The attempts to prevent insurance fraud are not entirely useless. As I report in this month's issue of Zalma's Insurance Fraud Letter, the following were convicted of variations of the crime of insurance fraud:
Convictions
===== Probation for Insurance Fraud in Texas
On April 2, 2008, Texas Mutual Insurance Company reported that an Arp, Texas, business owner pled guilty in a workers' compensation fraud-related case. The Travis County district court ordered Jerry Don Calicutt, owner of ZIPCO Services Inc., to serve 18 months' probation and perform 100 hours of community service. The court also ordered Calicutt to pay $61,461 to Texas Mutual and a $4,000 fine. ZIPCO Services Inc. is an oil and gas contractor located in Kilgore, Texas. Calicutt misrepresented the size of ZIPCO's operations and number of employees to Texas Mutual, the insurer reported. Because workers' compensation insurance premium is based in part on payroll, the scheme allowed the company to pay less in premiums than it actually owed.
===== South Carolina Convicts 94 in 2007
The South Carolina Insurance Fraud Division received 712 fraud complaints totaling $8.4 million in 2007, resulting in 94 criminal convictions, 72 civil remedies and approximately $550,000 in fines, restitution and civil penalties, according to an annual report from state Attorney General Henry McMaster. The amount of reported fraud was well shy of the $15.4 million reported in 2006 -- when one complaint of $10 million was reported -- but up from previous years. The percentage of automobile insurance fraud and workers' compensation fraud increased in 2007. The greatest number of complaints was due to auto insurance fraud: 50% and workers' compensation fraud at 14% followed by personal/commercial property fraud at13% and health/medical fraud at 9%. Since the Attorney General's Insurance Fraud Division began prosecuting insurance fraud cases in 1995, it has collected nearly $6 million. A small state with a unit operated by the Attorney General has as many or more convictions than some of the bigger states who spread the wealth locally.
===== Convictions in West Virginia -- One to Ten Years Suspended
West Virginia Insurance Commissioner, Jane L. Cline announced that Tina Marie Browning, 40, of Eskdale, W. Va., who had been indicted on one felony count each of forgery and uttering and fraudulent schemes in January, 2008 pleaded guilty to one count of uttering a forged document on February 28, 2008. Linda Foster, 60, also pleaded guilty to the charge on the same date. Browning and Foster wrote checks on an account and continued to receive workers' compensation benefits meant for another individual who passed away but had lived at the same residence, according to the Insurance Commissioner. Both were sentenced to one to 10 years in a state penitentiary, then had their sentences suspended and each were placed on four years probation, ordered each to pay $7,500 in restitution to the Workers' Compensation Old Fund and perform extensive community service during the duration of their probation.
===== Fraud Convicted in Australia
On April 10, 2008, Australia's securities regulator reported Scot Weston, a broker formerly employed by Hirtes Insurance Brokers Pty. Ltd. pleaded guilty plea for fraudulently representing Lloyd's policies which had never been issued. Weston allegedly forwarded documents to a number of Go Kart Track operators and to the New South Wales Department of Tourism, Sport and Recreation that claimed to detail insurance policies with coverage of A$30 million (14.1 million pounds or about $28 million) underwritten by Lloyds. Weston admitted he had not obtained such policies. ASIC said Weston pleaded guilty to four counts of dishonest conduct in relation to a financial product. The alleged activity was carried out between Jun 1 and Aug. 27, 2002. Weston is due to appear before Sydney's District Court for sentencing on June 6.
===== Agent Loses License for Fraud
The Connecticut Insurance Department reported on April 16, 2008 that it revoked the license of a Middlesex County insurance agent who it says forged clients' signatures and held thousands of dollars in payments in his own bank account. The allegations against David M. Raczka follow an investigation by the department's market conduct team. In addition to the forgeries, Raczka allegedly held on to his clients' money from 4 to 10 months before reinvesting it on their behalf. He also was found to have changed mailing addresses and beneficiary information for clients without their authorization. Commissioner Thomas R. Sullivan ordered the revocation. "Taking a bad agent out of the marketplace ensures consumers are protected from unscrupulous and fraudulent behavior," he said.
===== Fraud by Insured Defeats Suit
The law firm MacGregor & Berthel reports that after deliberating only three hours, a jury in California has denied an insurance claim because the property damaged was exaggerated. In Reddy v. Allstate Insurance Co. a claim resulting from the February 14, 2003 Bell Canyon, California, Fire, on which the carrier promptly paid more than $380,000 for lost rents and structure damage to the 3,000 square-foot, single-level residence, was exaggerated. When the carrier dug into the claim for contents damage -- four-and-a-half months after the insureds and their attorney were provided with a detailed inventory of contents prepared by the adjuster as she toured the burned remains of the house with the homeowner -- the insureds added a claim for $245,000 worth of exotic artwork, statuary, hand-loomed carpets and unspecified antiques. The claim for those additional items, which included about 50 framed oil paintings, 10 large solid rosewood statues and 10 Kashmere carpets, was not supported by the after-fire debris seen and photographed at the site. By the time the claim was asserted, the insureds had unilaterally demolished the structure and carted all debris away. Although the insureds gave a recorded statement, months of attempts by Allstate to conduct examinations under oath (EUO) came to naught when the insureds' attorney notified the carrier that the insureds would not appear as scheduled and had no intention of appearing until their still-disputed claim on the structure was resolved. After Allstate made several further unsuccessful attempts to secure the insureds' EUOs, Allstate denied the claim. The insureds then filed the lawsuit for breach of contract and bad faith. At trial, Allstate questioned the plaintiffs on discrepancies between their various statements about their contents claim, citing irreconcilable factual claims made by the plaintiffs in their recorded statement, in their pre-trial depositions and in their trial testimony. On the structure claim, the carrier's lawyers argued that the policy required payment of only the actual cash value of $315,000 (plus the code upgrades and debris removal of $23,000, also paid in 2003) unless and until the insureds did the repairs. At that point, Allstate would have paid the balance of the repair estimate it had agreed to, $395,000, the company's lawyers said. The only witnesses who testified on that subject, who had actually seen the structure before the plaintiffs had unilaterally demolished it, were the adjuster and his structural engineer, both of whom found it fully repairable; failure to repair the damage precluded further payment on the claim. He argued that the misrepresentations regarding the contents claim infected the entire claim and constituted precisely the type of fraud that precludes any recovery on any aspect of the claim. The jury agreed with Allstate, finding by 10-2 that the plaintiffs had committed fraud that precluded further recovery on any aspect of the claim. That verdict should, if Allstate is willing, provide Allstate with a finding that the policy was void and should allow it to sue the insured to regain all monies paid.
===== Probation for W.C. Fraud in Texas
On April 18, 2008, Texas Mutual Insurance Company reported that a Travis County district court sentenced Frank Tisdale to five years' probation on workers' compensation fraud-related charges. It also ordered him to pay $6,849 in restitution to Texas Mutual Insurance Company, $1,380 in extradition costs necessary to return him to Texas from Georgia for prosecution, and a $300 fine. Tisdale reported a job-related injury while working as a market clerk for Richann Ltd., a grocery store in McAllen, Texas. He claimed he was unable to work as a result of the injuries, and Texas Mutual Insurance Company began paying him disability income benefits. Meanwhile, Texas Mutual uncovered evidence that Tisdale was working as a butcher in a Georgia grocery store while receiving disability income benefits. Investigators call this type of scam double-dipping because the claimant collects benefits for being too injured to work when he or she is, in fact, gainfully employed. Texas law requires claimants to contact their workers' comp carrier when they return to work.