since arriving in the U.S. After paying a commission to the realtor and the funeral expenses she had only $1,000 left. Her brother-in-law loaned her $10,000 which she used to buy some secondhand furniture and move into a small apartment. She met a blackjack dealer at a casino and married him so she would have some means of support.

The doctor lived in luxury for a year off the proceeds and then began planning his next insurance fraud. He has no other brothers to kill, so he decided to obtain life insurance on the residents of the board and care facility none of whom had a long life expediency.

Adapted from my book “Insurance Fraud Costs Everyone” Available as a Kindle Book and Available as a Paperback from Amazon.com.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Never Lie on an Application for Insurance

Conceal or Misrepresent Material Facts Requires Rescission in Alabama

Post 4768

See the full video at https://rumble.com/v4n1gi5-never-lie-on-an-application-for-insurance.html  and at https://youtu.be/JwHq6xb6pA4

Allied World issued general liability policies to Clint Lovette (“Lovette”) and his companies.  (collectively “Lovette Defendants”) for the policy periods of March 16, 2018 to March 16, 2019 and March 16, 2019 to March 16, 2020. Allied World sought a judicial determination in its favor that it does not owe the Lovette Defendants a defense or indemnity regarding two cases.

In Allied World Surplus Lines Insurance Company v. Lovette Properties, LLC, et al., No. 2:22-cv-00738-RDP, United States District Court, N.D. Alabama, Southern Division (March 15, 2024) the USDC resolved the disputes.

FACTS

In early September 2017, the Wheelers threatened to sue Lovette Properties to recover all sums paid if the Wheeler project was not completed by the end of 2017. The Wheelers informed Lovette Properties that they were considering all available options for remedying the situation and asserted that their letter “does not constitute a waiver of any of our rights or remedies, all of which are expressly reserved.”

The 2018/2019 Policy

On April 16, 2018, Clint Lovette, on behalf of Lovette Properties, signed and submitted a “Contractor’s Supplemental Application” requesting general liability insurance coverage from Allied World. In the Contractor’s Supplemental Application, Lovette falsely represented: (1) that the Lovette Defendants had no losses, claims, or suits against them in the past 8 years; (2) that no claims or legal actions were pending; (3) that the Lovette Defendants had no knowledge of any pre-existing act, omission, event, condition, or damage to any person or property that might reasonably be expected to give rise to any future claim or legal action against any person or entity identified in the application; (4) that the Lovette Defendants had not been accused of faulty construction in the past 8 years; and (5) that the Lovette Defendants had not been accused of breaching a contract in the past 8 years.

The Wheelers filed an Arbitration Complaint against Lovette seeking recovery of the costs associated with completing the renovation of their house; consequential damages for the cost of repairs to the house; the costs for maintaining another household during construction; damages for mental anguish and emotional distress; and “exemplary damages to the extent permitted by law [and] … the costs of this action, attorneys’ fees, expenses, and interest on the judgment as allowed by law.”

The Adams Case

On April 15, 2020, Allison and Carl Adams (“the Adamses”) sued Lovette. In the Complaint, the Adamses alleged that Lovette Properties abandoned the project before completion and left the house in a manner that did not comply with the applicable building codes and industry standards. The Adams case was tried as a bench trial that entered a judgment for $149,214.23 in favor of the Adamses only on the contractual and negligence claims.

DISCUSSION

Allied World asserted that summary judgment in its favor was proper because the Policies must be rescinded and thus Allied World is relieved of its obligation to defend or indemnify the Lovette Defendants in both the Wheeler arbitration and the Adams case.

Rescission under Alabama Code § 27-14-7

Because of the Lovette Defendants’ misrepresentations, omissions, concealment of facts, and incorrect statements in the 2018 and 2019 Contractor’s Supplemental Applications Alabama statutes prevent recovery under the Policies and an insurer can rescind a policy or deny coverage if, in the application or in negotiations therefor, the insured made misstatements that either (1) were fraudulent (i.e., made intentionally with knowledge); (2) were material to the risk (although innocently made); or (3) affected the insurer’s good faith decision to issue the policy for which the insured applied.

In Alabama, misrepresentation of a material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitutes legal fraud.

Under the language of Allied World’s policies, even if Lovette’s misrepresentations were innocently made, Allied World has a right to void the policy so long as the misrepresentations were (1) material and (2) relied upon. Based on the record, it is readily apparent that the applications contain misrepresentations.

ALLIED WORLD IS ENTITLED TO RESCIND THE INSURANCE POLICIES

An insurer may void a policy if it can show that:

  1. The insurer in good faith would either not have issued the policy or contract or would not have issued a policy or contract at the premium rate as applied for or would not have issued a policy or contract in as large an amount or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.
  2. The key question is the good faith of the insurer in refusing to issue the policy.
  3. To meet its burden, Allied World offers the affidavit of Preston Starr. In his affidavit, Starr states that, had Lovette given a “YES” answer to any of the questions at issue in this matter, it would have charged a higher premium for the Policy and would never have issued a Policy that provided coverage for any claims out of Lovette’s work done for the Wheelers.
  4. In addition, Starr affirmed that, whenever an applicant discloses a known incident that could arise into a future claim, C&S consistently and repeatedly attaches a “Known Claimant/Incident Exclusion” Form to the policy that documents “the name of the party alleging potential wrongdoing, the date of the alleged loss, and as many specific details as possible, so that if a claim shows up in the future on the policy, Allied World have an exclusion specifically excluding coverage for that claim.

Under Alabama law testimony from an insurance company’s underwriter that is “supported by other uncontradicted evidence in the record” – such as the company’s underwriting guidelines – can be sufficient to establish materiality or that a company in good faith would not have issued the policy as written as a matter of law.

For these reasons, summary judgment in Allied World’s favor is due to be granted, and both Policies are due to be rescinded.

ZALMA OPINION

Alabama law, like that in most states, allows for rescission of a policy when the insured obtains a policy by concealment or misrepresentation about a material fact. Lovette did not advise Allied World of the pending claims which were material to the decision of Allied World to insure or not insure Lovette. Equity required the policies to be declared void from their inception.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Compassion Not Available for Arsonist

No Reason to Release Convicted Arsonist Early

Post 4767

See the full video at https://rumble.com/v4mua6c-compassion-not-available-for-arsonist.html and at https://youtu.be/ab6rFw_DLSE

In United States Of America v. Jonathan Paul Wiktorchik, Jr., No. 23-2564, United States Court of Appeals, Third Circuit (March 25, 2024) Federal Prisoner Jonathan Wiktorchik appealed, acting as his own lawyer, from the District Court’s denial of his motion for compassionate release.

THE CONVICTION

In 2011, after a jury trial in the Eastern District of Pennsylvania, Wiktorchik was convicted of arson, use of fire to commit a felony, mail fraud, and making false statements. Wiktorchik’s conviction was based on a fire he deliberately set to his chiropractic office, which also destroyed four other businesses. Wiktorchik repeatedly lied to investigators regarding his involvement and changed his story on multiple occasions. He was sentenced to 204 months of imprisonment and has an anticipated release date of August 23, 2025.

MOTION FOR COMPASSIONATE RELEASE

In May 2023, Wiktorchik filed a motion for compassionate release arguing that his chronic medical conditions and the COVID-19 pandemic supported his early release. Wiktorchik, who is not vaccinated, was hospitalized in January 2021 after contracting COVID-19 and has since been reinfected at least twice. He asserted that he now suffers from “long COVID” and that each reinfection exacerbated the condition, “leading to further dehabilitating [sic] and deteriorating health conditions” for which he was not receiving proper treatment.

The District Court denied relief. It concluded both that Wiktorchik had not established any extraordinary and compelling reason for his release, and that the relevant sentencing factors weighed against release.

ANALYSIS

The Third Circuit reviews such an appeal for abuse of discretion by a district court’s order denying a motion for compassionate release, including a determination that the sentencing factors do not weigh in favor of granting compassionate release. The Third Circuit will not disturb the District Court’s decision unless there is a definite and firm conviction that it committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors. The Third Circuit found it could summarily affirm the district court’s decision if the appeal fails to present a substantial question.

The compassionate-release statute states that a district court may reduce a defendant’s term of imprisonment if extraordinary and compelling reasons warrant such a reduction. Before granting compassionate release, a district court must consider the factors set forth in the statute to the extent that they are applicable. Those factors include the nature and circumstances of the offense, the history and characteristics of the defendant, and the need for the sentence to reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford adequate deterrence, and protect the public from future crimes by the defendant.

Compassionate release is discretionary, not mandatory. Therefore, even if a defendant is eligible for it, a district court may deny compassionate release upon determining that a sentence reduction would be inconsistent with the statute’s requirements.

In reaching its decision the Third Circuit was unable to discern abuse of discretion in the District Court’s conclusion that compassionate release was not appropriate. The District Court appropriately considered that Wiktorchik “has a history of committing economic as well as dangerous crimes,” and observed that the current offenses were committed less than a year after Wiktorchik was convicted of insurance fraud. It explained that Wiktorchik’s crimes showed a disregard for the property of others, noting that other businesses were damaged as a result of the arson.  In determining that the factors did not warrant compassionate release the District Court concluded that Wiktorchik received just punishment for his offenses and that adequate deterrence and the protection of the public would be undermined and at risk if Wiktorchik were released for compassionate reasons.

Wiktorchik argued that the District Court failed to give sufficient weight to his rehabilitative efforts, including his lack of a disciplinary record while incarcerated. However, even considering these efforts,

Because this appeal does not present a substantial question, the District Court’s judgment was summarily affirmed.

ZALMA OPINION

Arson-for-Profit is a violent type of insurance fraud. It not only destroys the property that was insured for the benefit of the arsonist it destroys the property of other and often causes the injury or death of innocents, neighbors, and firefighters. It is a heinous crime and the defendant must serve the entire sentence to protect the public at large from his criminal acts and deter others from attempting the same crime.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Zalma’s Insurance Fraud Letter – April 1, 2024

ZIFL-04-01-2024 Volume 28, Number 7

Subscribe to ZIFL Here

Post 4766

The Source for the Insurance Fraud Professional

Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.  It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

This month’s issue contains multiple articles for the insurance fraud professional and the insurance claims professional. The current issue can be read in full at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-04-01-2024-1.pdf and includes the following articles:

Prison Employee Commits a Crime She Was Employed to Prevent

GUILTY OF WORKERS’ COMPENSATION FRAUD

On January 10, 2022, defendant Tiffinie Marvell Jones was convicted by a jury of one count of insurance fraud. Jones filed a motion for a new trial, which was denied. On appeal, Jones argued that there was insufficient evidence to support the verdict, that her trial counsel provided ineffective assistance, and that the trial court abused its discretion when it denied her motion for a new trial.

In The People v. Tiffinie Marvell Jones, F085205, California Court of Appeals, Fifth District (March 14, 2024) the Court of Appeals affirmed her conviction.

Read the full article and the full issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-04-01-2024-1.pdf.

More McClenny Moseley & Associates Issues

This is ZIFL’s twenty fifth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

From the Coalition Against Insurance Fraud

The Top 5 Covid-19 Scams

  1. Fake “corona” insurance
  2. Cancelled health insurance
  3. corona medicines, tests
  4. Senior Scams
  5. Bogus Travel Insurance

Read the full article and the full issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-04-01-2024-1.pdf.

Health Insurance Fraud Convictions

Physician Pays $95,000 to Resolve Allegations of Genetic Testing Fraud

Nishi Patel, MD, a physician who received his medical training at Drexel University, will pay $95,000 to resolve allegations that he violated the False Claims Act by ordering medically unnecessary genetic testing for Medicare beneficiaries.

Read the full article including dozens of convictions and the full issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-04-01-2024-1.pdf.

New Book Now Available from Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition, the newest book joins other insurance, insurance claims, insurance fraud, and insurance law books by Barry Zalma all available at the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

Other Insurance Fraud Convictions

Public Insurance Adjuster Sentenced to Three Years in Prison After Stealing $108k From Homeowners, Gwinnett DA

Stephen E. Chastain, 62, represented a Gwinnett County couple as their insurance adjustor after their house burned in 2019, according to the Gwinnett County district attorney. According to the district attorney, it was stipulated that Chastain would take 15% of the settlement as his fee. The district attorney said the company “did very little work, and the victims never saw the entirety of their insurance settlement.”

Read the full article and the full issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-04-01-2024-1.pdf.

SOFT FRAUD

How Most Get Away With Insurance Fraud

For reasons known only to governmental entities some insist on categorizing fraud into both “hard” and “soft” fraud. By so doing the governmental entities that so categorize fraud make one type of fraud less heinous and less criminal than the other. Fraud, whether categorized “soft” or “hard,” are criminal and if a person is tried and convicted of fraud both can be sent to jail for the same amount of time.

The types of insurance fraud some call “soft fraud” are found in every type of claim presented to an insurer.

Soft fraud, which is sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim…. According to the Insurance Research Council, soft fraud is far more frequent than hard fraud. Because of the frequency of soft fraud, it adds more to overall claims cost than hard fraud does.

Soft fraud occurs when a policyholder exaggerates an otherwise legitimate claim or when an individual applies for an insurance policy and lies about certain conditions or circumstances to lower the policy’s premium.

Adapted from my Book, “Insurance Fraud – Second Edition” Available as a Kindle book; Available as a Hardcover;  Available as a Paperback 

Barry Zalma, Inc., 4441 Sepulveda Boulevard, CULVER CITY CA 90230-4847, 310-390-4455; Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Go to the podcast Zalma On Insurance at https://podcastrs.spotify.com/pod/show/barry-zalma/support Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Litigation Between Insurers Should be Avoided

Potential of Coverage is Enough to Require an Insurer to Defend

Post 4765

See the full video at https://rumble.com/v4m2j79-litigation-between-insurers-should-be-avoided.html  and at https://youtu.be/CzzxD2wh46g

When two or more insurance companies issue policies with a potential for coverage of a claim of bodily injury they should work together to protect their mutual insured rather than litigate with the insured and the other insurers. Litigation is expensive and may result in a case and result they did not wish to have.

In Admiral Insurance Co. v. Track Group, Inc. f/k/a Securealert, Inc., and Jeffrey Mohammed Abed, and Certain Underwriters At Lloyd’s, London Subscribing To Policy No. CJ10028219, No. 1-23-1210, 2024 IL App (1st) 231210-U, Court of Appeals of Illinois, First District, Third Division (March 27, 2024) the Illinois Court of Appeals looked to protect the interests of the insured other than the interest of the insurers.

FACTS

This appeal concerned an insurance coverage dispute between a general liability carrier and a professional liability carrier. Certain Underwriters at Lloyd’s, London Subscribing to Policy No. CJ10028219 (Underwriters) and Admiral Insurance Co. (Admiral) both insured Track Group, Inc., a company in the business of electronically monitoring individuals using ankle monitors. Track Group was sued after a person wearing the ankle monitor sustained severe injuries while driving his vehicle. Underwriters had paid the costs of Track Group’s defense up to the time of the decision but it argued that Admiral should share in the costs, as it believes both insurance policies provide coverage in this case. The circuit court held that Admiral did not owe coverage under the terms of its insurance policy with Track Group.

BACKGROUND

Underwriters issued Track Group a general liability insurance policy, while Admiral issued a professional liability insurance policy. Track Group sought coverage under both policies in connection with a personal injury lawsuit filed against it in Los Angeles, California. The plaintiff in that suit, Jeffrey Mohamed Abed, alleged that his leg was torn from his body after his foot, on which he was wearing the ankle monitor, became lodged between the gas and brake pedals in the vehicle he was driving. Admiral denied coverage and filed a declaratory action, contending that it does not owe coverage under these circumstances.

The circuit court granted Admiral’s motion for summary judgment and denied Underwriters’ motion for summary judgment.

ANALYSIS

On appeal, Underwriters argued that the circuit court erred in granting summary judgment in favor of Admiral, contending that the court’s interpretation of the Admiral policy was overly narrow. Underwriters argued that Admiral policy covers the injury at issue.

Where policy language is susceptible to more than one reasonable interpretation, it is considered ambiguous and will be construed strictly against the insurer. Courts construe the policy as a whole, giving effect to each provision where possible because the court must assume that the provision was intended to serve a purpose.

According to the plain language of the policy Admiral is potentially liable for wrongful acts arising out of the provision of “professional services” and “technology products.”  The policy includes a general exclusion for bodily injury and property damage. However, that exclusion does not apply to bodily injury arising out of the provision of “professional services.” In other words, Admiral’s policy could potentially cover bodily injury arising out of the provision of “professional services.”

One of the four components of the ankle monitor is an internal central processing unit. The ankle monitor can make and receive calls, generate alarms, receive radio frequency transmissions, and communicate movements to Track Group. Because the ankle monitor is an electronic device that can store, retrieve, and process data it is potentially a computer. Moreover, the ankle monitor likely constitutes “hardware.” Because the ankle monitor is potentially computer hardware, the Court of Appeals held that it is potentially covered by Admiral’s policy and potential coverage is all that is required to trigger an insurer’s duty to defend its insured.

Because the facts of Abed’s lawsuit against Track Group potentially fell within the terms of the policy the decision of the Circuit Court was reversed.

ZALMA OPINION

The court did what the insurers should have done – it read the policy which covered claims resulting from professional services or technology products. Since the ankle monitor was clearly a technology product and was claimed to be the cause of the injury that ripped off Mr. Abed’s leg, there was a potential of coverage and all of the insurers owed Track Group a defense. Working together both insurers could have saved money and served their insured fairly.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Go to the Insurance Claims Library – https://lnkd.in/gwEYk.

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Soft Fraud

How Most Get Away With Insurance Fraud

Post 4764

See the full video at https://rumble.com/v4luxm2-soft-fraud.html  and at https://youtu.be/52DjezN4OX8

For reasons known only to governmental entities some insist on categorizing fraud into both “hard” and “soft” fraud. By so doing the governmental entities that so categorize fraud make one type of fraud less heinous and less criminal than the other. Fraud, whether categorized “soft” or “hard,” are criminal and if a person is tried and convicted of fraud both can be sent to jail for the same amount of time.

The types of insurance fraud some call “soft fraud” are found in every type of claim presented to an insurer.

Soft fraud, which is sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim…. According to the Insurance Research Council, soft fraud is far more frequent than hard fraud. Because of the frequency of soft fraud, it adds more to overall claims cost than hard fraud does.

Soft fraud occurs when a policyholder exaggerates an otherwise legitimate claim or when an individual applies for an insurance policy and lies about certain conditions or circumstances to lower the policy’s premium.

The reality is that Soft Fraud is a criminal violation and a breach of a material condition of the policy. It contributes to increased insurance costs.  As a result of increased insurance costs, millions of Americans cannot afford sufficient insurance coverage. One cannot commit an innocent or partial fraud any more than one can be partially dead. Once fraud is committed the contract of insurance is violated and voidable and the crime has been committed.

Soft fraud, in contrast, usually involves legitimate losses that are exaggerated by the policyholder. For example, if a person is in a car accident and files a claim with her auto insurance company but overstates the severity of the damage to her car. The insured did not fabricate the accident or the underlying claim, but nevertheless committed soft fraud by not being completely truthful with the insurance company.

Regardless of whether or not the fraudulent act is soft or hard, insurance fraud is a felony under the law of most states.

The discussion that follows describes the most insidious and prevalent types of soft fraud.

PADDING

Padding is found when injuries or damages are exaggerated to increase a claim’s value. It is what has been called an insidious type of fraud difficult to detect and often considered harmless by insureds, claimants, police, and prosecutors.

