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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
No-Fault auto insurance was touted as a panacea to increasing insurance rates because of auto accident litigation. 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.
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Overwhelming Evidence Establishes Guilt
Witness Statement Rejected and Instruction by Court to Ignore not Prejudicial
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 it 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
Post 4755
The Source for the Insurance Fraud Professional
Subscribe to ZIFL Here
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 athttp://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 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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Go to the Insurance Claims Library – https://lnkd.in/gwEYk
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No Alarm No Coverage
Protective Safeguards Endorsement is a Condition Precedent
Kinsale Insurance Company ("Kinsale"),sought declaratory relief as 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.
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.
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.
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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CHUTZPAH - CHARGE OF TWO SEPARATE CRIMES DO NOT VIOLATE CONSTITUTION
Different Crimes, Different Victims, Different Witness, No Double Jeopardy
Post 4753
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
Of the hundreds of different kinds of insurance fraud the most violent and dangerous is an arson for profit. People, and firefighters, die or are serious 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.
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.
The court must decide whether extraordinary and compelling reasons warrant a sentence reduction.
Second, the court must ensure that such a reduction is consistent with applicable policy statements issued by the Sentencing Commission.
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.
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Insurance Fraud & Politics
US Senator Charged with Insurance Fraud & Other Crimes Fights Search Warrants
Post 4751
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 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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1
comment
Insurance Only Pays for Fortuitous Losses
Misplaced Trust Excluded
Post 4750
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.
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The Insurance Adjuster
What is an Adjuster?
Post 4748
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.
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Fail to Read the Policy at Your Peril
Insurance Producer Only Required to Place Insurance Ordered
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)
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:
a duty owed by the defendant to the plaintiff,
a breach of that duty,
causation, and
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.
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Insurance Policy Warranties
Warranties
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.
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Zalma's Insurance Fraud Letter - March 1, 2024
ZIFL Volume 28, Issue 5, March 1, 2024
The Source for the Insurance Fraud Professional
Subscribe to ZIFL https://visitor.r20.constantcontact.com/manage/optin?v=001Gb86hroKqEYVdo-PWnMUkcitKvwMc3HNWiyrn6jw8ERzpnmgU_oNjTrm1U1YGZ7_ay4AZ7_mCLQBKsXokYWFyD_Xo_zMFYUMovVTCgTAs7liC1eR4LsDBrk2zBNDMBPp7Bq0VeAA-SNvk6xgrgl8dNR0BjCMTm_gE7bAycDEHwRXFAoyVjSABkXPPaG2Jb3SEvkeZXRXPDs%3D
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 athttp://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.
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 Jail, Do Not Pass Go, Stay in Jail
Insurance Agent Defrauded Clients by Keeping Premium for His Own Benefit
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:
$50,000 transfer from his bank account to his Family Trust bank account, then transferred to purchase a Lexus;
$278,730.14 transfer from his bank account to his Family Trust bank account, then transferred to purchase a condominium on Pensacola Beach, Florida;
$30,469.80 check from his bank account to exchange for 20 one-ounce gold coins;
$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.
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; 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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Ignore Court Orders at Your Peril
Frivolous Litigation and Frivolous Appeal Causes Default to Be Entered
Post 4744
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.
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; 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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ADA Requires Evidence of Intentional Discrimination
ADA Allows Employer to Dismiss Employee for Good Cause
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.
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Exclusion for Failure to Advise Insurer of Known Potential Loss
CircuThe 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 and 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.
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It is Time to Control Punitive Damages
Courts Should Limit Punitive Damages
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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1
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Lie on Application & Find Policy Rescinded
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
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.
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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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Insurance Fraud is a Violent Crime
A Murderer Guilty of Killing for Insurance Money Must Serve the Full Sentence 60 Year Sentence
Post 4738
CHUTZPAH: DEFENDANT KILLS GIRLFRIEND AND TRIES TO COLLECT LIFE INSURANCE
Ronald Epps, a prisoner in federal custody, filed a Motion to Vacate, Set Aside, or Correct his Sentence as well as a filing he called a Motion for Compassionate Release.
