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Court Slaps Down SLAPP Suit
Lawyers Fraudulent Billing is not Pre-Litigation Protected Petitioning Activity
Post 4772
Strategic Lawsuits Against Public Participation (SLAPP suits) are meritless lawsuits designed to harass parties for engaging in protected activities (the right of petition or free speech). A party can move to dismiss a SLAPP suit by filing an anti-SLAPP motion. The movant must show the purported SLAPP suit arises from its protected activities; if shown, the respondent can defeat the motion by showing its lawsuit has merit.
In OC Media Tower, L.P. et al. v. Louis Galuppo et al., G062372, California Court of Appeals, (March 28, 2024) the Court of Appeals resolved the dispute.
FACTS
Plaza Del Sol Real Estate Trust (Plaza) made $67 million in loans to OC Media Tower, L.P., and OCR Land LLC (collectively, OC Media). The loans were secured by deeds of trust and promissory notes in which OC Media agreed to pay Plaza's attorney fees for any needed collection efforts. OC Media defaulted on its loans. Plaza agreed to accept a lower payoff amount (about $50.5 million), contingent on OC Media selling its encumbered real estate. During escrow, attorney Galuppo submitted an invoice stating its fees (about $25,000) for its client Plaza. At the close of escrow, Plaza was paid the agreed upon payoff amount and Galuppo was paid its stated attorney fees.
Plaza later sued OC Media for fraud and other causes of action. Plaza alleged it learned after the close of escrow that OC Media had made false statements about its real estate sale to induce Plaza to accept less than what it was owed. OC Media filed a cross-complaint against Plaza and Galuppo for fraud and another cause of action. OC Media alleged Galuppo's attorney fees were false and unsupported.
Galuppo filed an anti-SLAPP motion to dismiss OC Media's cross-complaint. Galuppo asserted its invoice stating Plaza's attorney fees was a prelitigation demand for payment (protected petitioning activity). The trial court denied Galuppo's anti-SLAPP motion because "an allegedly false invoice for payment generally does not constitute petitioning activity under the anti-SLAPP statute."
DISCUSSION
In an anti-SLAPP motion, the trial court should distinguish between speech or petitioning activity that is mere evidence related to liability and liability that is based on speech or petitioning activity.
The Court of Appeals found that the record does not support Galuppo's assertion that its invoice was a prelitigation demand for payment. Further, the basis of OC Media's cross-complaint is not that Galuppo made a tortious demand for payment. Rather, OC Media claims the amount of attorney fees actually billed by Galuppo was fraudulent.
Appellants claimed the demand for $24,433.08 in attorney fees was a communication preparatory to and in anticipation of filing litigation. In an anti-SLAPP motion, the movant bears the burden of establishing the challenged claims arise from its protected activity. The essential elements of fraud that give rise to a cause of action for deceit or intentional misrepresentation are:
misrepresentation (false representation, concealment, or nondisclosure);
knowledge of falsity (or scienter);
intent to defraud, i.e., to induce reliance;
actual and justifiable reliance; and
resulting damage.
The Cross-Complaint and Anti-SLAPP Motion
OC Media and OCR Land LLC sued Plaza, Galuppo, and Morris Cerullo World Evangelism for fraud and the common count of money had and received. OC Media alleged that prior to the close of escrow it had asked Galuppo to provide the amount of attorneys' fees and costs that Plaza had incurred in connection with the sale of the Property at 625 N. Main. OC Media stated that on October 16, 2020, Galuppo transmitted by email a document purporting to be an invoice through which it was represented that Plaza had incurred $24,433.08 in legal fees. OC Media alleged that the invoice was fraudulent.
The trial court denied appellants' anti-SLAPP motions to dismiss or strike OC Media's cross-complaint in a written order. Cross-defendants did not demonstrate litigation was genuinely contemplated and was more than a possibility at the time the invoice amount was communicated. Cross-defendants failed to establish that cross-complainants' claims or the other challenged portions of the cross-complaint arise from cross-defendants' protected petitioning activity.
Mr. Galuppo's subjective intent to file a lawsuit in the event OC Media breached its contractual obligations was merely theoretical (i.e., it was not under serious consideration); therefore, Galuppo's e-mailing of the invoice to the title insurance company was not protected prelitigation activity under the anti-SLAPP statute.