Padding can come in a variety of forms. In first party claims, an insured is generally considered to be in the best position to know the value of property for which he or she is making a claim. An insurer depends upon the insured to provide an honest description and estimate of the value of the property, and most courts hold an insured to a high level of honesty when reporting a loss to an insurer.

Padding is found in property insurance when insureds inflate the number of items lost or destroyed or exaggerate the value of the items claimed damaged, destroyed, or stolen. This can be as simple as increasing the size of a stolen television from 32 inches to 42 inches; from a cathode ray tube to flat screen; from $100 cash to $500 cash; or from two pairs of jeans to five pair.

According to an Insurance Research Council (IRC) study, approximately 90 percent of the costs of insurance fraud are the result of claims padding. Claimants add damage, injuries, and fictitious passengers to their insurance claims. The other 10 percent are the result of organized accident staging rings. Because of the sheer number of offenders, and the light sentences received by the few that are convicted, pursuing these crimes has not a priority for law-enforcement or insurers. [Whyen v. Summers, 58 Misc.3d 1223(A), 97 N.Y.S.3d 57 (Table) (N.Y. Sup. Ct., 2018)]

On third party claims the padding can be as simple as adding a week of lost earnings that, in fact, was not lost; allowing the doctor to bill for three visits not made; or going to a chiropractor who charges for x-rays not taken.

Standard fire insurance, all-risk property insurance, package first party property policies and most third party liability policies state that the policy is void if the insured intentionally conceals or misrepresents any material fact or circumstance about the insurance or a claim, whether before or after the loss.

When an insured submits fraudulent invoices to inflate a claim the insurer has the right, under the policy wording, to void the entire policy. The insured’s argument that he was entitled to recover that part of his claim not supported by fraudulent documents should be dismissed out of hand. One cannot commit a small fraud any more than a person can be just a little dead.

A slight misstatement of value normally will not be sufficient to allow an insurer to void an insurance policy for fraud unless the insured knew at the time the misstatement was made that the statement was false and the insurer can prove that the misstatement was made with the intent to deceive it. Misrepresentation, concealment, and fraud are not limited by the amount of the fraud but by the intent of the person making the claim. An insured who presents, with the intent to defraud, $1,000 in false invoices is as culpable as an insured who presents, with the intent to defraud, $1,000,000 in false claims. In both cases, if proved, the policy of insurance, by its terms and conditions, is void and the claim is forfeited.

If the differences in numbers between those presented by the insured and those presented by the insurer are honest differences of opinion or calculation errors a policy cannot, and should not, be declared void. The insured must intend to deceive and the insurer must be in a position to prove that intent and that it was deceived before it can void the policy.

Honest people deceive their insurers. They think the deception is just harmless fudging. “Soft fraud” wrongfully takes money from an insurer and is also a crime. Soft fraud, like hard fraud, raises everyone’s insurance costs. The greatest amount of money lost to fraud is lost to schemes designated as “soft fraud.” Since most soft fraud succeeds the amount it costs the insurance industry is difficult, if not impossible, to determine. Prosecuting some “soft fraud” perpetrators can put the fear of prison in the minds of the general public and save more money, in the long run, than prosecuting and convicting a single major fraud perpetrator. Unfortunately, police and prosecutors are often unwilling to prosecute cases of so-called “soft fraud” even when the evidence is damning.

Years ago, the author took the Examination Under Oath of an insurance broker who inflated a claim for damage to personal property by creating, with the use of white out paint and a photocopy machine, fake invoices for the replacement of property never replaced to collect the difference between actual cash value and replacement cost value. At Examination Under Oath the insured admitted to faking the receipts and was eventually convicted of insurance fraud and served a few months in jail for her crime.

ZALMA OPINION

Insurance fraud is working to destroy the economy and the ability of insurers to service their clients properly. States attempt to deter it by enacting statutes making it a crime to defraud an insurer and make the insurers, by statute, to investigate and enforce the crime. Yet prosecutors don’t like insurance fraud cases because they are document heavy and no person has been physically injured. Prosecution of insurance fraud is anemic and prosecution of soft fraud is non-existent. Learn from this and defeat fraudulent claims by refusing to pay. You will have no help from police or prosecutors but you can deter the attempts to defraud a proactive insurer.

This blog was adapted from my book “Insurance Fraud – Volume One available on Amazon.com

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Go to the Insurance Claims Library – https://lnkd.in/gwEYk

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Red Flags of Insurance Fraud

Indicators of Insurance Fraud are Investigative Tools

Post 4763

See the full video at https://rumble.com/v4ln1xr-red-flags-of-insurance-fraud.html  and at https://youtu.be/xSnn0wy1yUU

Suspicious claims have common attributes. Insurers and their anti-fraud organizations have collated the common attributes into lists of indicators or red flags of fraud. The lists were created as training aids and to be used to determine whether further investigation is required to determine if a claim is legitimate or false and fraudulent. Continually growing, these lists are known as the “red flags” or “indicators” of fraud lists. There are many different categories, ranging from those associated with the claim itself or with insureds to indicators of specific types of fraud, such as bodily injury fraud or arson for profit.

If, when assessing a claim, three or more red flags are found the need for further investigation should be considered and evaluated by the claims person, a supervisor and the insurer’s special investigative unit. The existence of red flags does not mean a fraud has occurred. Red flags are only a signal to the adjuster to investigate further so that the suspicion may be either removed or confirmed. It is not any single indicator that alerts the adjuster to the possibility of a fraudulent claim but a combination of the red flag or red flags discovered coupled with the results of the thorough claims investigation.

Although the existence of multiple red flags should trigger an investigation, failure to investigate has been held to be reasonable as long as there are no patent inaccuracies or actual knowledge of false representations.

Red Flags

  • More than one mortgage,
  • late payments,
  • divorce,
  • prior claims,
  • multiple claims,
  • problems affecting title to the property,
  • over-insurance,
  • an increase in insurance coverage right before the claim,
  • recent cancellations of insurance held with prior insurers,
  • liens,
  • threats of foreclosure on the property,
  • lawsuits, and
  • recent job transfers.

As the Nebraska Department of Insurance states in its booklet, Fraud Detection Hints, it is “important to remember that the … possible ‘red flags’ [indicate] that there may be some evidence consistent with an insurance fraud scheme. Any one or two of these by themselves may not raise your suspicions; however, when you have several of these hints (red flags) present or a pattern begins to emerge, you should investigate further or forward your suspicion to the Insurance Fraud Prevention Division.” [O’Donnell v. Allstate Insurance Co., 734 A.2d 901, 1999 PA Super 161 (Pa. Super., 1999); and LeForge v. Nationwide Mut. Fire Ins. Co., 82 Ohio App. 3d 692 (Ohio App., 1992).]

Red Flags Common to a Claim

An adjuster should consider further investigation if a claim occurs:

  • shortly after the issuance of the policy;
  • shortly after the limits of the policy are increased;
  • in an insured’s first insurance;
  • shortly before the expiration of a policy;
  • within days of a notice of cancellation being served; or
  • on a policy acquired from an agent far from the insured’s home or business

Red Flags Connected with the Insured or Claimant

Adjusters evaluate the manner in which the insured makes a claim. A few red flags that may raise suspicions include some of the following when the insured or claimant:

  1. retains or is represented by counsel on the day of the loss;
  2. does not want to retain counsel;
  3. is represented by a public adjuster on the day of the loss;
  4. wants a settlement approved quickly;
  5. does not want the claim to go to a supervisor, regional office, or claims committee for authority;
  6. is exceedingly cooperative and undemanding;
  7. is exceedingly demanding and threatens a bad faith suit from the date of first contact;
  8. demands a proof of loss form at the initial meeting;
  9. is familiar with insurance claims terminology;
  10. asks for the claims manager by name;
  11. is familiar with the adjuster’s authority limits, and wants to settle for a sum within those limits;
  12. handles all business in person (thus avoiding mail and potential prosecution for violation of federal mail fraud statutes);
  13. provides an address that is a post office box, mail drop, or hotel; or
  14. reduces the demand for settlement when it is suggested by the adjuster that he or she file suit.

The adjuster or investigator should also pay attention to the insured’s or claimant’s history and background, including their financial situation.

Red Flags Concerning the Insured

  • The insured has lived at his current address less than six months.
  • The insured has been with current employer less than six months.
  • The insured has a previous history of losses.
  • The insured cancels scheduled appointments with the adjuster for statements and/or Examination Under Oath.
  • The insured is employed with an insurer.
  • The insured is unusually aggressive and pressures for a quick settlement.
  • The insured does not have a telephone.
  • The insured’s telephone number is only a mobile cellular phone.
  • The insured is difficult to contact.
  • The insured claims to be self-employed but is vague about the business, and his responsibilities.
  • The insured is very knowledgeable about claims process and Insurance terminology.
  • The insured offers inducement for a quick settlement.
  • The insured is unsolicited new, walk-in business, not referred by an existing policyholder.
  • The insured’s address is not consistent with his employment or income.
  • The insured only gives a post office box as his address.
  • The insured is unemployed or in a transient occupation.
  • The insured seeks a copy of the policy before agreeing to insure.
  • The insured is vague about loss.
  • The insured’s report of loss is inconsistent.
  • The insured has a selective memory.
  • The insured has financial difficulties.

Fraud by Insurers

Insurers and their officers commit fraud in many ways, including, but not limited to:

  • Submission of falsified financial statements.
  • Misuse of company funds.
  • Issuance of unauthorized insurance policies.
  • Insurance plans not authorized by the state Departments of Insurance.
  • Individuals not licensed to do the business of insurance.
  • Fraudulent group/individual health plans.

Some examples of fraud by insurers claimed under homeowners policies:

  • Insisting that the insured allow the insurer to generate the loss inventory after a covered loss.
  • Issuing policies with a declaration page showing policy limits that the insurer knows is higher than the actual cash value or replacement cost of the property, the risk of loss of which is insured, to take premium for a greater risk than that actually taken.
  • Using economic coercion to force the claimant to use their preferred repair vendor.
  • Undercutting market rates to lure employers to acquire Workers’ Compensation insurance while failing to properly maintain sufficient funds in reserve to cover claims.
  • Use of an unqualified or dishonest Medical Examiner to avoid payment of claims.
  • Use of unethical defense attorneys to avoid payments of claims.
  • Use of unethical private investigators.
  • Use of Special Investigative Unit investigators whose only purpose is to deny claims rather than in an effort to avoid fraud.

ZALMA OPINION

Red flags are not evidence. They are often contradictory. They are evidence that a fraud might be happening and require, when more than three or four red flags show up in an investigation that it is time to refer the claim to the insurer’s Special Investigative Unit to determine if there exists admissible evidence that a fraud has been attempted.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Prison Employee Commits a Crime She Was Employed to Prevent

GUILTY OF WORKERS’ COMPENSATION FRAUD

Post 4762

See the full video at https://rumble.com/v4lftv9-prison-employee-commits-a-crime-she-was-employed-to-prevent.html  and at https://youtu.be/-qGrZvs1pMQ

On January 10, 2022, defendant Tiffinie Marvell Jones was convicted by a jury of one count of insurance fraud. Jones filed a motion for a new trial, which was denied. On appeal, Jones argued that there was insufficient evidence to support the verdict, that her trial counsel provided ineffective assistance, and that the trial court abused its discretion when it denied her motion for a new trial.

In The People v. Tiffinie Marvell Jones, F085205, California Court of Appeals, Fifth District (March 14, 2024) the Court of Appeals affirmed her conviction

FACTS

On January 10, 2022, Jones was found guilty by a jury. Jones was sentenced on September 30, 2022. Jones was granted probation for a term of two years. One of the conditions of probation was that Jones serve the first 180 days of her probationary period in jail.

The Prosecution’s Case

Jones worked for a state prison in May 1995. She was a return to work coordinator for the prisons. If a staff member was injured, they would go through the return to work office to file workers compensation claims so the staff member could be paid while he or she was off work.

On February 14, 2014, Jones filed a DWC-1 form (an application to file a workers’ compensation claim), alleging that on February 11, 2014, a large file shelf fell on her, injuring her left thigh and below her knee.

As soon as a workers’ compensation claim is filed, the state prison informs the insurance company. The insurance company does an investigation, and either accepts or denies the claim. If it is accepted, the insurance company lets the state prison know, and the state prison will pay the injured worker for the first 52 weeks. This is referred to as industrial disability leave (IDL).

Injured workers are allowed to get a second job, but they need to report the income to the insurance company (reporting a second job, without reporting the income, is not sufficient). The insurance company then reduces the amount it pays the injured worker by the amount the injured worker makes at his or her second job.

In February of 2017, Jones began working for a real estate company as a sales associate. Jones’s IRS form 1099 for 2017 from the real estate company indicated that, after certain amounts were deducted, Jones earned $25,095.

Jones did not report that she was earning secondary income to her claims adjuster at the insurance company, and the adjuster never asked. Jones did fill out a secondary employment form from the state prison, listing her secondary employer as a real estate company. It was approved on behalf of the warden on or around April 24, 2017, as required by the state prison’s policy. Jones was deposed on October 11, 2017, regarding her workers’ compensation claim. When asked how many houses she had in escrow, she responded, “Two.” However, based on Jones’s 1099 form from the real estate company, prior to the date of the deposition Jones had already closed seven home sales and earned $20,312.

DISCUSSION

When evaluating a sufficiency of evidence claim, the appellate court will review the whole record in the light most favorable to the judgment to determine whether it discloses substantial evidence-that is, evidence that is reasonable, credible, and of solid value- from which a reasonable trier of fact could find the defendant guilty beyond a reasonable doubt.

An intent to defraud is an intent to deceive another person for the purpose of gaining some material advantage over that person or to induce that person to part with property or to alter that person’s position to its injury or risk, and to accomplish that purpose by some false statement, false representation of fact, wrongful concealment or suppression of truth, or by any other artifice or act designed to deceive.

There was substantial evidence from which a jury could reasonably infer that Jones knew that she was supposed to report her real estate income to the insurance company, that she did not do so, and that she lied about not having real estate income at the deposition.

The Trial Court Did Not Abuse its Discretion in Denying Jones’s Motion for a New Trial

In making the determination, the trial court found that Jones “clearly received income” yet intentionally failed to disclose it. Contrary to Jones’s assertion, the trial court addressed the expense evidence as to the specific intent element and found that Jones knew that she had to report her income even if it was exceeded by her expenses but intentionally failed to do so.

ZALMA OPINION

Ms. Jones lied at deposition about her earnings with a secondary employer while on workers’ compensation which she knew, from her employment with the state prison, that she was required to report to the insurer about her secondary employment. Her appeal was incredible and the court refused to give any credibility to her appeal. She will spend a small time in the prison where she used to work and will go back to making more money selling real estate.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Go to the Insurance Claims Library – https://lnkd.in/gwEYk

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Passover Begins on April 22, 2024

“The Passover Seder For Americans”

See the Full Video at https://rumble.com/v4lfop2-passover-begins-on-april-22-2024.html and at https://youtu.be/d9mFobQBwlU

My family will, starting on April 22, 2024 will tell the story of the Passover using the book my wife and I wrote for our family.

I have published the book on Amazon for the smallest price they would print and ship the book for so you can afford to get enough for your family to run a Seder in English.

For more than 3,000 years Jewish fathers have told the story of the Exodus of the enslaved Jews from Egypt. Telling the story has been required of all Jewish fathers. Americans, who have lived in North America for more than 300 years have become Americans and many have lost the ability to read, write and understand the Hebrew language in which the story of Passover was first told in the Torah.

Passover is one of the many holidays Jewish People celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the mountains, the rain, sun, the planets, the stars, and the people and wonder how did all these wonderful things come into being. Jews believe the force we call G_d created the entire universe and everything in it. Jews feel G_d is all seeing and knowing and although we can’t see Him, He is everywhere and in everyone.We understand that when G_d began to create the world there was nothing and that time, as we know it, had no meaning. G_d created all.

Because of the creation we are able to track time and celebrate Passover every year at the same time. We do so based on the lunar calendar used by our ancestors not the Julian calendar modern people use. As a result, we feel G_d gave people a conscience hoping it would help us decide right from wrong, to do our best to make good choices, to try to help others, not hurt others and to try to make right the wrongs we have done to others. The rituals that make up the Jewish holidays help remind us how thankful we are for how much we have accomplished with G_d ’s help and how grateful we are to G_d for everything we have and everything we are.

Thea and Barry Zalma have created this English only Seder that works for their family and will allow you and your families to tell the story of the Exodus painlessly and with the joy and celebration it deserves so that no member of our family forgets what G_d did for us when He took us out of slavery in Egypt and led us to a promised land.

If you are not Jewish and interested in why Jesus celebrated the Passover at the “Last Supper” with his disciples this show to you what he and the disciples were celebrating.

The books are available for only $5.95.

Available as a Kindle Book  Available as a Paperback

(c) 2023 Barry Zalma & Thea Zalma

Barry Zalma, Esq., CFE  is available at http://www.zalma.com and zalma@zalma.com

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Insurer Must Report Suspected Fraud

When an Insurer Reports Fraud to the State Without Malice It is Immune From Suits Claiming Defamation

No Cause of Action for Libel, Slander or any Other Relevant Tort

Post 4761

See the full video at https://rumble.com/v4kufvr-insurer-must-report-suspected-fraud.html and at https://youtu.be/GaH67TKJwSo

This is not a new case but it is important to everyone in the insurance business in California and any other state that has similar statutes

Justice Broussard writing for the California Supreme Court dealt with a case where the plaintiff obtained a judgment for $15,271 in general damages, $250,000 for emotional distress, and $1.25 million for punitive damages in an action for misconduct of an insurer in dealing with a claim for stolen property. The principal issue raised is whether the insurer’s report to the Bureau of Fraudulent Claims (hereinafter Bureau) was privileged so as to preclude recovery for injuries sustained as a result of a criminal proceeding.

In Clydelho Frommoethelydo v. Fire Insurance Exchange et al., S.F. 24881, 228 Cal.Rptr. 160, 42 Cal.3d 208, 721 P.2d 41, Supreme Court of California, In Bank (July 24, 1986)
Rehearing Denied September 25, 1986 the Supreme Court enforced the statutory privilege for reporting suspected fraud and that while it affirmed the judgment to the extent of the value of the property stolen, $8,871, less the $100 deductible, the judgment should be reversed as to the additional damages.

FACTS

In August 1978, plaintiff’s home was burglarized, and he submitted a claim for $17,185. The insurer ultimately paid $10,784. In late June 1979, the house was burglarized again. Plaintiff claimed a loss of $8,871, including $3,000 for stereo and video equipment he claimed was bought from Matthew’s TV and Stereo. Plaintiff attached a pink copy of a bill of sale to his sworn proof of loss. The copy was one page of a five-page form. The date “1/03/79” appeared in handwriting in the upper left-hand corner, but the cash register printout date on the right-hand side had been erased and obliterated. The other four copies of the bill of sale had a cash register printout date of “7/19/79,” which was after the second burglary.

The Bureau determined to investigate and assigned one of its senior investigators who concluded that it appeared that insurance fraud had occurred in violation of Insurance Code section 556. Plaintiff was arrested at the fire station where he worked in March 1980 by the investigator.

Plaintiff’s attorney subsequently convinced the deputy district attorney that the latter could not prove beyond a reasonable doubt that the claim, as opposed to the receipt, was false. The deputy district attorney dismissed the criminal charges on September 8, 1980, the morning of trial. The insurer was not advised of the existence of the witnesses until after dismissal of the criminal charges.

The jury found for plaintiff on the causes of action for breach of the duty of good faith and fair dealing, breach of fiduciary duty, and violation of section 790.03.