In Ronald Epps v. United States Of America, Nos. 11-CR-309-A, 12-CR-305-A, 19-CV-1021-A, United States District Court, W.D. New York (February 13, 2024)
BACKGROUND
Epps was charged in a three-count Superseding Indictment with maintaining premises for the purpose of manufacturing and distributing narcotics, with possessing a .32 caliber revolver in furtherance of drug trafficking, and with possession while a previously convicted felon of the same firearm. In addition the narcotics and firearms charges arose after a search warrant was executed as part of the investigation of the murder of Ms. Moss by a gunshot to the back of her head. Epps was later charged with seven additional offenses, beginning with wire fraud for executing a scheme fraudulently to collect the proceeds of a life insurance policy on the life of Ms. Moss; with mail fraud for executing a fraudulent scheme to collect proceeds of a renter's insurance policy covering the premises, after the premises had twice been damaged by intentionally set fires; and with five specific arson-related offenses in connection with those two fires.
A jury trial was conducted before the USDC and the jury returned guilty verdicts on all counts. Epps was sentenced to an aggregate term of 60 years in prison; the final judgment was entered on January 4, 2017. Epps, Pro se, timely filed a motion to vacate, set aside or correct sentence.
THE TRIAL EVIDENCE
The trial evidence showed that Epps drove Ms. Moss to her job at a health-care facility on California Road in Orchard Park, New York, on August 27, 2009. After Ms. Moss's body was found on the morning of August 28, 2009, police conducted a search of Epps's residence at 21 Cascade Drive and found and seized the .32 caliber revolver underlying the two charged firearms offenses set forth in the Indictment. Evidence about Epps's actions and the statements involving a so-called “bag of guns” tended to explain why the 9 mm firearm used to shoot Ms. Moss in the back of the head was not recovered by law enforcement when they searched Epps's residence.
DISCUSSION
Defense counsel's strategic decision to agree to the consolidation of the two indictments in hopes that it would influence the Court to grant her motion to sever and allow her to try at least one indictment free of any evidence regarding Epps's possession of firearms was reasonable. Notwithstanding that such strategy was rendered unsuccessful by virtue of this Court's decision to consolidate and not sever such outcome hardly renders defense counsel's performance constitutionally ineffective.
With the direct appeal establishing the legal correctness of the Court's evidentiary ruling, the Court further found that a single, apt analogy referenced by the Court- outside the presence of the jury-in conjunction with its ruling does not, based on Epps's disapproval alone, constitute partiality. Judicial rulings alone almost never constitute a valid basis for a bias or partiality motion.
EPPS IS NOT ENTITLED TO COMPASSIONATE RELEASE
A court may not modify a term of imprisonment once it has been imposed except pursuant to statute. Epps failed to establish-as he must-that extraordinary and compelling reasons warrant reduction of his sentence. Finally, Epps has failed to establish-as he must-that the applicable sentencing factors under §3553(a) do not, on balance, cut against any reduction. Based on those deficiencies, his motion for compassionate release was denied.
ZALMA OPINION
I have been told by prosecutors over the last 55 years that they don't want to prosecute insurance fraud because they need the time to prosecute violent criminals. Mr. Epps killed his girlfriend to collect insurance money while simultaneously setting fires to profit from his crimes. Two violent crimes, arson and murder, resulted in a sentence of 60 years only to waste the time of the court with a pro se motion to set aside the judgment because the judge was prejudiced against him, his lawyer was inadequate, and he needed to be released from prison. Fortunately for the public of the USA his ploys failed and he will stay in prison for the next 60 years because insurance fraud is either a violent crime or the reason for two violent crimes.
(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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Bloods Gang Member Guilty of RICO to Defraud Insurers
Gangs Took Over Fire Reconstruction Industry in New York
Post 4736
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.
