Insurance_FraudStoppers

Zalma on Insurance

Barry Zalma, CFE, is an insurance coverage attorney. He is the founder of Barry Zalma, Inc., a California law firm whose practice emphasizes the representation of insurers and those in the business of insurance.

Mr. Zalma is the author of Insurance Claims: A Comprehensive Guide, published by Specialty Technical Publishers, Vancouver, BC at http://www.stpub.com The Truth, The Whole Truth & Nothing But The Truth, Property Claims 2nd Edition and Liability Claims and all course books used by ClaimSchool, Inc. in its training programs. He is also the author of three books published by Thomas Investigative Publishing, and numerous articles for insurance trade publications and law journals.

Mr. Zalma writes the monthly Zalma's Insurance Fraud Letter which is available, FREE, from ClaimSchool, Inc. and over the internet at http://www.zalma.com

Specialty Technical Publishers has published "Mold: A Comprehensive Claims Guide" by Culver City lawyer Barry Zalma. The book is the only comprehensive guide to cover all issues relating to claims of damage by mold or fungal infestations. It is an essential tool for every person who owns real property, manages real property, for all risk managers, realtors, property inspection companies, insurance agents and brokers, insurance claims people, and lawyers who represent property owners or insurers. It is available at http://www.stpub.com or by calling 1800-251-0381

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Fraud around the World

excerpts from Zalma's Insurance Fraud Letter

Volume 7, Number 6, August 2003

Tough Sentence For Fraud?

Insurance Fraud will continue, in my opinion, unabated as long as the courts refuse to take it seriously as a crime. The following report is evidence that even when a defendant pleads guilty to a fraudulent scheme the punishment for this felony is often less than for jay walking or the theft of a loaf of bread.

On July 1, 2003 the California Department of Insurance announced that Brian Wynn Stevens, 34, of Helendale, pled guilty to one count of insurance fraud stemming from an auto accident that occurred while he was uninsured, according to an investigation by the California Department of Insurance (CDI). He was sentenced to 15 days in county jail, three years probation and a $150 fine. Stevens surrendered to authorities on June 13 and was booked into the Placer County Jail. The Placer County District Attorney's Office prosecuted the case.

According to CDI Fraud investigators, on March 10, 2003, Stevens reportedly was involved in a motor vehicle accident while uninsured. Later that day, Stevens allegedly purchased insurance online through Esurance. On March 11, Stevens stated in a recorded statement that he purchased the policy prior to the accident. He later admitted to investigators during an interview that he had purchased the policy after the accident.
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Texas Justice

Sometimes insurers cannot get justice from the criminal courts and are forced to use civil courts to obtain remuneration from fraud perpetrators. For example, in late June, 2003 a Travis County (Texas) District Judge, Patrick Keel, found that a San Antonio janitorial company reportedly lied about its payroll to get workers' compensation coverage so it could pursue lucrative government contracts. In many states, like California, premium fraud is a felony.

According to the "Insurance Journal" Texas Mutual Insurance Company, at the civil trial of Miguel Delgado, owner of San Antonio's Border Maintenance Services Inc., Judge Keel determined that Delgado and his co-conspirator, Linda Delgado, committed fraud and ordered them to pay over $1.6 million in restitution to Texas Mutual.

During the one-day civil trial, the evidence reportedly showed that the Delgados bought workers' compensation insurance for Border Maintenance Services Inc, doing business as Del-Kleen Inc. The Delgados paid a premium covering five employees, and they used the company's certificates of insurance to get government contracts, which required workers' compensation coverage. When Texas Mutual auditors asked to review Border Maintenance Services records, Delgado reportedly refused. He claimed that Border Maintenance Services was covered separately under an occupational accident policy and that most of its 450 employees should not be included in the workers' compensation premium calculation. He offered to include some Border Maintenance Services employees in the premium.

A Texas Mutual fraud investigation discovered that Del-Kleen was a company in name only, with no employees and no payroll. The Delgados reportedly tried to invent a Del-Kleen payroll by moving some employee names over from the Border Maintenance Services books.

When confronted with these improprieties, Delgado refused to pay the additional $868,162 in premium. Judge Keel found that the two companies were operating as a single business enterprise and awarded Texas Mutual Insurance Company its premium due, plus interest and attorney's fees, totaling $1,643,029.
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British Initiative

"Insurance News" a British Publication reported on July 9, 2003:

Allianz Cornhill has announced plans to halve its panel of fraud investigators.

The insurer currently has 12 investigators on its panel, but it is aiming to reduce this to six.

To help carry out the review, Allianz Cornhill has written to its panel members setting out a list of standards it expects its investigators to meet.

It is understood that among the standards required by Allianz Cornhill is evidence of the financial health of investigators on its panel.

An Allianz Cornhill spokesman said that not all of its panel members had responded to its requests for assurances on standards.

"Asking for assurances on standards has scared some of the firms off," he said.

Last week, it was revealed that Allianz Cornhill had developed an automated system enabling claims handlers to log suspected fraudulent claims.

The system allows claims handlers to fill out details of a suspected fraudulent claim on screen rather than filling out details on paper as was previously the case.
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UK businesses reported some of the highest levels of fraud in the world, with 51% claiming they have been subject to economic crime in the last two years.

Andrew Clark, head of investigations at PricewaterhouseCoopers, said: "Economic crime is a serious business risk, with one in two UK companies reporting an incident.