DISCUSSION

A covenant of good faith and fair dealing is implied in every insurance contract. Insurance Code section 12992 provides that an insurer “which believes that a fraudulent claim is being made shall, within 60 days after determination by the insurer that the claim appears to be a fraudulent claim, send to the Bureau of Fraudulent Claims, on a form prescribed by the department, the information requested by the form….”

Section 12993 provides that an insurer shall not be subject to civil liability “for libel, slander or any other relevant tort cause of action by virtue of the filing of reports, without malice, or furnishing other information, without malice, required by this article or required by the commissioner under the authority granted in this article.”

The Supreme Court noted that when the insurer reported to the Bureau, the facts known to the insurer provided a reasonable inference of insurance fraud.

Compliance with a statutory duty to report and furnish does not provide a basis for tort liability so long as the information is accurate and complete. A true and complete report to the Bureau is not actionable.

The malice necessary to defeat a qualified privilege is “actual malice” which is established by a showing that the publication was motivated by hatred or ill will towards the plaintiff or by a showing that the defendant lacked reasonable grounds for belief in the truth of the publication and therefore acted in reckless disregard of the plaintiff’s rights.  (Roemer v. Retail Credit Co. (1975) 44 Cal.App.3d 926, 936 [119 Cal.Rptr. 82].

In almost every case if not every case where an insurer reports a claim believed to be fraudulent to the Bureau, the insurer stands to profit if the insured is successfully prosecuted. If ability to profit warranted a finding of malice, the insurer would be required to guarantee the accuracy of information obtained and to act at its peril whenever it reported information to the Bureau, and the statutory privilege would be meaningless.

The potential that the insurer may escape liability on the insured’s claim is not sufficient to show malice. Rather, the requirement of malice in the statute must be viewed as a legislative determination that the insurer’s pecuniary interest without more does not make the report actionable.

Once an insurer has evidence providing probable cause to believe an insurance fraud has occurred and determines to make a report to the Bureau, it may properly make its report, and the fact that the report is designed to secure prosecution does not show malice so long as the report does not contain known inaccuracies and is not incomplete.

Application of the duty to investigate to actions based on a report by an insurer to the Bureau would be in conflict with the privilege established by section 12993 for nonmalicious reports. The privilege applies unless the insurer acts out of hatred or ill will or in reckless disregard of the insured’s rights. The Supreme Court concluded that when an insured seeks damages on the basis of an insurer’s report to the Bureau, the privilege of section 12993 must take precedence over the ordinary duty to investigate. In the instant case, plaintiff has failed to present evidence that the insurer acted maliciously in making its report to the Bureau.

By awarding damages for economic loss, the jury obviously determined that plaintiff had suffered the loss. The judgment was affirmed insofar as it awards plaintiff $8,771. In all other respects it is reversed. Each side shall bear its costs on appeal.

ZALMA OPINION

The insurer, in good faith, complied with its statutory requirement to report to the state its suspicion that a fraud had been attempted. The Fraud Bureau (now the Fraud Division) found sufficient evidence to arrest the insured and at a Preliminary hearing a judge found there was sufficient probable cause to take him to trial. That the prosecutor got cold feet and dismissed the case on the day of trial is not evidence of any malice on the part of the insurer and the civil suit brought by the plaintiff failed because the insurer was protected by the privilege. Although this case is hoary with age it is the law of California while the statute numbers have changed.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Go to the Insurance Claims Library – https://lnkd.in/gwEYk

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Passover For Americans

“The Passover Seder For Americans”

For more than 3,000 years Jewish fathers have told the story of the Exodus of the enslaved Jews from Egypt. Telling the story has been required of all Jewish fathers. Americans, who have lived in North America for more than 300 years have become Americans and many have lost the ability to read, write and understand the Hebrew language in which the story of Passover was first told in the Torah.

Passover is one of the many holidays Jewish People celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the mountains, the rain, sun, the planets, the stars, and the people and wonder how did all these wonderful things come into being. Jews believe the force we call G_d created the entire universe and everything in it. Jews feel G_d is all seeing and knowing and although we can’t see Him, He is everywhere and in everyone.We understand that when G_d began to create the world there was nothing and that time, as we know it, had no meaning. G_d created all.

Because of the creation we are able to track time and celebrate Passover every year at the same time. We do so based on the lunar calendar used by our ancestors not the Julian calendar modern people use. As a result, Passover se We feel G_d gave people a conscience hoping it would help us decide right from wrong, to do our best to make good choices, to try to help others, not hurt others and to try to make right the wrongs we have done to others. The rituals that make up the Jewish holidays help remind us how thankful we are for how much we have accomplished with G_d ’s help and how grateful we are to G_d for everything we have and everything we are.

Thea and Barry Zalma have created this English only Seder that works for their family and will allow you and your families to tell the story of the Exodus painlessly and with the joy and celebration it deserves so that no member of our family forgets what G_d did for us when He took us out of slavery in Egypt and led us to a promised land.

If you are interested in why Jesus celebrated the Passover at the “Last Supper” with his disciples this will explain what he and the disciples were celebrating.

The books are available for only $5.95.

Available as a Kindle Book  Available as a Paperback

(c) 2023 Barry Zalma & Thea Zalma

Barry Zalma, Esq., CFE  is available at http://www.zalma.com and zalma@zalma.com

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Pollution Exclusion Deters Deliberate or Negligent Behavior that Leads to Environmental Harm

No Insurance Policy Covers Every Risk of Loss

Post 4760

See the full video at https://rumble.com/v4kn81r-pollution-exclusion-deters-deliberate-or-negligent-behavior-that-leads-to-e.html  and at https://youtu.be/IDetsMbjzWM

Pollution Exclusions Deter Polluters

In the world of business, corporations obtain commercial insurance to protect their assets, and commercial insurers customarily include exclusion provisions in their policies. Exclusion provisions dispel the notion that insurance coverage is without limits and place the insured on notice about actions or omissions that will trigger an insurer’s denial of coverage. Insurance policies that include pollution exclusion provisions accomplish even more.

In Gold Coast Commodities, Incorporated v. Travelers Casualty and Surety Company of America, No. 23-60087, United States Court of Appeals, Fifth Circuit (March 18, 2024) the Fifth Circuit established the reason for a pollution exclusion.

An insurance policy’s pollution exclusion deters deliberate or negligent behavior that leads to environmental harm. When a court affirms a pollution exclusion the insured is prevented from coverage, the Fifth Circuit protect the insurer’s right to disincentivize corporations from engaging in bad faith actions with a known environmental impact. This case arises from claims asserted against an insured and, due to a pollution exclusion, those claims fall outside the insurance policy’s reach.

BACKGROUND

Gold Coast Commodities, Inc. (“Gold Coast”) is a business corporation located in Rankin County, Mississippi. Gold Coast converts used cooking oil and vegetable by-products into animal feed ingredients. Gold Coast became insured under Travelers Casualty and Surety Company of America (“Travelers”), Policy.

In July 2018, the City of Brandon filed suit in the Circuit Court of Rankin County against Gold Coast and its principals alleging that Gold Coast dumped “significant amounts of high-temperature, corrosive, low-pH wastewater into the City’s sewer system.” These actions or omissions are alleged to have occurred during the Policy period. The City of Brandon seeks to recover for damages from negligence resulting from the “discharge” or “release” of “pollutants” as the term “pollutants” is defined in the Policy.

In June 2021, adding to Gold Coast’s problems the City of Jackson filed suit in the Circuit Court of Hinds County against Gold Coast and its principals alleging that Gold Coast dumped “high temperature and corrosive” industrial waste into the City’s sewer system.

Travelers denied coverage for defense or indemnity of the two suits and Travelers cited the Policy’s pollution exclusion as the basis for its denial of coverage.

Travelers filed a Motion for Partial Summary Judgment arguing that it had no duty to defend Gold Coast and its principals in the respective lawsuits and Gold Coast filed a Motion for Partial Judgment on the Pleadings arguing that: (1) Travelers has the duty to defend Gold Coast and its principals in the respective lawsuits; and (2) Travelers has a duty to reimburse Gold Coast and its principals for their defense costs.

The district court denied Gold Coast’s Motions for Partial Judgment on the Pleadings and granted Travelers’ Motion for Partial Summary.

DISCUSSION

An insurance company’s duty to defend its insured is triggered when it becomes aware that a complaint has been filed which contains reasonable, plausible allegations of conduct covered by the policy. No duty to defend arises when the claims fall outside the policy’s coverage. Exclusionary clauses are strictly interpreted and the language within them must be clear and unmistakable.

The district court concluded that all the claims in the complaints were clearly and unambiguously excluded from coverage based on the Policy’s pollution exclusion.

The Fifth Circuit concluded that the language unambiguously excluded Gold Coast’s actions.

A substance is an irritant or contaminant at its core when no matter where it is, how it is contained, or whether it is in contact with something it is an irritant or contaminant. A substance can become an irritant or contaminant when it comes into contact with something and is actively irritating or contaminating it.

“The allegations in both the City of Brandon’s and the City of Jackson’s complaints present facts that are paradigmatic for the application of the Policy pollution exclusion.”

The deliberate discharge of toxic industrial waste is precisely the type of activity to which Traveler’s Policy pollution exclusion was intended to apply. There is not a reasonable interpretation of the wastewater’s form or qualities that would conclude that it was not an irritant or contaminant. Therefore, the Fifth Circuit concluded that the Policy is not ambiguous. Because the Policy is not ambiguous, the claims are excluded from coverage.

Gold Coast, therefore, did not sufficiently plead facts that trigger Traveler’s duty to defend and the District Court’s decision was affirmed.

ZALMA OPINION

The Fifth Circuit established one of the important reasons for exclusions in insurance policies like that issued to Gold Coast by the Travelers. Exclusion provisions are present to reveal to insureds that insurance coverage is limited and place the insured on notice about actions or omissions that will trigger an insurer’s denial of coverage. Insurance policies that include pollution exclusion provisions accomplish even more because they deter wrongful conduct. Gold Coast learned that lesson the hard way: it must pay for defense of the lawsuits and pay from its assets the tort damages.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Statute Limited to Acts of Insured Cannot be Used Against Insurer

Court Must Read Statute as Written

Insured Seeks to Impose Damages on Insurer under the Fraud Act

Post 4759

See the full video at https://rumble.com/v4kf7h0-statute-limited-to-acts-of-insured-cannot-be-used-against-insurer.html  and at https://youtu.be/Skhchoc0hPI

Losses claimed under a policy of insurance issued to Plaintiff Volunteer Management & Development Company (“Volunteer”) by Defendant State Auto Property & Casualty Insurance Co. (“State Auto”) resulted in a suit where Volunteer claims breach of contract and insurance fraud against State Auto and filed a petition to compel appraisal and appoint umpire. State Auto moved to dismiss the claims under the Insurance Fraud Act, “agency,” and punitive damages.

In Volunteer Management & Development Company, Inc. v. State Auto Property & Casualty Insurance Co., No. 1:23-cv-00041, United States District Court, M.D. Tennessee, Columbia Division (March 7, 2024) resolved the claims.

BACKGROUND

To survive a motion to dismiss, a complaint must contain sufficient factual allegations, accepted as true, to state a claim for relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads facts that allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

When a court reviews a motion to dismiss, the court construes the complaint in the light most favorable to the plaintiff, accepts its allegations as true, and draws all reasonable inferences in favor of the plaintiff. Thus, dismissal is appropriate only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.

ANALYSIS

Plaintiff asserted a claim for insurance fraud under Tenn. Code Ann. § 56-53-103(a)(1). Defendant seeks dismissal of that claim because the cited statute applies only to actions of “an insured.” Defendant, as the insurer, contends it cannot violate that statutory provision.

PLAINTIFF MAY NOT MISLEAD COURT BY IGNORING LIMITATION IN STATUTE

In response, Plaintiff quoted the same statute, but omits the operative phrase, “by or on behalf of an insured,” effectively changing the scope of that statute so that its claim is cognizable.

The Court began, as it must, with the plain language of the statute. In this narrow respect, Plaintiff’s Response is correct. Clear and unambiguous statutes will be enforced according to their clear terms. As Plaintiff also acknowledges, but fails to actually do in its response, that every word of the statute will be given effect. The statute only applies to insureds and cannot apply to an insurer.

With regard to an award of punitive damages, Defendant is correct that punitive damages are generally not available in a breach of contract case.

Defendant’s Motion to Dismiss was granted as to the claim for insurance fraud under Tenn. Code Ann. § 56-53-103(a)(1).

ZALMA OPINION

A plaintiff should never lie to a court. When the insured acknowledged that the statute only applies to fraud by insureds on appeal it tried to sneak into a fraud case against State Auto by not fully quoting the statute. It didn’t work. The fraud statute is limited to fraud by insureds and there is no way it could be applied against an insurer. This was not even a good try, it was an attempt to defraud the court.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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$16 Million to $1

Failure to Provide a Proper Standard for Damages Reduced Judgement  

Post 4758

See the full video at  https://rumble.com/v4kdyjr-16-million-to-1.html and at https://youtu.be/5P4Y8xv2yBg

In Malcolm Wiener v. AXA Equitable Life Insurance Company, No. 3:18-cv-00106-RJC-DSC, United States District Court, W.D. North Carolina, Charlotte Division (March 8, 2024) Wiener obtained a $16 Million jury award that the Fourth Circuit required the USDC to address AXA’s argument for post-trial relief challenging the amount of damages AXA argued that the jury rested its $16 million award on an improper standard, and thus, that the award lacks a basis in substantial evidence.

BACKGROUND

In 1986 and 1987, Malcolm Wiener purchased three life insurance policies from AXA Equitable Life Insurance Company with a total face value of $16 million. In December 2013, each of the three policies lapsed for nonpayment of premiums. Wiener sought reinstatement, but AXA denied his application.

The current case relates only to AXA’s negligence in coding Wiener’s medical history. In January 2018, Wiener filed the present action alleging, among other things, that AXA was negligent in “failing to adequately read, understand and verify and accurately report Plaintiff’s medical history, conditions and events to third parties.” According to evidence introduced at trial, Wiener sought new insurance coverage from at least eight carriers but two denied him coverage altogether and those that offered insurance made only preliminary, revocable offers for $10 million policies at double the standard rate. Wiener’s history of atrial fibrillation and monoclonal gammopathy was the basis for the refusals.

The Fourth Circuit addressed the causation issue, holding that “[a]mple evidence supported the jury’s verdict for Wiener.” “But because AXA’s argument for post-trial relief challenging the amount of damages . . . was neither raised nor briefed before [the Fourth Circuit],” the panel remanded that narrow issue back to the USDC.

DISCUSSION

AXA contended the jury based its award on an improper standard (the $16 million death benefit from his lapsed policies); and second, that, even if the $16 million death benefit was an appropriate measure, Wiener failed to provide necessary evidence of future premiums to offset that $16 million award.

Under North Carolina law, the party seeking damages must show that the amount of damages is based upon a standard that will allow the finder of fact to calculate the amount of damages with reasonable certainty.

Here, the jury awarded Wiener actual damages of $16 million before deducting $8 million for his own failure to mitigate. The jury’s award, AXA argued, relied upon an improper standard because this action sought compensatory damages for AXA’s negligence in coding Wiener’s medical history, not reinstatement of Wiener’s previous policies.

The Court found that Wiener’s lapsed $16 million death benefit is an improper baseline of damages.  Because Wiener offered no baseline to support the jury’s $16 million award, the award lacks a sufficient evidentiary basis.

Throughout this case, Wiener has offered no expert testimony or other evidence of the damage caused by his effective uninsurability. And the record makes clear that, even absent the erroneous MIB codes, Wiener was effectively uninsurable or uninsurable at a reasonable cost. The Court found that “no substantial evidence” supports the jury’s $16 million actual damages award.

Even extending Wiener “the benefit of all reasonable inferences” and resolving all disputed facts in his favor, the Court found that no jury, viewing the evidence in the light most favorable to the winning party, could have properly reached the conclusion reached by this jury on compensatory damages. The Court found that the damages award was against the clear weight of the evidence and conditionally granted a new trial in the event that the Order is vacated or reversed.

AXA Equitable Life Insurance Company’s Renewed Motion for Judgment as a Matter of Law, was granted. The jury verdict was set aside, and Plaintiff Malcolm Wiener is instead entitled to an award of nominal damages in the amount of one dollar ($1).

ZALMA OPINION

Nothing is certain in the law. The $16 million verdict was overturned because, although the jury felt bad for Mr. Weiner, the reason his insurance policies lapsed was that he did not pay the premium and when he tried to reinstate them his health conditions had changed and he was uninsurable. The jury rewarded him with the cash value of the policies that would have been available if he had paid the premium which had no relationship to the actual alleged tortious conduct. The big verdict became nothing more than a piece of paper that counsel could frame and hang on a wall but will not result in cash to the plaintiff.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Patient Brokering and Referral Scheme Enjoined

GEICO Again Acts Proactively Against Insurance Fraud and Takes a Bite Out of Crime

Post 4757

See the full video at https://rumble.com/v4k0ba3-patient-brokering-and-referral-scheme-enjoined.html and at https://youtu.be/uCKtD5BlxQE

No-Fault auto insurance was touted as a panacea to increasing insurance rates because of auto accident litigation. It failed because it turned into a profit center for dishonest lawyers, heath care providers and patient brokers.

“GEICO,” the victim of many health care frauds sued multiple health care providers, patient brokers, and other fraudsters, alleging RICO violations; common law fraud; aiding and abetting fraud; unjust enrichment; violations of the New Jersey Insurance Fraud Prevention Act; and seeking a declaratory judgment based on an alleged scheme to collect reimbursement on thousands of fraudulent no-fault insurance claims. GEICO moved against the Defendants seeking an order, pending disposition of GEICO’s claims in this action, (1) staying all pending no-fault insurance collection arbitrations and state court collections lawsuits that have been commenced against GEICO by or on behalf of the Gerling Defendants; and (2) enjoining the Gerling Defendants, and anyone acting or purporting to act on their behalf, from commencing any further no-fault insurance collection arbitrations or collections litigation against GEICO.

In Government Employees Insurance Co., GEICO Indemnity Co., GEICO General Insurance Company, and GEICO Casualty Co. v. Michael Gerling, M.D.,  et al and Campiro, Inc., No. 23-CV-7693 (PKC) (MMH), United States District Court, E.D. New York (February 26, 2024) the USDC took a bite out of crime.

BACKGROUND

GEICO is an authorized automobile insurer in New York and New Jersey. GEICO alleges that the Gerling Defendants participated in an unlawful patient brokering and referral scheme wherein the Gerling Defendants provided fraudulent, medically unnecessary services to individuals who claimed that they were involved in automobile accidents and covered by no-fault insurance policies issued by GEICO (the “Insureds”). In turn, the Gerling Defendants submitted or caused to be submitted thousands of fraudulent no-fault insurance charges for reimbursement by GEICO.

According to GEICO, Gerling entered into a patient brokering and referral scheme with defendants. The Campiro Defendants and various personal injury attorneys “would cause patients to be referred to Gerling and NY Orthopedics for surgical procedures,” and the Campiro Defendants would pay Gerling “to perform invasive, expensive, and medically unnecessary surgeries.”

The Complaint provides multiple examples of fraudulent conduct by the Defendants. The examples included billing by the Gerling Defendants for procedures not warranted; billing where the Insureds were “recommended a substantially identical course of medically unnecessary ‘treatment’” for a single accident “despite the fact that they were differently situated; billing for “surgical procedures to Insureds who did not have any serious symptoms secondary to any automobile accident that legitimately would warrant the procedures”; and false multiple representations.