In United States Of America v. Jatiek Smith et al., No. 22-cr-352 (JSR), United States District Court, S.D. New York (February 14, 2024) the USDC found Smith guilty on all courts in a lengthy and detailed opinion.
FINDINGS OF FACT
Based on the record presented at trial the Court made the following findings of fact
The Fire Restoration Industry
The “fire restoration industry” refers to the businesses that redress and repair properties that have suffered damage from fires or exposures to fires. Within this industry, “fire restoration companies” (sometimes referred to as “emergency mitigation services companies,” or simply “fire mitigation companies” or “restoration companies”) provide emergency mitigation services, demolition, and construction services to properties that have suffered such damages.
Another group of participants in the fire restoration industry are the “public adjusters.” A public adjuster represents the property owners in their claims made against the insurance companies that insure their properties.
The term “chasing fires,” as conventionally used in the industry, refers to a fire mitigation company's or public adjuster's efforts to solicit business from the owners of fire-damaged properties.
Both public adjusters and restoration copaMnies will chase fires in an attempt to be the first to sign any given fire.
Smith's Rise Within First Response
“First Response” is a fire mitigation company at the center of this action. Carl Walsh, the owner and founder of First Response, hired Jatiek Smith in approximately October 2019. While Walsh retained legal ownership of First Response, in practice Smith effectively took control over many aspects of the business from Walsh and by early 2020 was understood to be its leader. Smith is a member of the Bloods street gang.
Clash with AES
When Smith joined First Response, American Emergency Services (“AES”) was First Response's primary competitor. A fight ensued, and someone from AES fired a gun at Jackson.
On May 5, 2020, Smith, along with Jackson and three other members of the Enterprise, went to an AES warehouse to assault AES's owners in retaliation for the events of the prior day.
The Enterprise Imposes Rules on the Industry
After AES left the industry, Smith imposed a set of rules on fire restoration companies that had once competed.
The Enterprise Enforces Its Rules Through Violence and Threats of Violence
Multiple people adverse to Smith were assaulted by his organization.
INSURANCE FRAUD
The vast majority of work performed by First Response and other restoration companies is paid for by insurance companies. If insurance companies do not pay for any restoration work, as a practical matter that work will frequently go uncompensated, as home owners are rarely in a position to pay. Restoration companies such as First Response therefore have a strong financial incentive to ensure any insurance claim is accepted.
When First Response, under Smith's leadership, saw illegal conditions in a property, at times it used the fact of those conditions as a tool to get Public Adjuster Peralta retained. When First Response, under Smith's leadership, saw an illegal condition that could interfere with an insurance claim, employees would remove or effectively cover-up that condition and conceal it from the insurance carrier. As a result of fraud claims excluded were paid by the insurance carriers.
OBSTRUCTION OF OFFICIAL PROCEEDING
Before learning that Walsh was speaking with federal investigators, Smith directed Walsh to meet Smith in Smith's car. Smith eventually tricked Walsh into revealing that Walsh had spoken to law enforcement.
CONCLUSIONS OF LAW
Extortionate Conspiracy
The Government has proved numerous instances in which Smith and his co-conspirators confirmed their agreement by actually carrying out such extortion. Specifically, of the six specific instances in which the Government alleges that Smith and his co-conspirators carried out such extortions, namely the alleged extortions AES (McKenzie), ServPro (Vargas), EFS (Boryk), Willon Charles, iFlood, and an unnamed contractor during the “mala sagure incident,” the Court found the Government proved beyond a reasonable doubt that the first four extortions occurred in furtherance of an agreement-to-extort entered into by Smith and his co conspirators.
Specifically, the Court concluded as follows: The Government proved beyond a reasonable doubt that Smith and his co-conspirators agreed to extort McKenzie and AES in at least two respects. First, Smith and other members of the Enterprise attempted to extort McKenzie and AES by demanding that AES pay $100,000 to continue chasing fires. In addition Smith and his co-conspirators successfully extorted AES by forcing them out of the fire chasing business. Accordingly, the Court concluded that Smith and other members of the Enterprise agreed to extort AES.