There are simply no documents from Galuppo - or any other attorney representing Plaza-directed to Harrah, OC Media, or its counsel attempting to resolve outstanding legal disputes. Therefore, the Court of Appeals rejected Galuppo's claim that the invoice was part of an ongoing series of prelitigation demands communicated to OC Media as part of a lawsuit that was under serious consideration.
OC Media's cross-complaint is not a SLAPP suit. The judgment was affirmed.
ZALMA OPINION
Galuppo attempted to avoid the position of a cross-defendant by filing a SLAPP motion by claiming his bill to his client for the sale of real property was protected petitioning activity. In fact the Court of Appeals noted that the people suing Galuppo used his billing as evidence of fraud. A false and fraudulent lawyers bill is not a protected activity subject to dismissing what is claimed to be a SLAPP suit.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Real Property Damage Required for Defense
"Property Damage" Must Be Actual Not Potential
Post 4771
Breach of Construction Contract Not an Insured Peril
After the plaintiff's motion for summary judgment was rejected and the defendant insurer's motion for summary judgment was granted the plaintiff appealed. In Westchester Modular Homes Of Fairfield County, Inc. v. Arbella Protection Insurance Company, No. AC 45433, Court of Appeals of Connecticut (April 2, 2024) the Court of Appeals resolved the dispute.
FACTS
On or about April 27, 2016, the plaintiff entered into a contract with Diana Lada L'Henaff and Jean Jacques L'Henaff for the construction of a new modular home on property located in New Canaan (property). During construction, disputes arose between the L'Henaffs and the plaintiff. Ultimately, the L'Henaffs terminated their contract with the plaintiff on December 14, 2016. The plaintiff filed a mechanic's lien on the property on or about February 3, 2017, and commenced an action to foreclose on the lien on or about April 7, 2017 (underlying litigation).
The L'Henaffs filed a counterclaim that alleged that they "desired to build a modern home and had very carefully and specifically specified the type of insulation, materials, and finishes that they required the builder that won the job to satisfy." The L'Henaffs alleged that work on the project progressed slowly and with constant problems. The L'Henaffs alleged that the plaintiff had breached the construction contract.
The plaintiff, as a named insured under a commercial general liability policy issued by the defendant (policy), filed a claim for coverage with the defendant which was refused. The defendant disclaimed coverage on the basis that the first revised counterclaim filed in the underlying litigation did not allege "property damage" caused by an "occurrence" and, therefore, it did not trigger coverage under the policy.
The trial court determined that the pleadings in the underlying litigation did not allege property damage. As to the extrinsic documents submitted to the defendant by the plaintiff, the court determined that such evidence established only the existence of possible defective work that could lead to future property damage if not remedied but that it did not demonstrate the existence of current property damage.
DISCUSSION
Because there are no factual issues in dispute in the present case, the court was only faced with the legal question whether the defendant had a duty to defend the plaintiff. Specifically, the defendant contended that the extrinsic documents suggested, "at most, that the construction deficiencies could potentially result in water damage to nondefective areas of the property if not fixed." (Emphasis in original)
The Plaintiffs alleged construction defects and did not allege damage that the defects caused to other, nondefective property. Since the plaintiffs expert testified that he had identified defective work that, if not remedied, could lead to property damage in the future but identified no damage, Plaintiffs failed to allege facts bringing the underlying litigation seeking property damage that would have required a defense.
The Court of Appeals made clear that repairs to structural deficiencies, made for the purpose of preventing physical injury to tangible property before the alleged deficiency has caused property damage are not within the insuring agreement's definition of property damage.
Because there was no indication of water damage at all. At most, the construction deficiencies could potentially result in water damage to nondefective areas of the property if not fixed. Damage to nondefective property in the form of rot or mold caused by water intrusion would be property damage within the terms of the policy language. However, the plaintiff did not present any evidence of actual damage or case law holding that the presence of water, in the absence of actual damage, amounts to covered physical damage.
The Court of Appeals concluded that the notification of the mere presence of water, without some corresponding physical damage, did not provide the defendant with actual knowledge of facts establishing a reasonable possibility of coverage because the presence of water does not constitute property damage within the terms of the policy.