GEICO alleged that the Gerling Defendants’ bills and treatment reports were false and misleading.

GEICO seeks to recover more than $2,200,000 already paid to Defendants under the alleged fraudulent scheme.

DISCUSSION

The Court first considers GEICO’s request with respect to pending and future arbitrations.

Irreparable Harm Absent Injunctive Relief

GEICO has demonstrated that it would face irreparable harm if the Gerling Defendants are permitted to continue pursuing collection arbitrations during the pendency of this lawsuit because those arbitration actions “might eventually be, at best, inconsistent with th[e] Court’s ruling, and at worst, essentially ineffective.

The Court found “that litigating the relatively small number of disputed arbitrations would irreparably harm [GEICO] absent a stay,” through the “risk of inconsistent judgments . . . in addition to money damages [potentially] not being available.” The Court found that GEICO has shown irreparable harm.

Serious Questions Going to the Merits

GEICO has raised serious questions going to the merits. The Court rejected the Gerling Defendants’ patently frivolous objection that GEICO has not provided substantive proof for the Court to consider other than its unverified Complaint. GEICO has provided evidentiary support for its allegations, not just with exhibits attached to the Complaint, but with exhibits attached in support of this motion. By specifically alleging an illicit patient brokering and referral scheme, describing in detail the unnecessary and substantially identical treatments provided to dozens of Insureds, and identifying specific types of billing misrepresentations-with documented examples-GEICO has raised “serious questions going to the merits.”

Balance of the Hardships

Finally, GEICO has demonstrated that the balance of the hardships tips decidedly in its favor. The Court concluded that GEICO has demonstrated that a preliminary injunction staying all pending collection arbitrations and enjoining future collection arbitrations is justified.

Pending and Future Collection Lawsuits

The Court agreed with GEICO that the “fragmentation” of this dispute into approximately 50 or more lawsuits “would nullify GEICO’s efforts to prove fraud at a systemic level, impair a federal declaratory judgment action over which the Court has taken jurisdiction precisely to eliminate such fragmentation, and deprive GEICO of an avenue toward complete relief in any court.

CONCLUSION

Under the circumstances, the Court concluded that it has the statutory authority to stay pending lawsuits and enjoin future lawsuits by the Gerling Defendants against GEICO during the pendency of this litigation, and that it should do so here.

The Court granted GEICO’s request in full and issued an Order (1) staying all pending nofault insurance collection arbitrations and state court collection lawsuits that have been commenced against GEICO by or on behalf of the Gerling Defendants; and (2) enjoining the Gerling Defendants, and anyone acting or purporting to act on their behalf, from commencing any further no-fault insurance collection arbitrations or new no-fault collection lawsuits against GEICO.

The security requirement under Federal Rule of Civil Procedure 65(c) is waived.

ZALMA OPINION

The acts of health care providers who join with criminal entities to create thousands of fraudulent claims under the New York and New Jersey no-fault laws whose purpose to avoid litigation with regard to auto accidents and help reduce auto insurance premiums are being thwarted by fraud perpetrators. The fraudsters litigate with insurers who have no defense to the cause of the injuries. Since the state of New York are unwilling or simply refuse to prosecute the fraudsters GEICO has become proactive and are working to take the profit out of the crime. If the state won’t help and prosecute the fraudsters all insurers must emulate GEICO if they too are victims of fraud.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Overwhelming Evidence Establishes Guilt

Witness Statement Rejected and Instruction by Court to Ignore not Prejudicial

See the full video at https://rumble.com/v4jfqci-overwhelming-evidence-establishes-guilt.html and at https://youtu.be/on7VNaU9OeA

Post 4756

A jury convicted Adan Contreras Rivas of several felonies, including theft by false pretenses. On appeal, Rivas argued he was denied his right to a fair trial under the federal Constitution because a prosecution witness briefly mentioned that Rivas had been previously arrested. In  The People v. Adan Contreras Rivas, A167503, California Court of Appeals, First District, First Division (March 7, 2024) the Court of Appeals dealt with the Constitutional issue raised by an fraud perpetrated.

BACKGROUND

Between 2020 and 2022, Rivas agreed to perform landscaping projects for various homeowners but failed to complete the work. The prosecution charged him with five counts of theft by false pretenses; four counts of contracting without a license; and failure to obtain workers’ compensation insurance coverage. The prosecution also alleged several enhancements, including a prior theft-related term of imprisonment and prior convictions for contracting without a license.

After being hired and completing the projects, Rivas would then offer to perform larger projects, including landscaping their yards, building a fence, and constructing patio structures. After the homeowners agreed, Rivas asked for advance payments, which the homeowners paid. For a few days afterwards, Rivas would send workers to perform discrete portions of the projects, such as demolition or digging, before completely abandoning the project. Rivas then ignored later attempts by the homeowners to contact him and failed to provide them with requested refunds.

A special investigator determined that from January 1, 2019 to July 13, 2022, Rivas did not possess a contractor’s license, and from November 29, 2020 through July 2022, he did not carry workers’ compensation insurance.

The jury convicted Rivas of all charges. The trial court then found the enhancements true and sentenced him to state prison.

Relevant Trial Testimony

Before the trial, defense counsel moved to exclude Rivas’s prior convictions and to bifurcate the prior convictions and special allegations. The trial court granted the motion.

At trial, however, one of the homeowners testified that he stopped asking Rivas for a refund when he and his wife “came to know [Rivas’s] real name” and learned that he had been “previously arrested.” At this point, both counsel interrupted and defense counsel objected. The trial court asked if defense counsel would like an order to strike, and when defense counsel indicated he would, the court struck the last portion of the witness’s answer and instructed the jury not to consider it.

The trial court, denying a motion for non-suit noted it had previously instructed the jury that the fact Rivas had been arrested, charged with a crime, or brought to trial was not evidence of guilt, an instruction it would repeat in the final jury instructions. Thus, the trial court concluded no material prejudice had occurred.

DISCUSSION

Rivas’s sole claim on appeal is that the prosecution witness’s fleeting reference to Rivas’s previous arrest was “extremely prejudicial” and denied him his right to a fair trial under the federal Constitution. The Court of Appeals noted that the Fourteenth Amendment to the federal Constitution prohibits states from denying any person due process of law. Where an appellant asserts evidence was erroneously admitted, this standard can only be met where there are no permissible inferences the jury may draw from the evidence and the evidence is of such quality as necessarily prevents a fair trial.

The Court of Appeals concluded that no error occurred that rendered Rivas’s trial fundamentally unfair. Notably, the testimony that Rivas had been “previously arrested” was never admitted into evidence. In fact the moment the witness mentioned an arrest, the prosecutor immediately interjected, defense counsel objected, and the comment was stricken from the record. Under these circumstances, as observed by the trial court, it is unclear if the jury even heard the word “arrest.” But even if the jury had heard the word “arrest” and it had not been stricken, permissible inferences could have been drawn, and the evidence was not of such quality as necessarily prevents a fair trial.

After striking the statement, the trial court immediately admonished-and later re-instructed-the jury to not consider it. It is well established-and Rivas does not dispute-that a jury is presumed to have followed an admonition to disregard improper evidence particularly where there is an absence of bad faith.

The Court of Appeals concluded that the evidence of Rivas’s guilt was overwhelming. The fleeting reference to a previous arrest was nonprejudicial and did not result in a due process violation.

Rivas was not deprived of his constitutional right to a fair trial.

Because the evidence of Rivas’s guilt was overwhelming it is not reasonably probable that he would have obtained a better verdict in the absence of the witness’s brief and vague mention of a previous arrest. The judgment was affirmed.

ZALMA OPINION

This is another case where I am amazed that a defendant faced with claims of different types of fraud, including insurance fraud, have the wherewithal and funds to file a spurious appeal over such a minimal fact situation in a hope that the court would ignore the evidence that established the guilt of the defendant. The Court of Appeal took Rivas’s claims seriously and disposed of them when it should have just dismissed the appeal without comment.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Zalma’s Insurance Fraud Letter – March 15, 2024

ZIFL Volume 28, Issue 6

Subscribe to ZIFL Here

Post 4755

See the full video at https://rumble.com/v4j8duw-zalmas-insurance-fraud-letter-march-15-2024.html  and at https://youtu.be/ifARHJqjeVs

The Source for the Insurance Fraud Professional

Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.  It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

The current issue can be read in full at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf and includes the following articles:

Arsonist Begs Ohio Court to Release Him From Prison

Compassionate Release Not Available to Convict Only Because he is Fat & Diabetic

ARSON-FOR-PROFIT IS A VIOLENT CRIME OF THE FIRST ORDER

Of the hundreds of different kinds of insurance fraud, the most violent and dangerous is an arson for profit. People, including firefighters, die or are seriously injured in the fires. Daryl Evans was caught, tried and convicted of the crimes and is now serving a 183-month sentence for insurance fraud relating to his arson of several Warren, Ohio properties.

Read the full article at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf

More McClenny Moseley & Associates Issues

This is ZIFL’s twenty fifth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

February 16, 2024

On February 16, 2024, MMA filed a Motion to Set Aside Default Judgment and For New Trial on the default judgment rendered against them on December 19, 2023, in the lawsuit filed by PCG Consulting. MMA was, at the time, represented by the reputable firm Phelps Dunbar LLP, who also represents the insurance industry on many matters.

Read the full article at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf

Now Available The Compact Book of Adjusting Property Claims – Fourth Edition

On January 2, 2024, in Kindle, paperback and hardback formats, The Compact Book of Adjusting Property Claims, Fourth Edition is now available for purchase here and here. The Fourth Edition contains updates and clarifications from the first three editions plus additional material for the working adjuster and the insurance coverage lawyer.

CHUTZPAH – CHARGE OF TWO SEPARATE CRIMES DO NOT VIOLATE CONSTITUTION

DIFFERENT CRIMES, DIFFERENT VICTIMS, DIFFERENT WITNESS, NO DOUBLE JEOPARDY

Gregory Sewell appealed the order that denied his motion to dismiss based upon double jeopardy. In Commonwealth Of Pennsylvania v. Gregory Sewell, No. 1497 MDA 2022, No. J-S27016-23, Superior Court of Pennsylvania (February 27, 2024) the Pennsylvania court resolved the dispute.

Read the full article at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf

From the Coalition Against Insurance Fraud

North Haven dentist sentenced in Medicaid fraud case. Christian O’Connor, a dentist and owner of Renew Dental in North Haven, was sentenced in Hartford Superior Court to five years in prison. O’Connor routinely billed for restorations on multiple teeth, on the same date of service, for numerous patients. A review of the dental records could not substantiate the work that was performed. Numerous patients interviewed denied the major dental work was done even though O’Connor billed for performing this work sometimes two and even three times on the same patient on the same teeth over a period of time, occasionally billing for work on teeth that already had been extracted. The investigation focused only on the claims for restorations on 12 teeth on the same day for the same patient. O’Connor paid over $200K in restitution and was ordered not to act as a provider in the Medicaid program.

Read the full article at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf

Health Insurance Fraud Convictions

Former Nurse Pleads Guilty to Adulteration of Fentanyl

Caroline Sheehan, 39, of Lowell, Mass. a former nurse pleaded guilty in federal court in Boston to adulteration of fentanyl at a local hospital. Sheehan pleaded guilty to one count of adulteration of a prescription drug with intent to defraud and mislead. U.S. District Court Judge Angel Kelley scheduled sentencing for June 12, 2024. Sheehan was charged by Information in November 2023.

Read the full article with dozens of convictions at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf

Insurance Fraud Costs Everyone

The Following is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

Insurance Money tempts Honest Men to Commit Fraud

Fire reconstruction is a competitive trade. Work, rebuilding burned out businesses, commercial structures and homes requires specialized skill. Obtaining payment from insurers for this specialized work requires a gregarious personality, a talent at marketing, and the skill to do the work to perfection.

Read the full article with dozens of convictions at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf

New Book Now Available from Barry Zalma

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims. The book also examines recent developments in areas such as arson investigation procedures, bad faith, extracontractual damages, The fake burglary, and Lawyers Deceiving Insurers, Courts & Their Clients During, Catastrophes—A New Type Of Fraud and the appendices includes the NAIC Insurance Information and Privacy Protection Model Act and usable forms for everyone involved in claims and will provide necessary information to the claims adjuster, SIU fraud investigator, claims manager, or coverage lawyer so he or she can be capable of excellence.

The newest book joins other insurance, insurance claims, insurance fraud, and insurance law books by Barry Zalma all available at the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

Other Insurance Fraud Convictions

How 9 Men Stole 45 Cars Over 6 Months During COVID, Then Got Caught

New York Attorney General Letitia James has announced the guilty pleas and sentencing of nine members of a Bronx car theft ring for their roles in the theft of 45 vehicles during a six-month period from April to October 2020.

Carried out during the beginning of the COVID-19 pandemic, the operation targeted cars in New York City and Westchester County that were parked on the street for days at a time.

Read the full article with many more convictions at http://zalma.com/blog/wp-content/uploads/2024/03/ZIFL-03-15-2024.pdf

The Crime of Fraud

Most states and the federal government have created statutes making fraud like those described above a crime. For example, California Welfare and Institutions Code Section 12305.8 defines fraud as follows:

(a) ‘Fraud’ means the intentional deception or misrepresentation made by a person with the knowledge that the deception could result in some unauthorized benefit to himself or herself or some other person. Fraud also includes any act that constitutes fraud under applicable federal or state law. [CA Welf. and Inst. Sec. 12305.8 Fraud defined; overpayment defined (California Code (2022 Edition)]

Adapted from my Book, “Insurance Fraud – Second Edition” Available as a Kindle book; Available as a Hardcover;  Available as a Paperback 

Barry Zalma, Inc., 4441 Sepulveda Boulevard, CULVER CITY CA 90230-4847, 310-390-4455; Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe. Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome. Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; I publish daily articles at https://zalma.substack.com, Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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The Contractor

Insurance Fraud Costs Everyone

The Following is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

Post 4754

See the full video at  https://rumble.com/v4j0ccl-the-contractor.html and at https://youtu.be/3b-cks5aaSE

Insurance Money Tempts Honest Men to Commit Fraud

Fire reconstruction is a competitive trade. Work, rebuilding burned out businesses, commercial structures and homes requires specialized skill. Obtaining payment from insurers for this specialized work requires a gregarious personality, a talent at marketing, and the skill to do the work to perfection.

Willis Rafter was not gregarious, had no talent at marketing and was a sloppy and unskilled builder. For Willis to be successful as a fire reconstruction contractor required imagination and a lack of morals. Willis found he obtained few construction jobs because of his lack of skill. He never received repeat business. He anticipated bankruptcy.

Rafter Construction was dying. Willis had only one regular insurance company contact. He would only win one of 20 bids. He met with his contact — Louise Adjusted — at lunch and begged for help.

“Louise, how can I save my business?” Rafter asked. “You know I do competent work. If I can’t get jobs, I must go out of business.”

“It’s simple” she said “every time you bid you must let the adjuster know that cash is coming to him.”

“I don’t understand.”

“Simple, the going rate in this town is 5% for the adjuster and 5% to the supervisor, cash.”

“What do you mean, 5% of what?”

“The contract prices. If the adjuster and his supervisor know, they will get 5% in cash of your contract price you will get every job.”

“But that is illegal, isn’t it?”

“Sure, but nobody cares. No one has ever been arrested. The company knows they don’t pay us much so they expect us to take money from the contractors as a bonus.”

“If I tell you that I will give you 10% of the next job I bid on will I get it?”

“Of course, silly, I though you would never catch on.” Louise responded, giggling.

So started the criminal career of Willis Rafter. His small construction company grew with alacrity. By the simple expedient of delivering envelopes containing cash to underpaid claims adjusters and claims supervisors Rafter Construction became a success. Willis considered the payments to be a cost of doing business. He, still considering himself to be an honest man, even reported the payments to his accountant as referral fees. Each April 15 he would file his tax returns and show, as business expenses, the payments he made to adjusters and supervisors.

He found, although slightly more expensive, additional sources of referral in the community of Public Insurance Adjusters. When he obtained referrals from them, he found it necessary to increase his unit costs to cover the extra fee. Rafter Construction became a power in the fire reconstruction business in his community. He had ten estimators working for him and always operated with four to ten construction projects going twelve months a year. He cursed his own stupidity for not learning the simple fee-based method of obtaining business.

Louise, as his best friend in the business — the person who taught him how to be a success — always received an annual $5,000 bonus.

Willis was shocked when, after a routine IRS audit — six years into his business career as a successful fire reconstruction contractor — he was arrested for tax evasion. The IRS concluded that since the payments to the adjusters and supervisors were illegal in California [a violation of California Penal Code § 550] he could not deduct them as business expenses. He was shocked. He did nothing wrong. Willis insisted on a trial and told the jury that his payments to the adjusters were a simple, straightforward business expense no more evil than paying for lumber.

Willis was wrong. The jury found he had violated criminal provisions of the Internal Revenue Code and the California Penal Code. He was sentenced to six years in the Federal Penitentiary.

To this day he believes his arrest and conviction were a miscarriage of justice. That there was no crime in what he did.

To this day, the adjusters, supervisors and public adjusters who took the money — but never reported their illegal earnings on their tax returns — continue to collect money from contractors as a prerequisite to awarding a fire reconstruction job.

Crime like this will continue unabated as long as each insurer underpays and under trains its claims staff and tempts them to bribery. Crime like this will also continue until insurers investigate and fire the adjusters who take the bribes.

Adapted from my book “Insurance Fraud Costs Everyone” available as a Kindle book or paperback from Amazon.com.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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No Alarm No Coverage

Protective Safeguards Endorsement is a Condition Precedent

Post 4754

See the full video at https://rumble.com/v4isqgu-no-alarm-no-coverage.html and at https://youtu.be/IpOUzfD1KWM

Kinsale Insurance Company (“Kinsale”) sought declaratory relief against Sea Brook Harbor and Marine, et al (collectively “Seabrook”) arguing that Seabrook failed to comply with a condition precedent in the insurance policy it issued to Seabrook and that consequently there was no coverage for a fire occurring at Seabrook’s facility.

In Kinsale Insurance Company v. Sea Brook Marine, L.L.C.; et al.  v. Central Monitoring, Incorporated et ap, No. 23-30436, United States Court of Appeals, Fifth Circuit (March 7, 2024) the Fifth Circuit explained the importance of a condition requiring protective safeguards.

BACKGROUND  – THE POLICY

The insurance policy contained a “Protective Safeguards Endorsement,” requiring that Seabrook maintain an “Automatic Fire Alarm, protecting the entire building, that is: a. Connected to a central station; or b. Reporting to a public or private fire alarm station.” The summary judgment evidence established that, although Seabrook had a security and theft monitoring system, it did not have a fire monitoring system. Kinsale moved for summary judgment in its favor.

Seabrook contended that it “had a good faith belief that the property was covered by a centrally monitored fire alarm system, which included hardwired smoke detectors.”

Seabrook further argued that Kinsale either waived its right to exercise the protective safeguards endorsement or should be estopped from using it to deny coverage because the absence of a centrally monitored fire alarm system did not increase the “moral or physical hazard” under the policy. Specifically, Seabrook argued that “a centrally monitored [fire] alarm would not have alerted the New Orleans Fire Department any sooner in battling this conflagration” because the fire’s origin was outside of the Seabrook office building and the wind driven fire would have started on the office building’s exterior in the same area as the alarm monitoring equipment.

The district court determined that Seabrook’s maintenance of a centrally monitored, automatic fire alarm was a condition precedent to insurance coverage under the policy. It was undisputed that Seabrook did not satisfy that condition. It granted summary judgment in favor of Kinsale that the insurance policy it issued to Seabrook provided no coverage for the fire occurring at Seabrook’s facility.

