Insurance Fraud Weekly ePort-Week Ending January 11

Insurance Fraud Weekly ePort
Week Ending January 11, 2008

www.InsuranceFraud.org 

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LEGISLATION & REGULATION

* Several state legislatures are gearing for the 2008 session. Many states must balance troubled budgets hit by the apparent economic downturn—and this could push insurance fraud issues onto backburners in some states. All states are required to have balanced budgets. Other states, including New Jersey and California, likely will spend time this year resolving their current fiscal budget shortfalls. Several states needed special sessions to correct their budgets last year.

* Several state legislatures are gearing for the 2008 session. Many states must balance troubled budgets hit by the apparent economic downturn—and this could push insurance fraud issues onto backburners in some states. All states are required to have balanced budgets. Other states, including New Jersey and California, likely will spend time this year resolving their current fiscal budget shortfalls. Several states needed special sessions to correct their budgets last year.

* The Vermont legislature is considering a bill allowing the labor department to receive annual workers comp anti-fraud plans that insurers file with the insurance department. The labor department also would receive information about fraud investigations, fraud referrals to law enforcement and prosecutions involving comp fraud. These provisions of S344 are part of a larger workers comp reform bill.

Note: Texts of anti-fraud bills are available on the coalition’s website here.

PUBLIC OUTREACH

* “Untold thousands of homeowners are struggling with ballooning subprime mortgage payments, and fraud fighters are watching closely for a spike in arsons by desperate homeowners who can no longer afford their home payments,” the coalition told Fortune Magazine and CNN Money in a national story about rising home arsons for insurance money by cash-strapped homeowners facing foreclosure.

* “A series of U.S. TV commercials in which Toyota owners eagerly destroy their own vehicles to make way for new purchases is drawing fire from U.S. (anti-fraud groups), including the Coalition Against Insurance Fraud,” writes the National Post, a major daily newspaper in Toronto. “The ads depict ‘the Toyotathon Phenomenon’ in which, among other manifestations, a car owner heaves a vehicle off the top of a parking garage… Despite an on-screen disclaimer that states ‘do not attempt,’ Daniel Johnston, executive director of the Insurance Fraud Bureau of Massachusetts, says the commercials are depictions of criminal acts, clearly perpetrated to collect insurance money fraudulently rather than trading in the old family car.”

CRIMINAL CONVICTIONS

* Elderly innkeeper Patricia Burton received just six months for torching her 100-year-old bed-and-breakfast for insurance money. “If I imposed prison, I think that would be a death sentence,” Judge Robert Ringland told reporters. The 75-year-old Loveland, Ky. woman isn’t dangerous and appears deluded about how the fire started, officials say. Reportedly destitute, Burton was ordered to pay Motorists Insurance Group, $13,977; reimburse the local fire department $5,292; and pay a $5,000 fine and court costs. Burton tried to deflect attention from her arson by loudly claiming the local fire department was slow to respond to the blaze. The charge enraged firefighters, especially since one was injured and a second hospitalized with chest pains. Burton could have received up to 23 years in prison.

* Daniel D. McGlone used a fake insurance card to illegally register two vehicles in the Frankfort, Ky. Area. The Olive Hill man had his son, a minor, create the fake cards on his home computer. McGlone received 20 days in jail this week. The Kentucky fraud bureau investigated the case.

* The former head of the Lackawanna, N.Y. workers comp fund hired a fake detective agency to investigate suspicious claims, prosecutors charged this week. Charles A. Costanzo hired Endless Mountain, Inc., which allegedly was run by a friend. The firm was paid $313,705 over 3 1/2 years but “did little to nothing,” the indictment says. The firm’s head, Marc S. Boriosi, isn’t even a licensed investigator, prosecutors charge. He’s allegedly agreed to plead guilty and cooperate with the investigation of Costanzo.