It was virtually undisputed at trial that AES stopped chasing fires after these events occurred. The Court concluded beyond a reasonable doubt that AES exited the industry as a result of violence and threats of violence perpetrated by Smith and his co-conspirators.
The Government presented evidence from numerous witnesses of at least six specific acts of intimidation carried out by Smith and his co-conspirators against participants in the industry, in addition to the violence against AES described above. These include the threats or acts of intimidation.
The evidence of specific assaults against public adjusters who refused to give fires to Smith and his co-conspirators support an inference that assaults would also have been carried out on other companies that attempted to take away fires from the Enterprise.
RICO CONSPIRACY
The essence of a RICO conspiracy is the existence of an agreement to violate RICO's substantive provisions. RICO conspiracy was established by proof of: (a) of an agreement to join a racketeering scheme, (b) of the defendant's knowing engagement in the scheme with the intent that its overall goals be effectuated, and (c) that the scheme involved, or by agreement between any members of the conspiracy was intended to involve, two or more predicate acts of racketeering.
Predicate Acts of Extortion.
The Court concluded that the Government proved beyond a reasonable doubt that Smith and other members of the Enterprise agreed to, and in fact did, commit predicate acts of Hobbs Act extortion on numerous occasions during the specified period as part of a larger pattern of racketeering activity.
Predicate Act - Mail & Wire Fraud.
The Government proved beyond a reasonable doubt that members of the Enterprise conspired to, and in fact committed, mail and wire fraud by submitting, or assisting others to submit, false and fraudulent insurance claims on a continuing basis during the specified period. In short, Smith is independently guilty of the RICO conspiracy because of the conspirators' agreement to commit a pattern of mail and wire fraud, as clearly evidenced by their continuing engagement in that fraud.
VERDICT
For the reasons set forth above, the Court finds the defendant guilty of Count One and Count Two charged in the Indictment in the above-captioned case.
ZALMA OPINION
Insurance fraud is a violent crime when infiltrated and conducted by members of a violent street gang like Smith and the Bloods gang. They took over the fire reconstruction industry in New York by assaulting, threatening, and controlling public insurance adjusters and fire reconstruction contractors all in an effort to defraud insurers and victims of fire (whether accidental or intentional) and profit from organized crime efforts. The federal investigators and prosecutors have acted to protect the public and their insurers from criminal conduct and forced normally honest people into either joining in the criminal scheme or give up their business.
(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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Why to Never Take an Assignment of Claim Against Insurer
Burning Limits Policy Defeats Attempt to Collect $60,000,000 Verdict
Post 4736
Unless There is Coverage or Evidence of Bad Faith Assignment Useless
FACTUAL BACKGROUND
In Kevin Julmist, et al v. Prime Insurance Co., et al, No. 22-10614, United States Court of Appeals, Eleventh Circuit (February 8, 2024) established that death of two liposuction patients were unable to collect any of the judgments over $60 Million because the policy protecting the doctors had a $50,000 burning limits per person policy limit and a $100,000 burning limit aggregate. The insurer refused to pay after expending its full $100,000 in defense and expense costs.
The insurance case grew out of tort claims after Dr. Nedra Dodds performed a surgical liposuction procedure on April Jenkins at CJL Healthcare, LLC (the Clinic) in Georgia. Jenkins died that same day. Four months after her death, on June 20, 2013 at the same clinic, Dr. Dodds performed a surgical liposuction procedure on Erica Beaubrun, who died that night.
The current case arises from the Clinic's assignment to the Beaubrun estate of some of the Clinic's claims against its insurance companies after a consent judgment in the amount of $60,000,000 was entered in favor of the Beaubrun estate and against the Clinic in the estate's lawsuit.
The Eleventh Circuit found that the bottom line for this appeal is that under the terms of the policy, the defense of the Jenkins and the Beaubrun estates' lawsuits exhausted the Clinic's insurance coverage.