DISCUSSION

Under Louisiana law an insurance policy is a contract and is construed using the general principles for contract interpretation. The parties’ intent, as reflected by the words of the policy, determines the extent of coverage. If the words of the policy are clear and unambiguous, it must be enforced as written.

The Fifth Circuit noted that Seabrook appears to be asserting that Kinsale has no right to deny coverage for the fire unless it proves that Seabrook misrepresented information to Kinsale with the intent to deceive.

The Fifth Circuit disagreed.

  1. The policy provisions at issue in this case are not ambiguous. The Protective Safeguards Endorsement clearly provides a condition of the policy.  When the words of an insurance policy are clear and unambiguous, the words must be enforced as written. The Safeguards provisions made clear that when the insured has not maintained an automatic fire alarm connected to a central station or reporting to a public or private fire alarm station, the policy provides no coverage for the fire. Seabrook did not maintain such an alarm, whether viewed as a condition of the policy or as an exclusion, at the time of the fire, coverage for the fire was precluded.
  2. Kinsale is not required to prove that Seabrook misrepresented information with an intent to deceive in order to deny coverage in this case.

Kinsale did not contend that Seabrook misrepresented information in its insurance application or in negotiating with Kinsale, and it does not seek to void or rescind its policy based on any such misrepresentation. Instead, Kinsale argues that it is entitled to deny Seabrook’s fire insurance claim because a condition precedent was not met and/or an exclusion applies.

It is undisputed that Seabrook did not have a centrally monitored fire alarm at the time of the fire. As the district court found, the absence of such an alarm undoubtedly increased the physical hazard under the policy.

The Fifth Circuit concluded that there can be no doubt that the lack of such an alarm increased the physical hazard of a fire spreading and causing further damage, as the lack of an alarm would result in either no notice or delayed notice to fire responders.

ZALMA OPINION

Protective Safeguards endorsements are not suggestions they are conditions precedent. As a result, failure to provide the protective safeguard required by the policy deprives the insured of coverage for a loss under the policy even if the alarm system would have been irrelevant to the effect of the condition. Every person acquiring insurance with such a protective safeguard endorsement must comply fully with the endorsement or agree it has paid for an insurance policy that provides no coverage for a loss.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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CHUTZPAH – CHARGE OF TWO SEPARATE CRIMES DO NOT VIOLATE CONSTITUTION

Different Crimes, Different Victims, Different Witness, No Double Jeopardy

Post 4753

See the full video at https://rumble.com/v4ilkcx-chutzpah-charge-of-two-separate-crimes-do-not-violate-constitution.html  and at https://youtu.be/sRfAgM4Tk-A

Gregory Sewell appealed the order that denied his motion to dismiss based upon double jeopardy. In Commonwealth Of Pennsylvania v. Gregory Sewell, No. 1497 MDA 2022, No. J-S27016-23, Superior Court of Pennsylvania (February 27, 2024) the Pennsylvania court resolved the dispute.

FACTS

On April 2, 2021, a vehicle operated by Sandra Ramirez was struck by a driver who left the scene without exchanging information or rendering aid. In investigating Ms. Ramirez’s emergency call, Hanover Police Officer Zachariah Lloyd identified Sewell, who had a suspended license, as the driver of the other vehicle and obtained his insurance policy information. Officer Lloyd discovered that on June 15, 2021, Sewell informed his insurance adjuster in a recorded call that Sewell had been the victim of the hit-and-run by a speeding police vehicle and that he had waited at the scene for more than half an hour after calling the police, who never arrived.

The Commonwealth charged Sewell with insurance fraud and with accidents involving death or personal injury, duty to give information and render aid, duties at stop sign, drivers required to be licensed, and unlawful activities. The latter case terminated when Sewell pled guilty on August 25, 2022, to driving while his operating privilege was suspended.

Sewell thereafter filed a motion to dismiss the current case on double jeopardy grounds, asserting that the insurance fraud prosecution arose from the same criminal episode as the one that culminated in his guilty plea such that it was subject to the compulsory joinder statute.

ANALYSIS

Sewell’s counsel filed a petition to withdraw. The court denied counsel’s petition and ordered the parties to file new briefs since there was a possibility that the double jeopardy argument might be successful.

The question of whether a defendant’s constitutional right against double jeopardy would be infringed by a successive prosecution is a question of law.

A criminal episode is an occurrence or connected series of occurrences and developments which may be viewed as distinctive and apart although part of a larger or more comprehensive series.

A mere de minimis duplication of factual and legal issues is insufficient to establish a logical relationship between offenses. Rather what is required is a substantial duplication of issues of law and fact. Two separate offenses may constitute the same criminal episode if one offense is a necessary step toward the accomplishment of a given criminal objective or if additional offenses occur because of an attempt to secure the benefit of a previous offense or conceal its commission.

As the District Attorney’s Office was investigating the first case, that investigation led to the charges in the second case. The District Attorney’s Office investigated the accident further and discovered that Sewell allegedly lied on a recorded phone call to his insurance adjuster. Although the second event of the alleged fraud stems from the initial hit-and-run incident, the court concluded that it simply creates a “de minimis” connection.

Sewell pled guilty to a summary charge of driving while operating privilege is suspended while the current case is graded as a felony to prove its case for false/fraudulent insurance claim. To prove insurance fraud the Commonwealth needs to show that Sewell knowingly and with the intent to defraud any insurer filed a claim that contains any false, incomplete or misleading information concerning any fact or thing material to the claim. There is no overlap in the elements of the law because the first case Sewell pled guilty to driving a motor vehicle while his license was suspended, revoked, or cancelled and before those driving rights were restored.

Analyzing the totality of the circumstances in this case, this court found that there were two separate criminal episodes. The crimes themselves, namely driving under suspension and insurance fraud, have no common elements or logical connection.

The cases have different victims, different affiants, and occurred in different places on different days. The trial court properly held that the relationship between Sewell’s hitting another vehicle and driving away while his driver’s license was suspended on the one hand, and his decision to call his insurance company months later and claim that someone else damaged his vehicle on the other, was not so substantial that they amounted to a single criminal episode. The order was affirmed.

ZALMA OPINION

There is little similarity between a hit-and-run accident and a false insurance claim months later for the damage caused by the hit-and-run. Driving without a license is a crime in Pennsylvania, especially when causing damage and injury to others. Insurance fraud is a lie told to an insurance company with the intent of causing the insurer to pay a claim it does not owe. They are separate crimes with separate evidence. The fact that the damage for Sewell’s false insurance claim came from the hit and run does not change the fact of a different crime.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Arsonist Begs Ohio Court to Release Him From Prison

Compassionate Release Not Available to Convict Only Because he is Fat & Diabetic

ARSON-FOR-PROFIT IS A VIOLENT CRIME OF THE FIRST ORDER

Post 4752

See the full video at https://rumble.com/v4hzs98-arsonist-begs-ohio-court-to-release-him-from-prison.html  and at https://youtu.be/WMo9qRM-vuQ

Of the hundreds of different kinds of insurance fraud the most violent and dangerous is an arson for profit. People, including firefighters, die or are seriously injured in the fires. Daryl Evans was caught, tried and convicted of the crimes and is now serving an 183-month sentence for insurance fraud relating to his arson of several Warren, Ohio properties.

Evans moved the USDC in the Northern District of Ohio, pro se, for compassionate release under 18 U.S.C. § 3582(c)(1)(A).  In United States Of America v. Daryl Evans, No. 4:18-cr-00717-1, United States District Court, N.D. Ohio (March 6, 2024) the judge determined Evans was not a candidate for compassion.

Evans argued that his medical conditions, including his untreated diabetes, hypertension, heart failure, sleep apnea, obesity, and age, in combination with his rehabilitation efforts, were extraordinary and compelling reasons justifying early release.

ANALYSIS

Generally speaking, once a court has imposed a sentence it does not have the authority to change or modify that sentence unless such authority is expressly granted by statute. However, under 18 U.S.C. § 3582(c)(1)(A), a district court may reduce a defendant’s sentence upon a motion from the defendant if the defendant filed the motion thirty or more days after the defendant sent a compassionate release request to their warden.

If a defendant’s compassionate release motion meets this exhaustion requirement, the court then considers three factors in deciding whether to grant the compassionate release motion.

  1. The court must decide whether extraordinary and compelling reasons warrant a sentence reduction.
  2. Second, the court must ensure that such a reduction is consistent with applicable policy statements issued by the Sentencing Commission.
  3. Finally, the court must consider all relevant 18 U.S.C. § 3553(a) factors.

Evans exhausted his administrative remedies but did not show the extraordinary and compelling circumstances needed for relief. Evans cites his hypertension, heart failure, sleep apnea, obesity, and age as extraordinary and compelling. However, the Court noted these medical conditions of Evans existed at his sentencing. Facts that exist at the time of sentencing are not extraordinary and compelling reasons for compassionate release.

Evans’ Type 2 diabetes, which the Bureau of Prisons (BOP) diagnosed in October 2022, and which the BOP is capable of treating Evans’ diabetes, or other medical conditions. Evans’ medical records showed the court that when he was diagnosed, the doctor recommended a life-style modification and to recheck Evans’ HA1c at a later date. Evans was given educational materials and assented to his understanding and his condition improved.

Because Evans offered no extraordinary and compelling reasons for compassionate release the Court briefly discussed why, even if Evans had shown extraordinary and compelling circumstances, § 355(a) factors stop early release. While Evan’s extensive rehabilitation efforts while incarcerated are commendable, these efforts are insufficient to overcome the severity of his crimes. In fact, Evans ordered three arsons of two properties, which put Warren community members at risk of death or serious injury. In exchange, he received $146,000 in insurance payments (an amount he currently owes in restitution).  His petition was refused.

ZALMA OPINION

I have personally investigated several arson fires and advised insurers with regard to many more. Arson-for-Profit is the most vicious and reprehensible variety of insurance fraud. People die in those fires – sometimes the arsonist – including neighbors, tenants, police and firefighters. His sentence was appropriate and its a shame that the USA must pay to feed, house and medically treat Mr. Evans. The punishment is appropriate and he is one of the least likely prisoner in the federal system entitled to compassion.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Insurance Fraud & Politics

US Senator Charged with Insurance Fraud & Other Crimes Fights Search Warrants

Post 4751

See the full video at https://rumble.com/v4hswpc-insurance-fraud-and-politics.html  and at https://youtu.be/Ku37dN0hMgY

In United States Of America v. Robert Menendez, Nadine Menendez, Wael Hana, Jose Uribe, and Fred Daibes, No. S2 23-CR-490 (SHS), the United States District Court, S.D. New York (March 4, 2024) dealt with attempts to defeat the search warrants that found evidence that Senator Menendez, (D. New Jersey) was involved in selling favors for the benefit of a foreign country.

Defendant Robert Menendez (“Menendez”) moved for (1) a Franks hearing to assess allegedly material misstatements and omissions in certain of the government’s search warrant applications and (2) an order suppressing evidence from additional warrants seeking electronically stored information on the grounds that they are “general unconstitutional warrants.”

BACKGROUND

The years-long investigation that led to the indictment in this action involved the issuance of numerous search warrants for both physical locations and electronic devices or accounts. Menendez challenges a subset of the warrants.

Menendez challenges the three warrants on the grounds that the warrants were “riddled with material misrepresentation and omissions that deceived the authorizing magistrate judge.”

CONSTITUTIONAL LAW

The Fourth Amendment to the U.S. Constitution provides that “no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” U.S. Const. amend. IV. Thus, a warrant may not be issued unless probable cause is properly established and the scope of the authorized search is set out with particularity.

With respect to intentionality, the reviewing court must be presented with credible and probative evidence that a misstatement or omission in a warrant application was designed to mislead or was made in reckless disregard of whether it would mislead.

The evidence supported probable cause as to Menendez’s involvement. Within two hours of the call from Menendez’s office to the official, Hana texted Nadine asking for her address. Only a few days later, Nadine also texted Hana, “I’m so excited to get a car next week. !!” In addition, the affidavit cites a message from Nadine to Hana indicating that Nadine had forwarded the materials related to Egypt to Menendez. In summary, the warrant application amply satisfied probable cause and adding any omitted information contained in the CS transcript would not alter that determination.

TH JUNE MENENDEZ HOME WARRANT

Contrary to Menendez’s assertion, the Second Affidavit includes additional evidence supporting probable cause, including messages from Uribe asking Hana for help disrupting a New Jersey investigation. Therefore, as with the January 2022 Menendez ESI Warrant, the Court denied Menendez’s request.

The court concluded that the omissions are not material: the inclusion of this additional information would not change the probable cause determination. The New Jersey Defendant, the jeweler, and the testing company owner are all alleged beneficiaries of the bribery scheme. The fact that beneficiaries of an alleged scheme denied their involvement or knowledge after the fact when questioned by a government agent is not sufficient to overcome the significant contemporaneous evidence supporting probable cause that is otherwise present in the Third affidavit.

Menendez has not provided any evidence-and there is no basis to infer-that the omissions were intentionally or recklessly misleading. Indeed, the government only learned the relevant information on the same day that the warrant was sought, which casts significant doubt on the claim that its omission was designed to mislead.

Accordingly, each of the omissions does not meet the materiality threshold. Moreover, the combined, cumulative effect of the omissions raised by Hana – including those that were also raised by Menendez – does not rise to the level of the substantial preliminary showing required for a Franks hearing.

THE WARRANTS ARE NOT UNCONSTITUTIONALLY OVERBROAD

The court found that the Menendez Warrants satisfied the requirements of particularity. Menendez also took issue with the breadth of iCloud account collections, but it is well settled that the government may seize the entire contents of electronic accounts in order to search for relevant evidence.

In sum, the Menendez Warrants are not violative of the requirements of the Fourth Amendment.

CONCLUSION

Menendez’s Motion to Suppress Search Warrant Returns was denied. Additionally, the challenged Menendez Warrants do not violate the Fourth Amendment’s particularity requirement.

ZALMA OPINION

When a United States Senator engages in acts to protect a person committing insurance fraud and providing assistance to the Country of Egypt was subject to search warrants that allowed the search of his home and seizure of evidence of his fraud and inappropriate conduct to favor, for a fee, the concerns of a foreign country. He attempted to have the search warrants eliminated and the seizure of evidence during the searches conducted and that attempt clearly failed. This case establishes, among other things, that insurance fraud is committed by every race, religion, gender, national origin, wealth, or service in public office is rampant and in this one, rare case, has resulted in an arrest.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Insurance Only Pays for Fortuitous Losses

Misplaced Trust Excluded

Post 4750

See the full video at https://rumble.com/v4hlxei-insurance-only-pays-for-fortuitous-losses.html and at https://youtu.be/x9u3fSk7wao

W.W. Contracting, Inc. and its owner, Doug Williams (collectively, W.W.), entrusted tools to a W.W. employee but demanded their return at the end of his employment. When the now-former employee allegedly failed to return all the tools, W.W. reported them as stolen and sought insurance coverage for the alleged theft. W.W.’s insurance company denied the claim primarily because W.W.’s insurance policy excluded coverage for property loss “caused by or resulting from dishonest acts by anyone entrusted with the property.”

In  Doug Williams and W.W. Contracting, Inc. v. Pekin Insurance, Inc., No. 23A-PL-995, Court of Appeals of Indiana (March 4, 2024) the Court of Appeals resolved the dispute.

THE LITIGATION

W.W. sued its insurance company for breach of contract, but the trial court granted summary judgment in the insurer’s favor. On appeal, W.W. claimed there remains a genuine issue of material fact as to whether a dishonest act occurred because the insurer was unable to determine if W.W.’s former employee actually stole its tools. Assuming a dishonest act occurred, W.W. also claimed its former employee was no longer a person entrusted with the tools after W.W. demanded their return.

FACTS

W.W. employed Dante Wells from December 2017 to January 2019. During this time, Wells allowed W.W. to store its company tools on a piece of real estate Wells owned in Tippecanoe County. In exchange, W.W. allowed Wells to use the tools for “side work” in his own name.

In March 2019, after Wells stopped working for W.W., the company demanded that Wells return the tools stored on his property. When Wells refused, W.W. reported the tools as “stolen” to the Tippecanoe County Sheriff’s Department and sued Wells for replevin. Wells eventually returned what he claimed were all of W.W.’s tools. But upon inventorying the returned items, W.W. determined that “a lot of tools” were missing. W.W. therefore submitted an insurance claim to its insurance company, alleging Wells stole the missing tools.

The Insurer investigated W.W.’s insurance claim by interviewing Williams and Wells about the loss. Williams assumed the tools were still in Wells’s possession, but he did not “know that for a fact.” If Wells no longer had the tools, Williams had “no idea what happened to them.”

The Insurer was not able to determine if Wells actually stole W.W.’s tools. Regardless, the Insurer concluded W.W.’s loss was excluded from the Policy’s insurance coverage and denied W.W.’s insurance claim on the two alternative bases.

THE POLICY

At all relevant times, W.W. Contracting, Inc. was the named insured on a commercial insurance policy (the Policy) issued by Pekin Insurance (the Insurer). Among other things, the Policy provided coverage for “accidental loss” to W.W.’s tools. The Policy, however, also contained the following exclusions: “Dishonest Act/Entrusted Person, We will not pay for a ‘loss’ caused by or resulting from dishonest acts by anyone entrusted with the property.” It also excluded “Unexplained Disappearance We will not pay for a ‘loss’ caused by or resulting from unexplained disappearance.”

DISCUSSION

W.W.’s allegation that Wells stole its tools established the occurrence of a dishonest act for purposes of the Insurer’s motion for summary judgment. Wells was also a person entrusted with W.W.’s tools.

In raising the exclusions as affirmative defenses, the Insurer essentially accepted as true W.W.’s allegation of Wells’s undisputedly dishonest act. Thus, to prove the dishonest act/entrusted person exclusion barred coverage of W.W.’s loss, the Insurer was only required to establish that Wells was a person entrusted with W.W.’s tools.

Wells Was a Person Entrusted with W.W.’s Tools

To “entrust” means to commit to another with confidence. W.W. does not dispute that it entrusted Wells with its tools by storing them on Wells’s property during his employment with the company. In the absence of any ambiguity, the language of the Policy’s dishonest act/entrusted person exclusion must be given its ordinary meaning. Nothing in the language of the exclusion requires that the dishonest act be contemporaneous with the insured’s confidence in the entrusted person. The exclusion applies broadly to loss “caused by or resulting from” an entrusted person’s dishonest act.

The intent of the dishonest act/entrusted person exclusion is to bar coverage for the insured’s “misplaced confidence” in another. By entrusting its tools to Wells, W.W. placed its confidence in Wells not to steal the tools. This misplaced confidence resulted in W.W.’s loss. The fact that W.W. no longer had confidence in Wells at the time of his alleged theft is irrelevant under the terms of the Policy. The Court of Appeals affirmed the judgment in favor of the insurer.

ZALMA OPINION

When an insurance policy excludes certain potential losses in clear and unambiguous language a court must apply the exclusion as written. There was no question that WW entrusted the tools to Wells and claimed he either stole the tools or they disappeared mysteriously. Both potential events were excluded and the policy excluded the claimed loss.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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The Insurance Adjuster

What is an Adjuster?

Post 4748

See the full video at https://rumble.com/v4hejcc-the-insurance-adjuster.html  and at https://youtu.be/3n6LvneNAC0

The insurance adjuster is seldom, if ever, mentioned in a policy of insurance. The strict wording of the first party property policy sets the obligation to investigate and prove a claim on the insured.