CRIMINAL CHARGES

* Brad Cox torched his Omaha, Neb.-area home to avoid foreclosure by scoring an insurance windfall, officials charge. The home was badly damaged in November. But investigators found some of his furniture at the home of a crony, and discovered an accelerant in the rubble. The blaze caused about $240,000 in damage. The insurance department’s fraud bureau played a lead role in the investigation.

* Insurance salesman Chris Densmore set up a fake company, Densmore Insurance Group, to sell phony no-fault auto policies for cash, Michigan authorities charge. The alleged scheme surfaced when an insured was involved in a car crash and discovered the coverage was worthless. At least eight others may have bought fake policies, says the Michigan insurance department. Densmore was ordered to stop selling auto insurance, and police are hunting for him in a suburb of Flint. 

* Two New Rochelle, N.Y. taxi companies shut down after the owners were accused of falsifying certificates of workers comp coverage. The closings leave 20 percent fewer cabs on the city streets. The New York State Insurance Fund was falsely listed as a provider on some certificates submitted by De Luxe Radio Taxi and American Taxi, officials allege. Coverage also was bought for a different kind of business at a lower premium, then the certificate was “pasted up” to seem like it was for a transit company, prosecutors say.

* It isn’t clear whether the hay bale or criminal charges hurt more. One of farmer Christopher Mersereau’s employees was injured when a bale fell and hit him on the head and shoulders. St. Paul/Travelers Insurance processed the claim, but discovered the Concord, Mass. farm operator allegedly had paid the injured worker partly by check—but mostly by cash without telling the insurer. Mersereau paid other farm employees the same way, and never disclosed the cash payments to St. Paul/Travelers, officials say. Mesrereau illegally saved $10,000 in workers comp premiums by hiding the payouts, prosecutors charge. Payroll size is a key factor in calculating comp premiums. The Massachusetts fraud bureau played a lead role in investigating the suspected scheme.

ADMINISTRATIVE & CIVIL ACTIONS

* One of the largest landowners in Cedar Rapids, Iowa charged American Family $750,000 for roof repairs that weren’t made to 145 properties after a destructive hailstorm, the insurer charges in a lawsuit. Wealthy landlord Robert Meill allegedly submitted invoices for contractors who didn’t exist, and copies of false checks made to contractors that were never issued or cashed. Meill says the work eventually was done, and cost more money than the insurer paid out.

* Texas Mutual Insurance Company falsified a medical record in its suit seeking to avoid paying for a workplace injury, a Dallas district court ruled Wednesday. The insurer was ordered to post notice of the court order on its website. Texas Mutual sued Dallas-area construction worker Juan Narvaez after he’d won at every level of claim proceedings involving a job-related injury that required surgery. The insurer then sued to recoup past payments and prevent future claims. No details yet on what document was altered, or how.

* Insurers should notify consumers when insurance payouts of $5,000 or more are sent to their lawyers, the Massachusetts insurance department has requested in a move to reduce theft of the checks by attorneys. Crooked lawyers steal settlement checks after settling insurance claims without their clients’ knowledge. Often they forge client signatures on the checks. The insurance department move is nonbinding, though neighboring Connecticut and Rhode Island have laws requiring notification, the department says. Several of the state’s largest bar associations reportedly support the effort, which took effect last month.

* A Missouri appeals court upheld an $8-million punitive-damage award against State Farm on Tuesday involving a suit over the insurer’s refusal to pay what it considered a suspicious claim involving a torched vehicle. Jennie Hampton reported the theft of her Toyota 4Runner, which was found abandoned and burned in Kansas. State Farm refused to pay her $10,000 claim, and referred the case to prosecutors. But Hampton and Marvin Vail were acquitted, then sued and won in lower court. State Farm says the punitive-damage award is contrary to the evidence and is unconstitutionally unfair. The insurer is deciding whether to appeal.