The Jenkins estate rejected an offer for the limits available. Prime notified the Clinic that the policy's Professional Liability Limit of $50,000 for a single claim had been depleted defending the Jenkins estate lawsuit. Dodds was dismissed as a party, and the Jenkins estate's case proceeded to trial, during which the Clinic was not represented by counsel. A default judgment was entered against the Clinic, and in December 2018 a jury awarded the Jenkins estate $60,000,000 in damages.
Similarly the Beaubrun estate rejected Prime's $50,000 offer and sued. Prime's letter to Dodds and the Clinic stated that the $50,000 "per claim limit of liability" had already been "completely depleted" in providing a defense in the Beaubrun "matter." It added that the $50,000 per claim limit had also been expended "in relation to the claims of the Jenkins estate against the defendants. Prime withdrew its defense in the Beaubrun "matter" since the aggregate limit had been exhausted.
The Claims in the Present Lawsuit
In their complaint, the Beaubrun estate and the Clinic asserted the following claims against the defendants: Count 1 breach of duty against Claims Direct; Count 2 breach of contract against Prime; Count 3 negligence against Prime and Claims Direct; (the complaint has no Count 4); and Count 5 unauthorized sale of surplus lines insurance against Prime and Evolution. Counts 6 and 7 sought punitive damages and attorney's fees against all the defendants.
DISCUSSION
The Limits of Liability section in the policy states that "[e]ach Wrongful Act Limit of Liability listed on the Declarations is the most we will pay for any combination of Damages and/or Claim Expenses because of all Damages arising or allegedly arising out of any one Wrongful Act." The policy also caps payouts on multiple claims against the insured and "[n]otwithstanding anything contained in this Policy to the contrary, the Insurer's financial obligation imposed by the coverage with respect to all Claims hereunder shall not exceed the amount specified on the Declarations as the aggregate Limit of Liability." That's a $100,000 cap on coverage for "all Claims."
According to the policy's plain terms, claim expenses come out of the policy's limits. The policy defines "Claim Expenses" to include "[a]ll fees, costs, and expenses charged by any lawyer or other service provider designated by the Insurer to represent the Insured" and "[a]ll other fees, costs, and expenses . . . resulting from the investigation, adjustment, defense, and appeal of a Claim." It sets the "Limit(s) of Liability" as the "maximum amount the Insurer will be obligated to pay for an otherwise covered Claim, including payment for Claim Expenses, Damages, or any other sums due under this Policy, the amount of which is set forth on the Declarations." And "[a]ll Claim Expenses reduce the available Policy Limits."
The district court was correct.
ZALMA OPINION
Burning limits policies were created to allow the insurer to know the exact amount it will need to pay in the event of catastrophic losses. Prime Insurance set a professional liability limit of $50,000 per occurrence and $100,000 in the aggregate - an obviously too small limit for the exposures faced by the doctor and the clinic. When the insurer exhausted the available limits it denied all further coverage and regardless of the judgments obtained in state court the Eleventh Circuit applied the contract terms and found that the insurer properly refused to pay more than the limit. Bad facts often make bad law but in this case the law was applied as the policy was written and made good law applying the contract as written.
(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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Zalma’s Insurance Fraud Letter – February 15, 2024
ZIFL Volume 28, Issue 4
The Source for the Insurance Fraud Professional
Subscribe here:
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-02-15-2024.pdf and includes the following articles:
Do the Crime, Serve the Time
Chutzpah: After Pleading Guilty Fraudster Tried to Reduce his Sentence by an Appeal
After pleading guilty, Armando Valdes appealed his 60-month sentence for health care fraud, in violation of 18 U.S.C. § 1347. Valdes’s conviction and sentence arose out of his scheme to submit millions of dollars in fraudulent medical claims to United Healthcare and Blue Cross Blue Shield for intravenous infusions of Infliximab, an expensive immunosuppressive drug. These infusions, purportedly given to patients at Valdes’s medical clinic, Gasiel Medical Services (“Gasiel”), were either not provided or were medically unnecessary.