Standard first party property insurance policies, based upon the more than a century old New York Standard Fire Insurance policy, contain conditions that require the insured to, within sixty days of the loss, submit a sworn proof of loss to prove to the insurer the facts and amount of loss.

In general, failure to file the proof within the time limited by the policy is fatal to an action upon it (White v. Home Mutual Ins. Co., 128 Cal. 131, 60 P. 666 (1900); Beasley v. Pacific Indem. Co., 200 Cal.App.2d 207, 19 Cal.Rptr. 299 (Cal. App. 1962).

Technically, if the wording of the policy was followed literally, the insurer could sit back, do nothing, and wait for the proof and if it wasn’t submitted within 60 days, deny the claim.

If the insured submits a timely proof of loss the insurer could either accept or reject the proof of loss.

If the insurer rejected the proof of loss the insured could either send a new one or give up and gain nothing from the claim. Filing suit on the policy would be difficult because the policy contract limited the right to sue to times after the proof of loss condition had been fulfilled.

Insureds and insurers were not happy with that system. It made it too difficult for a lay person to successfully present a claim. The system, as written into the standard fire policy seemed to run counter to the covenant of good faith and fair dealing that had been the basis of the insurance contract since, at least, 1766.

Most insurers recognized that their insureds were mostly incapable of complying with the strict mandate of the policy requiring a sworn proof of loss. Enforcement of the policy conditions made for unhappy insureds and the reputation of the insurer suffered.

In order to fulfill the covenant of good faith and fair dealing insurers created the insurance adjuster to fulfill its obligation to deal fairly and in good faith with the insured. The adjuster was created to assist the insured to comply with the material conditions of the policy, to thoroughly investigate the policy and the claim, to protect the interest of the insurer and protect against claims that were not due to a peril insured against or were false and fraudulent.

An Adjuster Is

An “adjuster” or “insurance adjuster” is, by statutory definition: “a person, co-partnership or corporation who undertakes to ascertain and report the actual loss to the subject-matter of insurance due to the hazard insured against. [California Insurance Code Section 14021]

A first party property adjuster is a specialist in adjusting claims brought by a person or entity insured against certain identified perils or risks of loss. The first party is the insured, the second party is the insurer, and the adjuster acts on behalf of the insurer.

Insurance companies create, by issuing an insurance policy, a contractual obligation to pay valid claims from those insured. To do so insurers understand that the person insured is not able to prove the cause and extent of loss without assistance. Therefore, insurers dispatch a person with special knowledge – the first party property adjuster – to separate fact from fiction, to establish cause and origin of the claimed loss, and determine sufficient information to enable the insurance company to determine the amounts necessary to indemnify the insured as the policy promised.

The adjuster is also present to distinguish the valid claim from a claim for which the insurance company is not liable under its policy, whether due to the terms and conditions of the policy or because of attempted fraud.

Most insurance policies issued by commercial – non-government supported – insurers accept substantial compliance with the policy conditions and require their adjusters to assist the insureds to fulfill the conditions.

As a general rule:

[W]hen an insurer gives its insured written notice of its desire that proof of loss under a policy of fire insurance be furnished and provides a suitable form for such proof, failure of the insured to file proof of loss within 60 days after receipt of such notice, or within any longer period specified in the notice, is an absolute defense to an action on the policy. [Stopani v. Allegany Co–op Ins. Co., 83 A.D.3d 1446, 920 N.Y.S.2d 559, 2011 N.Y. Slip Op. 2588 (N.Y. App. Div., 2011)]

Since the invention of the adjuster more than a century ago, the first person from the insurer that the insured meets when he or she suffers a first party property loss, is the adjuster. The claim adjuster was invented to smooth the claims process and be certain that the insured receives the indemnity promised and performs a complete and thorough investigation to avoid fraudulent claims.

How well the adjuster does his or her job will increase the reputation of the insurer and will not only keep the insured as a customer he or she will add additional customers by word of mouth.

Although most adjusters are not trained to be marketers their professionalism will act as the most effective marketing an insurer can receive better than any television ad.

Every modern claim adjuster should know that it is his or her duty to aid the insurer in its obligation to fulfill the promises made by the policy of insurance and assist the insured in presenting his or her claim to the insurer in accordance with the promises made by the insured to fulfill the conditions of the policy.

An adjuster’s duties to the insured do not arise from the insurance contract. The adjuster is not a party to the contract. He or she is an employee or agent of the insurer.

Every person in the business of insurance or who are insured by a policy of first party property insurance, must understand that an insurance adjuster is a person engaged in the business of insurance to investigate and resolve insurance claims. The first party property insurance adjuster limits his or her activities to the investigation and adjustment of first party property claims like fire, lightning, windstorm, hail, theft, etc.

The acts of an adjuster within the apparent scope of his or her authority are binding on the company without notice to the insured of limitations on his powers. [English and American Ins. Co. v. Swain Groves, Inc., Fla.App.1969, 218 So.2d 453; Old Republic Ins. Co. v. Von Onweller Const. Co., 239 So.2d 503 (Fla. App. 1970)]

The duty of the adjuster is to ascertain and determine the amount of any claim, loss or damage payable under an insurance contract, and/or effecting settlement of such claim, loss or damage.

The acts of an adjuster within the apparent scope of his or her authority are binding on the company. [Old Republic Ins. Co. v. Von Onweller Const. Co., 239 So.2d 503 (Fla. App. 2 Dist., 1970)]

ZALMA OPINION

The insurance adjuster is the only person acting on behalf of the insurance company an insured will meet in person. The adjuster, as far as an insured is concerned, is the insurance company. If the adjuster acts professionally, empathetically and helps the insured prove his or her claim is the best marketing tool an insurer can have. If the adjuster ignores the insured, is annoying or difficult to deal with the insured will never deal with that insurer again and may find a need to retain counsel to sue the insurer for damages and the tort of bad faith. [Adapted from The Compact Book of Adjusting Property Claims – 4th  Edition available Available as a hardcover here. Available as a Kindle Book here.  Available as a paperback here

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Fail to Read the Policy at Your Peril

Insurance Producer Only Required to Place Insurance Ordered

Post 4747

Never Assume You Are Covered

See the full video at https://rumble.com/v4h7dc0-fail-to-read-the-policy-at-your-peril.html  and at https://youtu.be/QPyd26S0FYw

Five Waters Properties, LLC, appealed the trial court order granting defendants, Mark Bone and Bailey Agency Inc, summary disposition.

In Five Waters Properties, LLC, doing business as Saginaw Carbon v.  Mark C. Bone and Bailey Agency Inc., No. 366075, Court of Appeals of Michigan (February 22, 2024) the Court of Appeals resolved the dispute.

BASIC FACTS

The failure of the Edenville Dam and subsequent failure of the Sanford Dam in May 2020, which resulted in a devastating flood that caused substantial damage to homes and businesses in Midland County, Michigan. Five Waters was one of the businesses affected by the flooding.

Matt Reineke on behalf of Five Waters worked with defendant Mark Bone, an independent insurance agent employed by Bailey Agency Inc, to procure a commercial insurance policy for Five Waters. Bone testified that Matt Reineke requested insurance for his business. He did not recall the specific language of the request. In order to determine adequate coverage amounts, he visited Five Waters’ facility and walked through it with Matt Reineke. According to Matt Reineke, he determined the value of the equipment and provided that information to Bone. The coverage limits were determined using replacement value. Like Bone, Matt Reineke did not testify as to any specific language that he used when requesting insurance for Five Waters. Following the on-site meeting, Bone procured a commercial insurance policy for Five Waters that had replacement coverage for Five Waters’ equipment in the amounts determined by Matt Reineke.

Shortly after the policy was purchased in 2017, the Midland area experienced flooding. Bone sent a letter to the Reinekes, advising them that, in light of the recent flooding, it was “important that we review your policy with you.” The letter added that some customers had been unaware of their coverage for water back-up and noted that it would be the “perfect time” to review to ensure “the appropriate amount of coverage.” The Reinekes were advised to contact defendants to schedule a review. Although Julie Reineke was aware of the flooding, Matt Reineke did not recall receiving the letter from defendants in 2017. Ultimately, the Reinekes did not contact defendants to review Five Waters’ policy.

Five Waters’ commercial insurance policy was renewed in 2018, 2019, and 2020. Each year they received correspondence inviting them to schedule a review of Five Waters’ policy with defendants. They did not do so. Moreover, they did not fully read the policy procured for Five Waters by Bailey Agency.

After the 2020 flooding, Matt Reineke contacted Bone. It was at that time that he learned from Bone that Five Waters did not have flood insurance. He stated that he was “completely shocked” because he thought that the business was covered. He later read his policy, however, and it clearly provided that damages caused by flooding, including flooding damage occurring as the result of a dam failure, was expressly excluded from the policy. Five Waters filed a claim with their insurance company, but, because the damage caused by the flood was excluded from its coverage, the claim was denied.

ANALYSIS

To establish a prima facie case of negligence, a plaintiff must prove four elements:

  1. a duty owed by the defendant to the plaintiff,
  2. a breach of that duty,
  3. causation, and
  4. damage.

Generally, an insurance agent owes a duty to procure insurance coverage requested by an insured. Further, an insurance agent does not generally owe a duty to advise an insured as to the adequacy of its insurance coverage.

In this case, Five Waters contends that the no-duty-to-advise rule applies only to captive insurance agents, not to independent insurance agents. The Court, however, has rejected that proposition in multiple unpublished opinions.

The Plaintiffs asked the Court of Appeal to eliminate the general no-duty-to-advise rule and replace it with a rule that would impose a duty to advise in cases such as the Five Waters case which, to be perfectly clear, would apparently be all cases concerning the purchase of insurance.

The Court of Appeals declined to do so in light of the public policy established by the Legislature’s active role in this area and the previously noted compelling reasons that militate against the imposition of such a duty.

Five Waters asserts that a duty to advise arose because Bone assumed an additional duty by either express agreement with or promise to Five Waters. In support, Five Waters points out that Bone performed an on-site inspection to assess the risk to Five Waters and that Bone had direct knowledge that the area had previously flooded. Five Waters argued that, as a result, Matt Reineke was “left with the impression and confidence that his business was fully covered.” Yet, there is no record evidence suggesting that Bone expressly agreed to assume an additional duty to advise or that he expressly promised Five Waters that he assumed such an additional duty. The fact that Matt Reineke had the impression that he was fully covered does not create a special relationship.

Because there is no special relationship between defendants and Five Waters, the Court of Appeal concluded that defendants did not have a duty to advise Five Waters as to the adequacy of its coverage.

In this case, Five Waters never requested flood insurance. And, as indicated above, defendants did not have a duty to advise Five Waters that its coverage might be inadequate as the result of not obtaining flood insurance.

Five Waters’ expert testified that Bone’s community involvement elevated his knowledge of the flooding issues in the area. He opined that, as a result of that elevated knowledge, Bone “probably” had a higher standard of care than other insurance agents.

In sum, the trial court properly determined that no genuine issue of material fact precluded granting summary disposition for defendants. The trial court correctly determined that defendants did not owe Five Waters a duty to assess and ensure the adequacy of the business insurance coverage and Five Waters failed to establish a special relationship that gave rise to a duty to do so.

ZALMA OPINION

When insureds suffer a loss that is not covered by the policy they purchased they seem intent on suing the insurance producer who failed to force the insured to purchase a policy that would cover the loss different from the policy they purchased. They sue the insurance producer and find that case law in almost every state only requires the producer to place the insurance required. Although the producer asked the Plaintiff to review their coverages because of potential flood risks they did not until their property was damaged by a flood. Too little too late.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Insurance Policy Warranties

Warranties

See the full video at https://rumble.com/v4h6wgb-insurance-policy-warranties.html  and at https://youtu.be/T5K9ljSiFVw

Certain policies contain the term “warranty.” This is a word of great power. Generally, a warranty can be defined as follows:

A “warranty” in insurance law is a statement or condition forming part of a contract whereby insured agrees that certain acts have been or shall be done, and validity of contract depends upon exact fulfillment of condition, regardless of whether breach relates to or causes loss sustained.

A warranty in an insurance policy is a special kind of representation where the person seeking insurance promises that the statements of fact are absolutely true, that they know that the insurer is relying on the truthfulness of the statements, and that each statement of fact is material to the decision of the insurer to insure or not to insure. Warranty has also been described as follows: The term “warranty” … frequently has the connotation of an affirmation or a promise. However, functionally the significance of a warranty in an insurance policy has been, and continues to be, that it establishes a condition precedent to an insurer’s obligation to pay.

When an application for insurance is attached to the policy and made a part of it, the statements of fact in the application are converted from mere representations to warranties. By accepting the policy with the application attached, the insured acknowledges that it has warranted to the insurer that each statement of fact in the application is absolutely true and that the policy will be void if not true.

An insurance company can extract from the insured a warranty of any factual matter it considers material and may reasonably provide for voidance of the contract if such warranties prove false. To do so, however, it must be stated clearly and unambiguously on the face of the policy.

The United Kingdom Insurance Act of 2015 abandoned the literal compliance rule, so that rescission is no longer the automatic remedy for breach of warranty. Instead, a breach only suspends coverage until it is cured. In addition, an insured who breaches a warranty and fails to cure can recover if it “shows that the non-compliance with the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred. [Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters LLC (11th Cir. 2021)]

Failure to comply with a warranty can convert a clearly covered and compensable claim into one that must be rejected. It is therefore imperative that the adjuster understand what a warranty is and how it affects the investigation and adjustment of a claim.

New York’s Insurance Law defines a “warranty” as:

any provision of an insurance contract which has the effect of requiring, as a condition precedent of the taking effect of such contract or as a condition precedent of the insurer’s liability thereunder, the existence of a fact which tends to diminish, or the non-existence of a fact which tends to increase, the risk of the occurrence of any loss, damage, or injury within the coverage of the contract. [N.Y. Ins. L. § 3106(a); Kephart v. Certain Underwriters at Lloyd’s of London (S.D. N.Y., 2019)]

In Certain Underwriters at Lloyd’s London v. Jimenez, 197 So.3d 597 (Fla. App. 2016) those Certain Underwriters at Lloyd’s London (“Lloyd’s”) appealed a final judgment following a non-jury trial, in which the trial court granted declaratory relief to Raul and Ada Jimenez, the appellees/homeowners, and determined that Lloyd’s was not entitled to rescission of the property insurance policy issued to the homeowners.

In 2007 Raul Jimenez, on behalf of himself and his wife, Ada Jimenez, completed and executed an application for homeowner’s insurance policy on their home built in 1985, with assistance from their insurance agent, A & A Insurance Underwriters (“A & A”). A & A submitted the Jimenez’s homeowner’s insurance application to a managing general agent of Lloyd’s. During the application process, A & A asked whether Mr. Jimenez had a smoke, temperature or burglar alarm, and if so, whether these alarms were monitored. Mr. Jimenez said he had a monitored central station alarm on the property. On the application form, Mr. Jimenez designated the central station monitor as a protection device that monitored for smoke, temperature, and burglary. After signing the application, Mr. Jimenez was given a copy and was given a chance to ask questions and make sure his answers were true and correct. The policy was given a discount because of the representation that the Jimenezes had a central station alarm monitoring for smoke, temperature, and burglary.

The policy was renewed three times with the same representation and warranty about the alarm system.

In August 2009, there was a kitchen fire at the Jimenez’s home.

Delta Alarm Systems monitored and maintained the Jimenez’s alarm system. At trial, Jose Quintero, the corporate representative of Delta Alarm Systems, testified that the Jimenezes had a burglar alarm but not a central station monitored smoke or temperature alarm system. Lloyd’s expert testified why the alarm warranty was material.

New York law has long provided that “the breach of an express warranty [in a marine insurance policy], whether material to the risk or not, whether a loss happens through the breach or not, absolutely determines the policy and the assured forfeits his rights under it.” [Cogswell v. Chubb, 1 A.D. 93, 36 N.Y.S. 1076, 1077 (1st Dept.1896) (navigation limit warranty), aff’d, 157 N.Y. 709, 53 N.E. 1124 (1899)]. As New York’s Court of Appeals has explained, an express warranty in a marine insurance policy “must be literally complied with, and that noncompliance forbids recovery, regardless of whether the omission had a causal relation to the loss.” [Jarvis Towing & Transp. Corp. v. Aetna Ins. Co., 298 N.Y. 280, 82 N.E.2d 577, 577 (1948)]

ZALMA OPINION

A “warranty” in an insurance policy is an important and enforceable promise made by the insured to the insurer as an inducement to issue the policy. A failure to fulfill the warranty voids the coverage. In Marine Insurance a key warranty is a warranty of seaworthiness while in land based policies the warranties one sees are usually warranties of security like burglar or fire alarms, sprinkler systems, the need for a safe or a security guard, or regular inventories. All are important to the risk and must be met and fulfilled by the insured for coverage to apply.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Go to Newsbreak.com https://www.newsbreak.com/@c/1653419?s=01

Go to X @bzalma; Go to the podcast Zalma On Insurance at; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg.

Go to the Insurance Claims Library – https://lnkd.in/gwEYk

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Zalma’s Insurance Fraud Letter – March 1, 2024

ZIFL Volume 28, Issue 5, March 1, 2024

Post 4746

The Source for the Insurance Fraud Professional

Subscribe to ZIFL Here

See the full video at https://rumble.com/v4gfkju-zalmas-insurance-fraud-letter-march-1-2024.html  and at https://youtu.be/m39eoeVlGcY

Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.  It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/

The current issue can be read in full at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf and includes the following articles:

Bloods Gang Member Guilty of RICO to Defraud Insurers

Gangs Took Over Fire Reconstruction Industry in New York

Insurance Fraud is a Violent Crime

Jatiek Smith (also known as “Tiek”) a member of the Bloods Gang was charged with one count of racketeering conspiracy, in violation of 18 U.S.C. § 1962(d), and one count of extortion conspiracy, in violation of 18 U.S.C. § 1951, arising out of allegations that Smith and his co-conspirators engaged in a pattern of extortionate conduct to dominate the fire restoration industry. Smith’s case was tried in a ten-day bench trial between November 27, 2023, and December 11, 2023.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

More McClenny Moseley & Associates Issues

This is ZIFL’s twenty fourth installment of the saga of McClenny, Moseley & Associates and its problems with the federal courts in the State of Louisiana and what appears to be an effort to profit from what some Magistrate and District judges indicate may be criminal conduct to profit from insurance claims relating to hurricane damage to the public of the state of Louisiana.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

A New Book: “Once Upon A Claim”

From my friend Chantel M. Roberts whose site lists all her books, and a new author, George Jack – from the Insurance Academy.

https://www.tiltingatwindmillspress.com/ and whose blog you can read at: https://www.tiltingatwindmillspress.com/post/unlocking-insurance-wisdom-with-illustrated-fairy-tales-once-upon-a-claim where she explains the illustrations.

Picture this: classic fairy tales, nursery rhymes, and fables brought to life with whimsical illustrations and sprinkled with valuable lessons about insurance concepts and claims processes. It may sound like a magical dream, but it’s a reality with the upcoming book, Once Upon A Claim: Fairy Tales to Protect Your Ass(ets).