COURT DECISIONS

In an unusual application of racketeering law, a federal court has ordered a single doctor to pay State Farm more than $2.4 million because his medical practice conspired to defraud by performing unnecessary procedures. Richard Yaldizian, as a participant in a RICO scheme, could be held liable for the collective damages – times three – from all of the doctors in his medical group, ruled the U.S. District Court for the Eastern District of New York. State Farm had sued the entire practice; it won a default judgment against Yaldizian when he failed to respond. With triple damages allowed under RICO, the total amount due State Farm was put at $3.4 million. Since State Farm had received $1,025,000 in a settlement with Yaldizian’s cronies, the district court hit Yaldizian for $2,401,273. (State Farm Mut. Auto. Ins. Co. v. Kalika, No. 04-4631)

ETC.

* A crackdown on staged-accident gangs has contributed to a sharp decrease in crime in Lawrence, a city once considered the auto-fraud capital of Massachusetts. A task force began rolling up the rings, leading to an average $620 drop in premiums for local drivers, police chief John Romero told reporters. Related insurance claims have dropped from $50 million to $19 million a year, he says. Community policing has helped curtail crime across the board in Lawrence. Police have built a good relationship with local citizens, spoken at neighborhood meetings, and helped enlist residents in fighting crime, he says.

* More states are feasting on the stolen money recovered from convicted insurance swindler Martin Frankel. Arkansas will receive $1.3 million of the $72 million in assets seized by the feds. That money will go to creditors of Old Southwest Life Insurance Company, which went belly-up when Frankel secretly siphoned the insurer’s assets to finance a princely lifestyle. Mississippi also will receive a portion of the Frankel funds.

* Massachusetts scored a record $26.7 million in settlements and judgments for Medicaid fraud cases in 2007. That’s the biggest recovery since the 1978 creation of the AG’s Medicaid Fraud Division. The division investigated more than 60 fraud cases last year. Its largest recovery was $8.15 million against Willow Street Medical Laboratory for overpayment and illegal referrals. Purdue Frederick Company agreed to pay about $8 million for improperly marketing the highly addictive painkiller OxyContin. The Purdue payment was part of a national settlement that returned $130 million in Medicaid funds to federal and state governments.

* Next week is the deadline to receive a discount on registration for the 2008 Insurance Fraud Management Conference. Fraud fighters can save $100 by registering by Jan. 18. The conference will be held March 9–12 in Coronado, Calif.

* Hawaii-based Island Insurance Company says it’s the first U.S. insurer to offer a comprehensive program to help insureds prevent and recover from identity theft—including medical identity theft. A fraud specialist will help undo the damage from bogus claims made by medical identity thieves. The insurer also will help avoid misuse of a child’s personal information, protect active-duty military personnel, protect personal data during a move, and help victims of disasters recapture destroyed documents.

QUOTE OF THE WEEK

“Is this a reflection of our present society? Does Toyota deserve our business leaving that kind of message?”

— Wisconsin consumer Glenn Rindfleisch in a letter to the editor of the Madison Capital Times, commenting on the recent Toyota ad campaign.

OTHER HEADLINES THIS WEEK

* Indiana arson-for-profit investigation nets eight more
* Massachusetts AG accuses insurer of bid-rigging
* Conn. comp claimant accused of having side job
* N.H. man convicted of inflating home fire claim
* N.J. pharmacist, friend indicted in fraud/drug scam

Details at www.InsuranceFraud.org/

MEETINGS & CONFERENCES

* January 30-31 — Insurance Fraud SIU Multiagency Conference
Pleasanton, CA (California District Attorneys Association)

* February 4-7 — National Arson Investigation Training Seminar
Las Vegas, Nev. (Insurance Committee for Arson Control)

* March 9-12 — Insurance Fraud Management Conference
Coronado, CA (Insurance Services Office)

* April 1-2 — Insurance Fraud Training Seminar
Orlando, FL (National Association of Insurance Commissioners)

For more info, visit online events.