In United States Of America v. Armando Valdes, No. 22-12837, United States Court of Appeals, Eleventh Circuit (December 19, 2023) was not convinced of his many arguments against the sentence imposed by the District Court.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.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.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf
California Insurance Commissioner Lara Issues Consumer Fraud Alert As Flood Recovery Begins In San Diego County
Following the recent flooding in San Diego which damaged and destroyed hundreds of homes, businesses, and vehicles, Insurance Commissioner Ricardo Lara put the Department of Insurance on alert for potential fraud and illegal actions targeting flood victims. The Department has received reports from San Diego consumers of public adjusters approaching them immediately after the recent floods. The Department has posted “Don’t Get Scammed After a Disaster” tips in English and Spanish urging consumers not to rush into decisions and to report any suspected illegal actions by contractors or public adjusters.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf
Health Insurance Fraud Convictions
Guilty in Arkansas
Shaona Mizell, 52, of Paragould, Arkansas. in Pulaski County Circuit Court on January 23, Mizell pleaded guilty to Medicaid Fraud, a class A misdemeanor.
Mizell was a personal care aide who billed Medicaid for several months of care that she did not provide. She was sentenced to one year of probation, a $200 fine and payment of $3,331.38 in restitution to the Arkansas Medicaid Program.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf
Arson and Restitution
CONVICTED ARSONIST MUST PAY RESTITUTION
A fire at a residential property destroyed several structures and made nearly all of the owner’s personal property unsalvageable. M.W. pleaded guilty to first degree reckless burning for his role in starting the fire. The trial court ordered M.W. to pay over $1 million in restitution. In State Of Washington v. M.W., No. 85908-1-I, Court of Appeals of Washington, Division 1 (January 29, 2024) the court resolved the issue.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf
New Book Now Available from Barry Zalma
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. Available at the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/
Other Insurance Fraud Convictions
Kentucky Farmer Pleads Guilty to Multi-Million Dollar Crop Insurance Fraud Scheme
David Manion, a farmer from Simpson County, Kentucky, has confessed to orchestrating a fraudulent scheme that defrauded the federal government’s crop insurance program out of millions of dollars. This marks Manion’s second conviction related to crop insurance fraud within ten years, highlighting a recurring pattern of deceitful activities aimed at exploiting agricultural support programs.
Manion’s admission of guilt can after charges filed in November, accusing him of making false statements on crop insurance applications from 2016 to 2022. This fraudulent activity resulted in a staggering $3.5 million loss to the Federal Crop Insurance Corp., according to the plea agreement. The USDOJ is seeking a prison sentence and restitution totaling $3.5 million from Manion, alongside an additional $5,498,023 to settle other disputes.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf
Insurance Fraud Attempt Defeated
THE HAWAIIAN, ATTEMPTED FRAUD DEFEATED BY A THOROUGH INVESTIGATION
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.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf
Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com
Over the last 55 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
(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.
Read the full article in Adobe pdf format at http://zalma.com/blog/wp-content/uploads/2024/02/ZIFL-02-15-2024.pdf
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Insurance Fraud Attempt Defeated
The Hawaiian
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 4734
The insured was a contractor in Honolulu. He made an excellent living cheating his customers. The insured’s most lucrative scheme was an electronic vermin killer. It consisted of a long wire and a transformer. The contractor strung the wire around a house and plugged it in a wall. The device, charged with low voltage from the transformer, allegedly repelled vermin. The insured guaranteed that all roaches, flying insects and rodents could not pass the charge in the wire.
When it didn’t work and a customer called to complain the insured would ignore the complaints.
Since the tropical Hawaiian climate is a prime breeding ground for insects, the insured had no lack of customers. He bought a Ferrari sports car with the profits.