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

Go To Jail, Do Not Pass Go, Stay in Jail

Insurance Agent Defrauded Clients by Keeping Premium for His Own Benefit

In United States Of America v. John M. Thomas, a.k.a. John Thomas, No. 23-11137, United States Court of Appeals, Eleventh Circuit (February 20, 2024) Thomas appealed from his 168-month sentence for 16 counts of wire fraud, 4 counts of money laundering, and 4 counts of money laundering to conceal proceeds of unlawful activity.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

Barratry

Use of cappers or runners to sign up clients for lawyers is a form of barratry and a type of fraud. Barratry is a very dirty word in the legal profession. Barratry is the vexatious incitement to litigation, typically by soliciting potential legal clients. Stated otherwise, barratry occurs when a lawyer or someone acting on a lawyer’s behalf improperly solicits someone to be a plaintiff in a lawsuit. Think ambulance chasing.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

From the Coalition Against Insurance Fraud

Enfield woman sentenced for larceny in Medicaid case. Marcy L. Taliceo, from Enfield, pleaded guilty this week in Hartford Superior Court to one count of Larceny related to Medicare fraud. Between 2016 and 2020, Taliceo was billing the state Medicaid program for services done by unlicensed personnel and services that were never provided. Taliceo was President, Treasurer and Secretary of Growing Potential Services, a Connecticut Medical Assistance Program (CMAP) provider that was enrolled as a Behavioral Health Clinician Group. Taliceo was in charge of all aspects of the business, including what services were billed. Growing Potential was paid by the Connecticut Medicaid Program for psychotherapy services by unlicensed individuals in the amount of almost $142K. In addition, Growing Potential was paid a total of nearly $7K for these services. Taliceo was sentenced to four years in prison, execution suspended, with five years of probation. In addition, restitution for the stolen amount must be paid back in full.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

Health Insurance Fraud Convictions

Holy Health Care Services, LLC Program Administrator Sentenced to Five Years in Federal Prison for a Health Care Fraud

Lambert Mbom, age 50, of Riverdale, Maryland, was sentenced by U.S. District Judge Paula Xinis to five years in federal prison, followed by three years of supervised release, for conspiracy to commit health care fraud and wire fraud and for conspiracy to make false statements relating to health care matters in connection with a scheme to fraudulently bill Medicaid.  The defendant’s conviction stems from a scheme involving services purportedly provided by Holy Health Care Services, LLC (“Holy Health”), a mental health services provider with locations in Washington, D.C.  Judge Xinis also ordered Mbom to pay restitution in the full amount of the loss, $4,450,588.66.  The sentence was imposed on February 8, 2024.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

New Book Now Available from Barry Zalma

“Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition”

Property Investigation Checklists: Uncovering Insurance Fraud, 14th Edition provides detailed guidance and practical information on the four primary areas of any investigation of suspicious claims. The book also examines recent developments in areas such as arson investigation procedures, bad faith, extracontractual damages, The fake burglary, and Lawyers Deceiving Insurers, Courts & Their Clients During, Catastrophes—A New Type Of Fraud and the appendices includes the NAIC Insurance Information and Privacy Protection Model Act and usable forms for everyone involved in claims and will provide necessary information to the claims adjuster, SIU fraud investigator, claims manager, or coverage lawyer so he or she can be capable of excellence.

The newest book joins other insurance, insurance claims, insurance fraud, and insurance law books by Barry Zalma all available at the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

Other Insurance Fraud Convictions

Illinois Insurance Agent Sentenced to 7 Years in Prison for Swindling Premiums

Daniel M. Rosenbaum owned and operated Alexander & Rosenbaum Financial Group LLC, an insurance agency in Kenilworth, Ill. Beginning in 2016, Rosenbaum collected more than $1 million in annuity premiums from at least 18 clients, including friends and family members, for policies that he never purchased.

Rosenbaum, the owner of a suburban Chicago insurance agency has been sentenced to seven years in federal prison for swindling more than $1 million from clients by collecting annuity premiums for policies that he never purchased, the U.S. Attorney’s Office, Northern District of Illinois announced last week.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

Ignore Court Orders at Your Peril

Frivolous Litigation and Frivolous Appeal Causes Default to Be Entered

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.

You can read the full article and all of this issue of ZIFL at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-03-01-2024.pdf

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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ZIFL-03-01-2024

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Go To Jail, Do Not Pass Go, Stay in Jail

Insurance Agent Defrauded Clients by Keeping Premium for His Own Benefit

See the full video at https://rumble.com/v4g7z5e-go-to-jail-do-not-pass-go-stay-in-jail.html  and at  https://youtu.be/cO3qlEd1VTs

Post 4745

In United States Of America v. John M. Thomas, a.k.a. John Thomas, No. 23-11137, United States Court of Appeals, Eleventh Circuit (February 20, 2024) Thomas appealed from his 168-month sentence for 16 counts of wire fraud, 4 counts of money laundering, and 4 counts of money laundering to conceal proceeds of unlawful activity.

FACTS

Between April 22, 2013, and February 16, 2021, Thomas defrauded 69 of his clients at Thomas Insurance LLC in Pensacola, Florida, through premium diversion. Thomas collected insurance premiums from his clients and falsely represented to them that he purchased insurance policies. Thomas provided his victims with fraudulent insurance documents indicating the fake policies were in effect. He also falsely represented to one victim that he had obtained an annuity by providing a fraudulent contract and portfolio summary.

After Hurricane Sally hit the Gulf Coast in 2020, several of Thomas’s victims learned they were uninsured as they sought to file claims for hurricane damage to their property. Through premium diversion, Thomas received payments of at least $4.8 million from his victims and his fraud caused at least $2.2 million in unpaid claims caused by hurricane, fire, and liability losses. When one victim attempted to submit a claim, Thomas directed the victim to send photos and damage estimates to a fake Colorado company he created: “JSSK Risk Advisors, LLC.” Thomas pretended to be an insurance adjuster named “Scott Powrie” at JSSK Risk Advisors to “deny” the victim’s claim.

Thomas was indicted on 16 counts of wire fraud. These violations involved the following four transactions:

  1. $50,000 transfer from his bank account to his Family Trust bank account, then transferred to purchase a Lexus;
  2. $278,730.14 transfer from his bank account to his Family Trust bank account, then transferred to purchase a condominium on Pensacola Beach, Florida;
  3. $30,469.80 check from his bank account to exchange for 20 one-ounce gold coins;
  4. $97,557.19 transfer from his bank account to an E*Trade brokerage account.

Thomas pled guilty to all 24 counts after the magistrate judge conducted a colloquy with Thomas to ensure that he was pleading guilty knowingly and voluntarily. At his sentencing hearing, Thomas’s counsel objected to the sophisticated means enhancement, among other things. Counsel described Thomas’s fraud as “incredibly simple” and stated Thomas’s ability to go undetected for almost eight years stemmed from Thomas’s special skill and the vulnerability of his victims, not sophistication. The court overruled all of Thomas’s objections, including for sophisticated means.

ANALYSIS

Evidence that a defendant converted funds into a form that is more difficult to trace, easier to hide, or less suspicious can support a violation of § 1956.

Thomas has not shown that the error impacted his substantial rights. Even if he could show that he would not have pled guilty, changing the outcome of his convictions on Counts 21, 22, and 24 would not impact the enhancement for violating § 1956, which only requires one conviction under that statute. See U.S.S.G. § 2S1.1(b)(2)(B).

An offense that “involved sophisticated means and the defendant intentionally engaged in or caused the conduct constituting sophisticated means” should result in a two-level increase. Regardless of its elements, the scheme itself may be designed in a sophisticated way that makes it unlikely to be detected, allowing it to continue for an extended period and to impose larger losses. Even schemes with a sole participant can employ sophisticated means.

The Eleventh Circuit concluded that the district court did not clearly err in applying the sophisticated means enhancement. Thomas’s fraudulent scheme must be considered in its totality. Thomas made them in a way that created a sophisticated scheme. Thomas created fraudulent insurance documents and fabricated an annuity portfolio. In addition, Thomas made up an email address for his alias “Scott Powrie” at the fake “JSSK Risk Advisors, LLC” to deny one of his victim’s insurance claims for a policy that never existed.

On his own, Thomas managed to conceal his fraud for over seven years and cause millions of dollars in losses. In light of our precedent and Thomas’s actions, the district court did not clearly err in applying the two-level sophisticated-means enhancement.

ZALMA OPINION

Thomas, as an insurance agent, decided he was better at being an insurance company than an insurance company. He took in premiums from his friends and neighbors, never purchased the insurance they needed, denied their claims, and pocketed millions of dollars. When finally caught after a hurricane struck and his clients had no insurance, he pleaded guilty only to try to reduce his sentence in an amazing type of chutzpah by claiming his seven years of stealing was not sophisticated. He will serve his time in the gray bar hotel.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Ignore Court Orders at Your Peril

Frivolous Litigation and Frivolous Appeal Causes Default to Be Entered

Post 4744

See the full video at https://rumble.com/v4g18qr-ignore-court-orders-at-your-peril.html and at https://youtu.be/KZz0eQkAt3Y

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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ADA Requires Evidence of Intentional Discrimination

ADA Allows Employer to Dismiss Employee for Good Cause

See the full video at https://rumble.com/v4ftbmk-ada-requires-evidence-of-intentional-discrimination.html  and at https://youtu.be/5u3YkXMi8Qo

Post 4743

Jennifer Akridge appealed the entry of summary judgment for her former employer, defendant Alfa Mutual Insurance Company, on her claim brought under the Americans with Disabilities Act (“ADA”). Akridge contended that Alfa discriminated against her by terminating her to avoid paying healthcare costs related to her multiple sclerosis (“MS”) and severe migraines.

In Jennifer Akridge v. ALFA Insurance Companies, ALFA Mutual Insurance Company, No. 22-12045, United States Court of Appeals, Eleventh Circuit (February 16, 2024) the Eleventh Circuit applied the “but for test” to determine if the employer discriminated against a disabled employee.

FACTUAL BACKGROUND

Alfa responded that most of Akridge’s duties had become automated and her position was no longer needed Alfa eliminated it to cut business expenses.  Alfa argued there was no evidence Alfa’s decisionmakers knew Akridge’s healthcare costs.

In 1989, Akridge began working at Alfa, an insurance company. In 1993, Akridge was diagnosed with MS and began suffering from severe migraines. By 2015, Akridge was promoted to a strategic coordinator position in Alfa’s auto underwriting department. Akridge’s primary task concerned the strategic underwriting program, in which she worked with Alfa’s agents and district managers to identify profitable policies for struggling agents. By all accounts, Akridge excelled at her job, with excellent performance reviews.

Alfa was self-insured and paid the healthcare costs of its employees. Akridge estimated that it cost Alfa between $10,000 and $12,000 per month to treat her MS and migraines. While it was common knowledge at Alfa that Akridge had MS, no one at Alfa ever said anything to Akridge about her healthcare costs.

Decisionmakers and the Decision to Terminate Akridge

The decisionmakers discussed eliminating Akridge’s position for one to two weeks before her termination.

Summary Judgment and First Appeal

Ultimately, the court entered summary judgment in favor of Alfa. The court observed that none of Akridge’s evidence indicated that the decisionmakers knew her individual healthcare costs.

Second Summary Judgment Motion

Alfa filed its second motion for summary judgment, which the court granted.  The court concluded that (1) while Akridge was fired and not transferred to a new position, she admitted she never applied to an open position at Alfa and (2) the decisionmakers testified that they were unaware of Akridge’s healthcare costs.

The ADA bars employers from discriminating against a qualified individual on the basis of disability. On appeal, Akridge challenges the entry of summary judgment on her claim that Alfa discriminated against her by terminating her to avoid paying her high healthcare costs.

An ADA plaintiff establishes a prima facie case by showing (1) she has a disability; (2) she is a qualified individual under the ADA; and (3) the employer discriminated against her “on the basis of disability.”  The ADA imposes a “but-for” causation standard-that is, an adverse employment action would not have occurred but for the plaintiff’s disability.

The Supreme Court has instructed that the ancient and simple “but for” common law causation test supplies the rule against which Congress is normally presumed to have legislated, including for federal antidiscrimination laws.

The employee-friendly, motivating-factor standard does not apply to ADA claims, as this standard is drawn directly from the text of Title VII. Akridge cannot resort to the lesser showing. The ADA’s text requires a plaintiff alleging disparate treatment to prove that she was treated less favorably than a similarly situated, non-disabled person.

Akridge’s Evidence does not Show Pretext

Alfa’s decisionmakers eliminated Akridge’s position to reduce business expenses because her position was no longer needed. Alfa produced non-discriminatory reasons for her termination.  Alfa’s interest in reducing expenses was supported by the development of Guidewire.

Akridge also failed to present evidence indicating that Alfa’s reasons for her firing were pretextual. In short, Akridge has failed to present evidence that would allow a jury to infer intentional disability discrimination.

If Congress intended to retain, clarify, or add the motivating-factor standard to the ADA, it could have simply added that language, like it did in its 1991 amendments to Title VII. Instead, and in direct contrast to Title VII, Congress chose to not add the motivating-factor language to the text of the ADA. The grant of summary judgment in favor of Alfa and the sanctions award of $1,918 against Akridge were affirmed.

ZALMA OPINION

Every employer has faced the need to dismiss an excellent employee because the work the employee was doing was no longer needed by the employer. When the employee is disabled the Americans With Disabilities Act will be raised to say that the reason for the dismissal was to avoid paying her extensive medical bills. She failed to provide any evidence that the dismissal was for any reason that fell within the discrimination requirement of the ADA. Since Alfa had a good business reason for the dismissal and had no knowledge of her medical costs, the summary judgment was affirmed.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Exclusion for Failure to Advise Insurer of Known Potential Loss

Circumstances that Could Result in Loss Must be Reported to Insurer

See the full video at  https://rumble.com/v4foahr-exclusion-for-failure-to-advise-insurer-of-known-potential-loss.html  and at https://youtu.be/LQQW0rEOo40

The Supreme Court, New York County (Barry R. Ostrager, J.), entered a judgment which denied plaintiffs’ motion for partial summary judgment as to liability for breach of contract and sought product recall insurance coverage under a set of policies issued to plaintiffs for the period of March 7, 2018 to March 7, 2019.

The order also granted defendants’ motions for summary judgment in part, to the extent of dismissing plaintiffs’ second cause of action seeking liability for breach of contract and for coverage under a set of policies issued to plaintiffs for the period of March 7, 2019 to March 7, 2020.

In Vyaire Holding Company et al. v. Westchester Surplus Lines Insurance Company, et al, North American Capacity Insurance Company, 2024 NY Slip Op 00825, Appeal No. 1595, Index No. 652428/20, No. 2022-05619, Supreme Court of New York, First Department (February 15, 2024) the appellate division affirmed the trial court.

FACTS & PRIOR NOTICE EXCLUSION

Defendants issued consumer goods insurance policies on medical devices sold by plaintiffs (collectively, Vyaire). The Year One policy ended on March 7, 2019, at which point the Year Two policy began. Each policy was triggered by an “insured event” discovered in the policy period, provided that Vyaire gave written notice as soon as possible, no later than 30 days after discovery of the event. Additionally, the policies excluded coverage for pre-existing circumstances that Vyaire “knew of or should have known of, prior to the inception of this policy, that caused or could reasonably have been expected to cause… an ‘insured event’.”

The “Insured event” was defined as a” ‘stock recovery,’ market withdrawal or recall” of an insured product that would cause bodily injury or property damage. “Stock recovery” was defined by the policies but “market withdrawal” and “recall” were not.

THE PRODUCT

enFlow, a product insured under the policy, was first approved in 2006. By 2018, it was used in many different countries. Prior to March 2019, there were no reports of patient injury due to aluminum toxicity. In February 2018, however, Vyaire learned of a (then-unpublished) study indicating that enFlow may cause aluminum toxicity when used with a certain infusion. On February 6, 2019, Vyaire learned that the infusion did not contain malate. Rather, it contained lactate, which was commonly used in medical solutions.

In early March 2019, Vyaire learned that many hospitals in the United Kingdom had ceased using enFlow, and two EU regulatory agencies expressed their intentions to take regulatory action. As a result, on March 5, 2019, Vyaire decided to suspend enFlow use in the EU. On March 7, 2019, Vyaire began to file the paperwork for a withdrawal with the FDA. On March 11, 2019, Vyaire’s testing revealed unacceptable levels of aluminum leaching with many different infusions. On March 12, 2019, Vyaire notified defendants that they were about to issue a world-wide recall of enFlow and gave notice as to “all responsive policies.” On March 13, 2019, Vyaire issued a global recall notification.

ANALYSIS

The Supreme Court (trial court) properly determined that coverage for Year Two was excluded under the prior notice exclusion. The record  established that by March 7, 2019 Vyaire knew or should have known about circumstances that could reasonably have been expected to cause an insured event.

The Supreme Court, therefore, correctly denied both motions for summary judgment as to the Year One policy.

To establish that it satisfied the notification requirement, however, Vyaire would have to prove that it discovered the event no earlier than February 10, 2019, and gave notice as soon as possible. Before March 2019, there were no reported injuries due to aluminum toxicity from enFlow, despite its frequent and widespread use. Moreover, no regulatory agency had yet indicated any intention to recall the product.

Yet, by that date, Vyaire had engaged in extensive communications with foreign regulatory agencies for approximately a year regarding enFlow’s possible aluminum toxicity.

Vyaire had also conducted its own testing regarding aluminum leaching. Vyaire knew that an infusion containing lactate, not malate, leached potentially dangerous amounts of aluminum.

The competing claims raise issues of fact as to whether Vyaire had a reasonable belief, until at least February 10, 2019, that no insured event had occurred.

ZALMA OPINION

This case teaches that every insured of a liability insurance policy should always advise the insurers when it learns of a potential of a loss that would be an insurable event under the policy. Vyaire failed when it knew there was a potential problem with the product and the danger of injury to people using the product. Vyaire failed on one policy year and potentially failed on the earlier year which the court left for trial to determine whether Vyaire had a reasonable belief until 2/10/19 that no insured event had occurred. The problem and litigation could have been resolved by a prompt notice.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Go to the Insurance Claims Library – https://lnkd.in/gwEYkxD.

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It is Time to Control Punitive Damages

Courts Should Limit Punitive Damages

See the full video at https://rumble.com/v4f0zkx-it-is-time-to-control-punitive-damages.html and at https://youtu.be/3Zv_H_kJVYw

Post 4741

The US Supreme Court has clearly stated that “[p]unitive damages may properly be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repetition.” [BMW of North America, Inc. v. Gore, 517 U. S. 559.]  These damages often exceed the fines assessed by the state if the same person had acted criminally to damage the plaintiff.

The skills of plaintiff’s trial lawyers have convinced juries to award damages in sums that exceed the annual budget of Greece. The jury assesses the enormous damages because it becomes inflamed by the wrongful conduct of the defendant and agrees with the lawyer’s suggestion that the jury “teach the defendant a lesson” to stop it from doing the same to others. The argument has been successful in thousands of suits brought from Vermont to California and Florida to Washington.

For years punitive damage awards were unlimited. A $40 compensatory damage award resulted in a $5,000,000.00 punitive damages verdict. Some juries assessed billions of dollars in punitive damages with no constraint from the courts other than the wealth of the defendant.

In 2003 the US Supreme Court limited punitive damages in the United States when in State Farm Mutual Automobile Insurance Co. v. Campbell,  123 S.Ct. 1513, 538 U.S. 408, 155 L.Ed.2d 585 (U.S. 04/07/2003) by a 6-3 vote, overturned a $145 million verdict against an insurer. The Supreme Court concluded that a punitive damages award of $145 million, where full compensatory damages were $1 million, is excessive and violates the Due Process Clause of the Fourteenth Amendment.

Justice Kennedy, writing for the majority limited the ability of state and federal courts to award huge punitive damages awards and concluded that it was improbable that a punitive damage award more than a single digit multiplier of the compensatory damages award would seldom, if ever, pass the due process test. The Supreme Court, in BMW of North America, Inc. v. Gore, supra, set forth specific tests that must be met before punitive damages could fulfill the requirements of due process.