Accordingly, the defendant did not have a duty to defend the plaintiff in the underlying litigation, and the court properly rendered summary judgment in favor of the defendant.
ZALMA OPINION
When an insured breaches the terms of a construction contract it will invariably be sued by the other party to the contract for damages resulting from the breach. Westchester Modular Homes breached its contract by creating a defective modular home that would, in the future, if defects were not cured, suffer physical damage. Since there was no physical damage to the structure - just the potential of damage - coverage did not apply and Westchester was obligated to defend and indemnify itself to the allegations of the underlying litigation.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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To Plead Fraud Plaintiff Must Identify Acts of Fraud
Suspicion of Fraud Cannot Support Qui Tam Action
Post 4770
Richard Campfield, suing for the State of California, appealed the trial court sustained the demurrer of defendants Safelite Group, Inc. and its subsidiaries, Safelite Solutions LLC and Safelite Fulfillment, Inc. (collectively, Safelite) without leave to amend. Campfield contends he adequately alleged a cause of action under the Insurance Fraud Prevention Act (Ins. Code, § 1871 et seq.) (IFPA) within the statute of limitations.
In State Of California, ex rel. Richard Campfield v. Safelite Group, Inc., et al., A168101, California Court of Appeals, First District, Fourth Division (March 29, 2024) explained the requirements to plead a Qui Tam action under the IFPA.
BACKGROUND
Campfield owns a windshield repair company that licenses and sells products for repairing vehicle windshield cracks. Safelite is the nation's largest retailer of vehicle glass repair and replacement services. Safelite also serves as the third party administrator for over 175 insurance and fleet companies, including 23 of the top 30 insurers in California and the country, for processing and adjusting policyholders' vehicle glass damage claims, and it has direct electronic access to over 20 insurance company databases.
In 2015, Campfield sued Safelite in federal district court in Ohio, alleging Safelite's continued reliance on its six-inch rule violated the Lanham Act's (15 U.S.C. § 1051 et seq.) Safelite admitted in responses to interrogatories in the Ohio action that it has never conducted studies on the safety or viability of repair of cracks longer than six inches.
Campfield filed under seal the complaint in the present action against Safelite, alleging a single qui tam cause of action for violation of the Insurance Frauds Prevention Act (IFPA). The Insurance Commissioner and the San Francisco County District Attorney declined to intervene, so in September 2022 the trial court unsealed the complaint.
Safelite demurred, arguing, among other things, that the complaint failed to allege facts constituting a cause of action under the IFPA. Campfield failed to plead his claim with sufficient particularity, and the statute of limitations barred the complaint. After briefing and a hearing, the trial court sustained the demurrer without leave to amend based on the statute of limitations and noted that Safelite had raised "substantial arguments" that the complaint had not stated a cognizable claim and that the action was barred by the IFPA's public disclosure bar. The trial court then dismissed the action.
DISCUSSION
The IFPA was enacted to prevent automobile and workers' compensation insurance fraud in order to, among other things, significantly reduce the incidence of severity and automobile insurance claim payments and therefore produce a commensurate reduction in automobile insurance premiums.
The sole cause of action in the complaint is based on Insurance Code section 1871.7, subdivision (b), which allows for the imposition of civil penalties and other remedies against anyone who violates Insurance Code section 1871.7 or Penal Code sections 549, 550, or 551. Campfield alleges Safelite violated Penal Code section 550, subdivision (b)(1) and (2).
As in any action sounding in fraud, an IFPA action must be pleaded with particularity.
ANALYSIS
To effectively state his IFPA cause of action, Campfield must allege facts showing that Safelite presented, or caused to be presented, a false statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy or prepared or made a false statement intended to be presented to any insurer or any insurance claimant in connection with, or in support of or opposition to, any claim or payment or other benefit pursuant to an insurance policy. Campfield alleged Safelite violated these provisions when it prepared and presented false statements to insurance companies either as insurers' third party administrator or as a windshield repair and replacement service.
The pleading standard Campfield must meet is not onerous. Campfield must identify every fraudulent claim at the pleadings stage. However, Campfield did not identify one example of any specific fraudulent claims. As a result Safelite did not have concrete allegations to defend against. The failure of allegations of specific fraudulent claims left Safelite with the need to guess.