Eventually the attorney general of the State of Hawaii learned of his fraud. Investigation showed that the vermin killer did not work. Eye witnesses reported cockroaches dancing on the wire unharmed.
The Attorney General filed administrative charges accusing the insured of consumer fraud. The local press published reports of the charges. His sales began to drop. He needed cash flow.
The insured went to the most exclusive jewelry store in all of Honolulu. The store occupied the 15th floor of a high-rise office building. To enter he needed to show identification to a guard and pass through two steel doors.
He bought a single wrist watch at the jeweler and charged it on his American Express card. He asked the jeweler for, and received, an appraisal of the wrist watch.
He then visited the local public library and withdrew three textbooks on gemology.
He returned to his office and made a Xerox copy of the appraisal. He then covered the description of the wrist watch with a large Post-It Note. He photocopied 20 new copies of the appraisal. The Post-It-Note was invisible to the Xerox machine and he had clean appraisals with no descriptions.
Using the books on gemology, he wrote out descriptions for forty-five separate items of ladies and men’s jewelry. He set values beside each item so they totaled over $500,000. He gave the blank appraisals to his secretary and had her type up the descriptions and values he had written onto the appraisal forms he had created. He then made two copies of the new appraisals and destroyed the originals.
Armed with his appraisals he visited a large retail insurance brokerage in Honolulu. He advised the broker that he had recently acquired the jewelry from his deceased mother and needed it insured. The broker was familiar with the jewelry establishment and its impeccable reputation. He accepted the Xerox copies of the appraisals, prepared an application, and submitted the application and appraisals to various markets. He received quotations from three different insurers. Each agreed to insure the jewelry. The insured selected the insurer that offered the lowest premium. He explained to his agent that he had a slight cash flow problem and the agent helped him by financing the premium.
He made one payment on the premium finance contract and then reported a theft.
He advised his insurer that the jewelry was secured in the locked drawer of his office which he considered to be a safe. His office was a small structure with a warehouse facility where he parked his construction truck and, on that night, the Ferrari. It was an employee’s birthday and he and five employees went to a local restaurant to celebrate the birthday. Since they could not fit in his Ferrari, they all went in his foreman’s eight passenger van.
When they returned from the birthday party, they immediately noticed that the Ferrari was no longer in the warehouse. The aluminum overhead door was off its track. Someone had broken in. The thieves must have found the keys to his Ferrari in the desk. The desk drawer was broken and on the floor. No jewelry remained in the building. The insured was distraught since the jewelry was his only connection with his deceased mother. He demanded that the police do everything they could to catch the thieves and return his jewelry. He told the police he did not want insurance money. He only wanted his family heirlooms back. He even asked his insurer to offer a reward for the return of the stolen jewelry.
The insurer, faced with a $500,000 loss assigned their most senior investigator to the claim. He agreed with the insured and offered a $50,000 reward for the return of the jewelry. He then began his investigation with the recorded statement of the insured.
Besides advising the investigator of the theft he informed him that his mother had mailed him the jewelry shortly before her death. She died four years before in a small village in the Philippines. She was afraid that the Philippine government would take the jewelry for taxes. To avoid those taxes mother had simply packaged them in a plain brown wrapper and sent them by mail. She did not insure the delivery nor did she register or declare to US Customs the contents. He kept them in his home, for safekeeping until her death when he believed they had become his property. Then he took them to the jewelry store to establish the value of the gift his mother had made to him. He was astonished that the jewelry had as great a value as reported by the jeweler. He immediately took steps to insure the jewelry.
Two days after the theft, the police found the Ferrari in a gully. Since it was only one of eight Ferraris on the entire island, there was little the thieves could do with it. The police believed the thieves set it afire. The police found only a burned out hull and no evidence available to lead them to the thieves. The destruction of the Ferrari seemed to establish the legitimacy of the claim.