"Businesses are insured for losses in traditional areas such as employee theft, but only 41% are insuring themselves against malicious attacks. Worryingly, British businesses are clearly under-insured."

Although this story, on first reading, looks like the insurer is reducing its effort to fight fraud it is really good news since it shows the fight against fraud is beginning to be taken seriously by our friends in Britain. It is imperative that the fraud investigators who serve insurers are financially sound and if those vendors are unwilling to provide information on their financial condition the fraud investigators may be more dangerous to the insurer than the fraud itself.
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The "Honest" Britains

The Coalition Against Insurance Fraud Notes: "Nearly half of Brits would consider making a bogus claim while vacationing, says survey by the Association of British Travel Insurers. People consider bogus claims no worse than stealing towels from their vacation hotel, the survey notes. One vacationer made five claims for loss of the same eye. A couple claimed apes on the Rock of Gibraltar had snatched and damaged their video camcorder and digital camera, until the claimants finally admitted they'd dropped the equipment themselves. Another man made eight claims for having his appendix removed while in Cyprus. One woman said her Rolex watch was stolen until suspicious police found it in her friend's handbag. One man claimed costs of recovering from a heart attack while vacationing in West Africa; the bill actually covered the cost of visiting a local brothel."
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An Evil Fraud

Whenever there is a disaster larcenous individuals try to take advantage. Earthquakes, hurricanes and tornados draw fraudulent claims like a picnic draws ants or a talent scout draws actors. The Insurance Journal reported on July 21, 2003 reported the most evil of these criminals, one who tried to take advantage of the 9/11 attack on the World Trade Center.

The New York City Police Commissioner Raymond Kelly and New York State Insurance Superintendent Gregory Serio announced the arrest of Peter Perouza, 32, who is charged with insurance fraud and grand larceny stemming from a fraudulent claim he reportedly submitted stating that his vehicle was destroyed in the World Trade Center attacks of Sept. 11, 2001.

Perouza, who lived in Brooklyn, fraudulently submitted a claim to Met Life Home & Auto Insurance Company that stated his leased vehicle was destroyed in the garage of the World Trade Center on Sept. 11, 2001. Met Life Home & Auto paid the leasing company $28,000 on this claim.

Subsequently, Perouza reportedly parked the vehicle in a garage and discontinued payments for parking. The garage filed a lien for storage payments. It was then discovered that the car was owned by Met Life Home & Auto.
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Fraud in Britain

The "Insurance Times of England at Insurnacetimes.co.uk, reported a ruling of a British court about a broker who defrauded an insurer. The report stated:

In a damning judgment in the Commercial Court, Mr Justice Thomas has found that broker Stirling Cooke Brown (SCB) and underwriting agent Euro International Underwriting (EIU) defrauded Sphere Drake.

When EIU started underwriting for Sphere in early 1997, it was expected to write traditional personal accident business. Instead, it wrote a large volume of workers' compensation carve out reinsurance, a product which enabled US workers' compensation exposure to be underwritten by the life and personal accident markets. The judge found that EIU had dishonestly accepted huge volumes of this business, exposing Sphere to losses of up to $250m. It was either hoping to recover those losses from retrocessionaires, or was reckless as to whether retrocession was available.

In doing so, EIU had become subservient to the interests of SCB, a major broker of this business, whose driving force, Nick Brown, was described by the judge as "singularly dishonest". Spirals that circulated losses around the market had been deliberately created by SCB, which earned huge amounts in brokerage. These spirals could be sustained only by capacity being misled. Sphere itself had been serially misled, although its underwriter, Vic Broad, had been grossly negligent in supervising the binder.

Although Sphere Drake has received no compensation except costs, the decision should have a major impact on many existing disputes. The judge was careful to distinguish the unusual features that made this type of business improper. "Those features included the virtual certainty of losses, very low excess points, unlimited reinstatements, substantial underpricing, lack of information and tight, deliberately created spirals."

The case demonstrates the massive damage an uncontrolled agent can cause, and highlights the need for close supervision. Finally, questions must also be asked of regulators as to how a high-profile Lloyd's broker could have been allowed to base a substantial part of its business over many years on a dishonest structure.
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Why Is This A Question?

The Texas State Bar held a hearing recently to determine if Houston attorney and former San Antonio councilman Bernardo Eureste should be disbarred because of his 2002 federal conviction for fraud.

In June 2002, U.S. District Court Judge Lee Rosenthal sentenced Eureste to three years' probation for workers' compensation fraud-related charges. He also ordered Eureste to pay $108,486 in restitution to Texas Mutual Insurance Company and pay restitution to three former workers' compensation clients, in amounts ranging from approximately $975 to $2,067.

At the hearing, Assistant Disciplinary Counsel Michael McClendon, stating what should be obvious, said Eureste had stolen from his clients, many of whom were poorly educated, lower income injured workers. McClendon declared that Eureste's offenses must be met with disbarment.

McClendon used testimony from Elliott Flood, vice president of Special Investigations at Texas Mutual Insurance Company, to support his call for disbarment. Responding to McClendon's questions, Flood estimated that Eureste had reportedly over-billed his clients by as much as $1.4 million in a one-year period. "This [case] was unique in my experience," said Flood, a long-time investigator and former workers' compensation attorney himself.

The bar panel determined to take the matter under advisement. If there is justice in Texas, the decision should not take long.
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(c) 2003 by ClaimSchool
Written by Barry Zalma, Esq., CFE
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