The State Farm Mutual Automobile Insurance Co. v. Campbell case arose out of an automobile accident where one party was killed and another severely injured. The Campbells, insured by State Farm attempted to pass six vehicles on a two-lane highway, failed, and caused the driver of an oncoming car to drive off the road to escape collision with the Campbells’ vehicle. The Campbells only had $25,000 coverage per person and $50,000 in the aggregate. The Campbells felt they were not at fault because there was no contact between the two vehicles. State Farm ignored the advice of its adjuster and counsel to accept policy limits demands and took the case to trial. The verdict at trial was more than $180,000 and the State Farm appointed counsel told the Campbells to put their house on the market since they would need the money to pay the verdict. State Farm refused to pay the judgment and to fund an appeal. The Campbells retained personal counsel to pursue an appeal that was not successful, entered into a settlement with the plaintiffs where the plaintiffs agreed to not execute on their judgment in exchange for an assignment of 90% of all money received in a bad faith action by the Campbells against State Farm. Before suit was filed, State Farm paid the full judgment.

At trial, the plaintiffs brought in evidence of actions of State Farm in first party cases across the country, in third party cases not similar to the Campbells’ auto accident and other evidence not related to the facts of their case.

The Supreme Court found that State Farm’s “handling of the claims against the Campbells merits no praise,” but concluded “a more modest punishment could have satisfied the State’s legitimate objectives “instead, this case was used as a platform to expose, and punish, the perceived deficiencies of State Farm’s operations throughout the country. However, a State cannot punish a defendant for conduct that may have been lawful where it occurred.”

State Farm Mutual Automobile Insurance Co. v. Campbell created a major, precedent changing, limitation on the right of a jury to assess punitive damages settling limits on total amounts that can be assessed and the types of wrongful conduct a jury can consider.

In determining the constitutional maximum for a particular punitive damage award under the due process clause, we are directed to follow three guideposts:

(1) the degree of reprehensibility of the defendant’s misconduct;

(2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and

(3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

The Ratio of Punitive Damages to Actual or Potential Harm

Punitive damages must bear a reasonable relationship to compensatory damages or to the plaintiff’s actual or potential harm. Courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.

Juries are often mislead that the poor victim of an insurer’s bad faith will be able to enjoy the compensation. After paying a contingency fee to counsel and state and federal income taxes the plaintiff recovers little or nothing of the punitive damages.

ZALMA OPINION

Although punitive damages serve a public purpose and deter wrongdoers from wrongful conduct the use of punitive damages in insurance bad faith cases has, in my opinion, done little to deter wrongdoing by insurance companies.

It is time to put a stake in the heart of the tort of bad faith. Insureds who are wronged by their insurer should limit their recovery to contract damages. They should be compelled to waive the tort and sue in assumsit. If the tort of bad faith must exist it must be applied equally. The abuse of the tort of bad faith has become so extreme that the tort must be eliminated or otherwise made fair.

Adapted from my book the Insurance Bad Faith and Punitive Damages Deskbook available at fastcase.com bookstore.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Lie on Application & Find Policy Rescinded

MD Refused to Recognize She was Deceived and Misrepresented Facts on Application 

Post 4740

See the full video at https://rumble.com/v4evqvl-lie-on-application-and-find-policy-rescinded.html  and at https://www.youtube.com/watch?v=1YhahW6G-Gk

MD Refused to Recognize She was Deceived and Misrepresented Facts on Application

Post 4740

Former patients of Pediatric Partners for Attention and Learning, Inc., sued the clinic and its founder, Dr. Joni Johnson, in state court after learning that the clinic’s inhouse psychologist Sharonda Avery, who treated them, was actually not a psychologist at all. The insurer sued to confirm rescission because the application contained false statements.

In Medical Mutual Insurance Company Of North Carolina v. Cathy Gnik, Individually and as Mother and Next Friend of N.A., A Minor and N.L. A Minor; et al, No. 22-1994, United States Court of Appeals, Fourth Circuit (February 16, 2024)

FACTS

Pediatric Partners and Dr. Johnson asked their professional liability insurance carrier, Medical Mutual Insurance Company of North Carolina, to defend and indemnify them in the lawsuits. In response, Medical Mutual brought a declaratory judgment action in federal court, arguing that it could rescind the policy covering Pediatric Partners and Dr. Johnson because of Dr. Johnson’s material misstatements in her insurance applications. The district court agreed and granted Medical Mutual’s motion for summary judgment.

In 2012, Dr. Johnson founded Pediatric Partners as a multidisciplinary clinic offering medical, behavioral and cognitive services to children and adults in Virginia. That year, Dr. Johnson hired Sharonda Avery as an educational advocate, a position that did not require a license. In 2013, Avery approached Dr. Johnson about becoming Pediatric Partners’ in-house psychologist, claiming that she had recently obtained a Ph.D. in General Psychology and would soon earn a Psy.D. in Clinical Psychology. However, Avery was lying.

Before Avery assumed her new role, Dr. Johnson asked Avery for proof of her license to practice psychology. When Dr. Johnson asked for proof of that license, Avery did not provide any. Avery’s inability to produce a license did not stop her and although dishonest, Avery was resourceful. She provided Dr. Johnson with fake Ph.D. and Psy.D. diplomas. This apparently satisfied Dr. Johnson, so Avery began administering cognitive testing to patients while holding herself out as a psychologist.

In the spring of 2014, the Virginia Department of Health Professions (“VDHP”) received a complaint that Avery was practicing psychology without a license. A VDHP investigator visited Pediatric Partners and spoke with Dr. Johnson about the complaint.

After Avery’s promotion Avery told Dr. Johnson, without elaboration, that she did not think she could become permanently licensed. Even so, Dr. Johnson permitted Avery to continue providing testing and therapy services

THE APPLICATION

Later in 2017, while Avery was working part-time at Pediatric Partners, Dr. Johnson sought professional liability coverage from Medical Mutual. Dr. Johnson completed an Entity Professional Liability Application (“Entity Application”) and, separately, a Medical Practitioners Professional Liability Application (“Practitioner Application”). The Entity Application included the question, “Has the Applicant or any of its employees ever been the subject of disciplinary investigative proceedings or a reprimand by a governmental or administrative agency, hospital, or professional association?” Despite knowing about the 2014 VDHP inquiry, Dr. Johnson answered, “No.”

Medical Mutual issued a professional liability policy to Dr. Johnson and Pediatric Partners for a period of September 1, 2017, to September 1, 2018. But the policy had a retroactive effective date of September 1, 2012, meaning it covered claims based on conduct going back to that date.

In September 2017, Dr. Johnson terminated Avery-not because of Avery’s fraud, but due to her increasing unavailability. Dr. Johnson claimed that she only learned of Avery’s fraud after Avery left Pediatric Partners.

Dr. Johnson filed claims with Medical Mutual based on two complaints made to the VDHP against her. Whatever the details, there is no dispute that these complaints related to Avery’s fraud. Still, Medical Mutual renewed the policy-albeit at a higher premium after identifying the complaints in the policy renewal worksheet-for a period of September 1, 2018, to September 1, 2019.

Authorities arrested Avery in 2019 on multiple state charges stemming from her fraudulent conduct. In 2020, she was convicted.

The district court granted Medical Mutual’s summary judgment motion, concluding that Medical Mutual had clearly proven that Dr. Johnson’s answer to the disciplinary investigative proceedings question was a material misstatement.

ANALYSIS

The Virginia Code permits an insurer to rescind an insurance policy if the insured made a material misstatement in the policy applications.

Dr. Johnson’s subjective knowledge of the falsity of her representation is irrelevant. Under Virginia law, unless an insured qualified her statements as being to the best of her knowledge, or with some similar limitation, “clear proof of mere falsity of the statements [is] sufficient.”

Courts in Virginia apply traditional principles of contract interpretation when reviewing insurance policies and when a policy term is unambiguous, a court will apply its plain meaning. Considering the entire phrase and its context, “disciplinary investigative proceedings” is not ambiguous.

Medical Mutual contends that the affidavits of two of its underwriters carried the burden of clearly proving the materiality of Dr. Johnson’s misstatement. Both underwriters indicated that, had Dr. Johnson accurately represented that one of her employees had been the subject of a disciplinary investigative proceeding, Medical Mutual would have learned of the 2014 investigation into Avery and refused to issue the policy.

Based on the underwriters’ affidavits and the renewal worksheet, the court found that Dr. Johnson’s misstatement was material. Medical Mutual has clearly proven that it would have issued the policy at an increased premium if at all-had Dr. Johnson accurately represented that Avery had been the subject of disciplinary investigative proceedings.

Accordingly, there is no genuine dispute of material fact that Dr. Johnson made a material misstatement in her policy applications. The judgment was affirmed.

ZALMA OPINION

Insurance is a business of utmost good faith where neither party to the contract of insurance will do nothing to prevent the other from receiving the benefits of the contract. Dr. Johnson, in bad faith and with knowledge, lied to Medical Mutual to obtain the insurance and ignored the fact that she knew Avery was not licensed, was not a college graduate – let alone the holder of a Phd. Rescission is an equitable remedy where the court concludes it would not be fair to require an insurer to indemnify an insured who obtained the policy by misrepresentation and concealment of material facts.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Liar, Liar, Pants on Fire

Insurance Fraud Required to Survive

The following is a fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers.

Post 4739

See the full video at https://rumble.com/v4eltd5-liar-liar-pants-on-fire.html  and at https://youtu.be/so7FGYoA87Q

If Louie has been born fifty years earlier, he would be called a gigolo. Louie was a classically handsome man. He stood 6’2” tall, combed his black hair straight back in a style that would do a Madison Avenue advertising executive proud. His eyes were an unblinking, watery blue that seemed to caress any woman at whom he looked. He ran three miles every morning and maintained a 180-pound, lithe physique.

Louie had a pleasant personality. Everyone he met liked him. He could drink beer with the boys and sip wine with distinguished and well-bred women. He wore a tuxedo as if Calvin Klein had his body in mind when it was designed.

Louie was not smart. Louie graduated from Thomas Jefferson High School in San Jose with a solid D- average. After leaving high school Louie worked at various menial jobs from janitor to fry-cook. He seldom held a job for more than six months.

Louie loved to dance. On weekends he would drive up to San Francisco and spend every night dancing in the clubs. It was on one of these dancing adventures in San Francisco that changed Louie’s life. Louie met Toni Di Battaglia. They danced every dance until the club closed at 4:00 a.m. They danced disco, waltzes and even country and western line dances.

Toni told him she worked for the Teamsters Union out of New Jersey and visited San Francisco monthly.

When Toni learned that Louie lived in San Jose, she invited him to her hotel and their relationship blossomed. Toni was a wealthy and powerful woman in her own right. She had a husband twenty years her senior who did not understand her. Louie was her release. They were in love. Toni did not love Louie for his intelligence. She did not love Louie for his ability to communicate. Toni loved Louie because he was beautiful, a good dancer and made her look good whenever they were out together.

She knew he could not afford to live in the manner in which she had grown accustomed. A suite at the Four Seasons Hotel (where she always stayed) cost more for a night than Louie could earn in a month. Only one solution existed. She needed to support him.

At first Louie rebelled. Taking money from a beautiful woman was not proper for a virile, healthy young man. Toni was insistent and Louie succumbed to her charm.

Toni bought Louie a condominium in the Marina district. She helped Louie furnish the Condo with antiques to satisfy her taste. She would come to San Francisco for three or four days every month. Toni gave Louie $5,000 cash each month to cover his expenses while she was gone. Louie could do whatever he wanted except during the three days Toni was in town.

Louie was a happy man. He lived better than he had in his life. He went out dancing every night. All of his clothes were custom tailored. Louie and Toni were a couple.

Every time Toni would visit, she would bring a gift for Louie. He did not understand the gifts but he accepted them with the grace of a well-bred gentleman. The gifts were always personal jewelry or gifts for his condominium. One month she brought a sterling silver tea service that Toni said was a Victorian antique. Next, she brought him a sterling silver cigarette case she said the famous Russian jeweler Faberge made for the Romanov family before the Russian revolution. She would bring him sculptures, oil paintings, silver candelabra, gold and diamond jewelry, or another bauble that peaked her fancy. To impress Louie, she told him the cost of each bauble. She exaggerated since he was unsophisticated and money still impressed him. Often, she would claim a gift cost her as much as $10,000 more than she actually paid for it. Louie thought he was rich. Louie, adding up what Toni told him she paid for each item thought the value of his household goods was more than $3 million.

Since Toni was away most of each month, Louie became bored. His only passion other than dancing was sports.

He had a satellite dish installed on his condominium; Louie would religiously follow each of the various sports channels. He even watched the Spanish language sports channel although he could not understand the commentary. His knowledge of sports was catholic. He usually knew which team would win and by how much. When he explained his skill to Toni (on one of her visits), she introduced him to a bookmaker. Toni suggested that he use his knowledge to make money by betting on sporting events.

On her next visit Louie pleasantly surprised Toni. He made enough betting on sporting events that he refused her cash contribution. She suggested that Louie set up a legitimate business and sell his sporting knowledge to the public. In this way, by just selling his choices, he could avoid any potential problem with the police. Toni had no compunction about violating the law. She wanted to keep Louie safe for her pleasure.

Running the business kept Louie busy and made him more lovable to Toni. Their relationship continued for ten happy years.

On a fateful November Sunday, while watching a San Francisco 49’ers football game, a news flash interrupted the game to announce a Mafia massacre in New Jersey. Four Teamsters Union officials, allegedly members of the Tortelini crime family, had been found dead in a parked Lincoln Town Car under an overpass of the Jersey Turnpike. All had been shot three times in the head with large caliber weapons. One of the dead was Toni Di Battaglia.

Louie mourned. He no longer had a source of income and gifts. His sports business was failing. The partner he chose had taken all of the company assets and gone to Arruba. He was broke. The love of his life, who supported him for many years, was dead. He had no skills, no profession. Louie owned his condo and could mortgage it. The proceeds would keep him for a short time.

Louie needed a plan to make a large amount of money. He wanted to continue to live comfortably until he could meet someone else, like Toni, who would support him in the manner he had grown accustomed to living. The solution was his condo owners’insurance policy.

Toni had insisted that he always keep a condo owners’ policy on his condominium. His condo owners’ policy had a $400,000 limit, although Toni had led him to believe that the antiques she had given him were worth more than a few million dollars. He would just make a list describing the various items in the condominium and place beside each description the amounts that Toni told him she had paid. He would then report to the police and his insurance company that he had been robbed of items very much like the items in the house.

Neither the police nor the insurance company could prove, since Toni was dead, that he was lying. The amount claimed would be more than the policy limit. Louie was sure the Insurance Company would immediately pay $400,000.00.

Just before Christmas Louie called the police to report that two armed robbers had come to his door and, pretending to be UPS delivery men, gained entrance. Holding him captive with pistols he would say they removed from his condo more than $1,000,000 in silver, fine arts and jewelry.

Included on his list were twenty-five bronze statutes by Erte; a Georgian silver epergne; three Faberge silver and gold cigarette cases; two Faberge picture frames made of semiprecious stones, gold and silver; a Victorian sterling silver tea set; two Georgian sterling silver tea sets; a Victorian sterling flatware service for twelve; two diamond rings; and a solid gold and diamond Rolex watch. The total value of all items Louie claimed stolen equaled $1,300,000.

The insurance company assigned its staff adjuster to investigate the loss. The adjuster was a twenty-five-year-old young woman who had started the profession two years before the day Louie reported the robbery. The opulence of Louie’s condominium and his good looks blinded her. It was clear to her inexperienced eye that the house was full of lovely antiques. She had no reason to disbelieve Louie when he told her that what was still in the house was worth more than $2 million. She presented the claim to her home office and recommended, since the loss exceeded the policy limit by a factor of three, that they pay the full policy limit.

Older and wiser people resided at the insurance company home office. Before they would authorize payment of $400,000 on a claim, they wanted evidence that the values Louie asked them to pay was reasonable and substantiated. They accepted the adjusters report, as fact, that Louie got all of the items by gift. The insurance company accepted that he could not, therefore, prove ownership or value. They expected, however, that he could, by comparison to the items still present, provide enough description to allow them to establish the true value of the items stolen.

The insurance company hired a fine arts appraiser who visited with Louie. The appraiser, looking at the initial written list, knew that Louie was unsophisticated about antiques and items of art. He could not spell “Faberge” or “epergne” and seemed to have difficulty with describing his items of silver. He would describe, for instance, silver as “Victorian” and yet insist it was manufactured before Victoria took the throne; Louie claimed Sheffield silver as “sterling,” not knowing that Sheffield was famous as a center for a specific type of silver plate.

The appraiser studied the silver and other items of art Louie still had in his home. She was convinced that his claim of values was fraudulent or, at the very least, highly inflated. The values stated on Louie’s claim did not agree with any reasonable market. The items he claimed to be Faberge were undervalued by thousands of dollars. Silver items claimed to be Georgian and Victorian were overvalued by a factor of three or more in the opinion of the appraiser.

The appraiser reported his conclusions to the insurer. The insurance company home office personnel, to aid Louie in describing his property, hired an attorney experienced in fine arts. The lawyer was instructed to examine Louie under oath. The insurance company hoped the lawyer would gain more detailed descriptions of the items stolen. They expected, with professional questioning, Louie would establish the true amount of his loss. They could not pay because their appraiser told them the loss could be in a range from $40,000 to $1 million.

Louie testified for two days. He was frightened. The lawyer, although always friendly caused Louie to break out in cold sweats he hoped was not visible. He did not tell the truth about anything to the lawyer. Louie limited his descriptions of the property stolen to the list he had written before he called the insurance company. Despite how detailed the lawyer’s probing, Louie stuck to the description he had written.

When the lawyer questioned Louie’s ability to earn money to keep up the condo, he created a story to show that he had a source of income. Louie told the lawyer that Toni’s “family” sent him, after her death, an annuity of $10,000 cash every month. The money came each month in a plain brown baggage via UPS.

When the examinations under oath were finished, the insurance company and its lawyer were convinced Louie was attempting to defraud it. The lawyer, with the approval of the insurance company, advised Louie that the insurance company denied the claim.

He sued. Five years later a Superior Court jury, after hearing all of the evidence, sent him away with nothing. Although Louie was a convincing actor, the jury concluded only that Louie had been robbed. The jury concluded, also, that he had lied to the insurance company about the existence and value of the property.  They gave judgment for the insurance company. It did not have to pay $400,000 to Louie. It did, however, find itself paying more than $700,000 to its lawyers and experts who made it possible for them to win the lawsuit.

Insurance fraud did not pay for Louie. Fighting fraud, however, on the surface saved his insurance company nothing. In fact, to defeat the fraud the insurance company spent more than it would have cost if it had paid his claim in full. However, Louie’s insurance company gained the reputation of being a fighter and found very few attempts at fraud in the next few years which saved it ten times what it cost to defeat Louie’s claim.

Justice was done and Louie lived happily ever after. During the trial he met Carla, a CPA with offices on the twenty-third floor of a building on California Street that his attorneys hired to prosecute his claim.

Carla took Toni’s place. Louie still lives in his condo surrounded by antiques. Whenever Carla visits, Louie receives a new bauble. Carla pays his expenses.

Louie will never again try insurance fraud.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

Subscribe to my substack at https://barryzalma.substack.com/publish/post/107007808

Go to Newsbreak.com  https://www.newsbreak.com/@c/1653419?s=01

Go to X @bzalma; Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg;  Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library.

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