The adjuster began the steps necessary to complete what might be a routine investigation. His first stop was at the jewelry store. He found the gemologist who signed the appraisal. He showed the appraisal to him and asked that he verify the appraisal. The jeweler stated:
“That is our appraisal form. That is a copy of my signature. I have no record of ever doing this appraisal. I have no recollection of ever doing this appraisal. I have no knowledge of the person with the name of the insured. That isn’t unusual however since I do one thousand appraisals a year.”
“Do you have your file copy?” the adjuster asked.
“That’s what is strange, I can’t find the file copy. But my secretary, just about the time of this appraisal began chemotherapy treatment for cancer. She’s dying and I can’t disturb her.”
The adjuster had a logical explanation for the failure to verify the appraisal. He could not, however, let it sit. As a simple straightforward theft claim was becoming complicated.
The adjuster next had a friend who works the South Pacific attempt to verify that the insured’s mother did in fact live in the village in the Philippines described by the insured. The investigator was successful. He found neighbors and relatives who knew the insured’s mother. He could not, however, verify that she had $500,000 in jewelry to donate to her son. In fact, he found that the insured’s mother lived in a one room house on stakes with a grass roof, no electricity, no running water and no indoor plumbing. Her ex-husband still lived in Honolulu.
The insured’s family name was unusual in Hawaii and it only took the investigator two days to find the insured’s father. The father lived in a basement apartment in a rundown area of Honolulu. He was pleased to give the adjuster an interview. He had been estranged from his son for twenty years and his wife for ten so he had no first hand, up-to date information. He did acknowledge that his wife owned jewelry. He told the adjuster:
“Yes, I believe it was very valuable jewelry she owned.”
“How much to do think it was worth?”
“At least $500-$600.”
The adjuster began his investigation in earnest. He invited the insured’s secretary out to lunch. Over a chef’s salad and a glass of ice tea he learned the secretary’s life story. He knew she had been in Hawaii for only two years having come to the islands from Iowa. She was young and very innocent. She liked her job but made only enough money to survive in the Islands. She could not believe the cost of housing compared to what it had been in Iowa.
After gaining her confidence the adjuster confronted the secretary with the result of his investigation. He told her he knew that the appraisals were not done by the jeweler. He showed her where he had discovered that the typewriter used to type the description of the items of jewelry was different from the typewriter used to type the name of the appraiser. He told her that he liked her and would be very sorry if she was involved in aiding her boss in committing a crime.
She began to cry. When he calmed her down, she confessed that she had typed in all of the descriptions and the values of the jewelry. Her boss, the insured, took the print ball out of the IBM Selectric typewriter and smashed it under his shoe. If asked, she was to say that his children broke the typewriter while playing with it. The adjuster thanked her, paid for lunch and suggested she get a new job. He told her he would do what he could to keep her out of criminal problems.
He then got permission from his client, the insurer, to deny the claim.
He wrote a simple brief, letter to the insured stating as follows: “Your claim is denied because it was presented by you with the knowledge that it was false and fraudulent.”
He said nothing more. The adjuster, as required by law, reported his findings to the local police agency and to the U.S. Postal Inspectors. Both promised to complete a prompt criminal investigation and prosecute the insured for insurance fraud. The adjuster waited, patiently, for five years. Every twelve months he would ask the police concerning their investigation. He would always receive the same response “We’re working on it.”
On the fifth year, just before the statute of limitations ran, they arrested the insured for insurance fraud, wire and mail fraud. On the testimony of the adjuster and the secretary the insured was convicted. The court sentenced him to five years in jail, suspended on the condition that he actually serve 30 days and that he make restitution of $10,000 in investigation costs to the insurer.
Five years elapsed since his conviction. He is still making a living as a contractor in Hawaii defrauding his customers. He paid when the probation officer caught him what he told the probation officer he could afford. In five years the insured paid, on the restitution order that is a condition of his probation, a total of $250.00. His probation is over.
The crime did not succeed. He did not collect $500,000. The insurance company did not succeed. It paid out over $10,000 to its investigators which it will never recover and the ordered restitution was never paid.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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