A lack of discovery cannot excuse Campfield's failure to plead his IFPA claim with sufficient detail defeated his suit. The heightened pleading standard exists in part to deter the filing of complaints as a pretext for the discovery of unknown wrongs and to prohibit plaintiffs from unilaterally imposing upon the court, the parties and society enormous social and economic costs absent some factual basis.
Qui tam actions like Campfield's under the IFPA are meant to encourage private whistleblowers, uniquely armed with information about false claims, to come forward. These insiders should have adequate knowledge of the fraudulent acts to comply with the heightened pleading requirement. The IFPA is not intended to provide a mechanism for those with general suspicions of wrongdoing like Campfield to engage in discovery seeking to confirm their suspicions.
ZALMA OPINION
The qui tam provision of the IFPA is a wonderful tool in the battle against insurance fraud. It has acted as a way to defeat fraud that local prosecutors are unwilling to prosecute. Rather than putting fraudsters in prison the qui tam provision allows the relator and the state to take the profit out of the crime. However, as this case establishes, it is not a place to shop for evidence when a person only suspects, but has no specific acts of fraud. Insurers should file qui tam actions if they have evidence and should not if they don't have evidence to allege fraud with specificity.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Life Insurance Can Be Hazardous to Your Health
Insurance Fraud by Board & Care Facility
Post 4769
This is a Fictionalized True Crime Story of Insurance Fraud from an Expert who explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.
The Hungarian owned and operated a board and care facility for the aging in Carson City, Nevada. He brought his younger brother over from Hungary in 1975 to help him in the business. It was only a twenty-bed facility and with little help, the two could manage the entire business.
The oldest brother was the thinker. He got an honorary PhD from the New World Society of Abundant Consciousness that ran a school in the desert just north of Pahrump, Nevada. After receiving his honorary degree for a donation of $15,000, he insisted on the title doctor.
The doctor had no training in any field. He had a high school diploma and had operated several restaurants before buying the board and care facility. He believed that the title conferred on him the right to prescribe medicine, to give psychological advice, and to do anything he pleased. He would get drugs for his patients from other than legitimate sources. He would bill their insurers as if they were prescription drugs prescribed by a staff physician.
His younger brother maintained the facility, cooked the meals for the residents, doubled as a nurse and ran the business. The doctor acted like royalty.
Since the small business required both to work if it was to make a profit, the business began to deteriorate. Cash flow was minimal. Patient services became almost nonexistent. The doctor skimmed as much money into his pocket as he could and keep the patients alive. Neither he nor his brother drew anything much more than subsistence monies from the business.
The dedicated younger brother made the business work. He began to cut personal corners. First, he decided to drop a $100,000 life insurance policy. With the reduced earnings of the business, he could not afford to pay the premium.
The doctor, who used the same insurance agent, was told of the intent of the brother to cancel. The doctor asked the agent to keep the policy in effect without his brother’s knowledge. The doctor would pay the premium as a business expense of the board and care facility.
The agent, not wishing to lose his commission, agreed and kept the policy in force, accepting premium payments from the doctor.
The younger brother suffered from severe hypertension. His controlled the disease by diet and medications. He trusted his older brother. He thought his older brother was wise and knowledgeable. He thought his older brother had, at least, the same level of expertise as any physician and trusted his brother more than a physician.
After the doctor had paid the first monthly premium on the life insurance policy, he explained to his brother that the hypertension drugs prescribed for him were dangerous. He told his younger brother that he had in the inventory of the board and care facility drugs that were more effective. Since they were in the stock of the facility the doctor could give them to his brother at no cost. The brother stopped taking his prescribed medicine and started taking the drugs given him by his brother. The doctor did not tell his brother that the drugs contained digitalis. Digitalis is a drug that, although useful in reducing chest pains in people with heart conditions, is poisonous in the amounts the doctor told his brother to take. It is even more poisonous to a person with hypertension.
Within two weeks of taking his brother’s drugs, the younger brother was found by his wife apparently dead, on his kitchen floor. Paramedics arrived and immediately began CPR. Because she did not know what to do after calling the paramedics, the wife called her brother-in-law. He arrived at the scene about the same time as the paramedics. He was hysterical and interfered with the paramedics. They had to forcibly remove him from his brother so they could perform CPR. They put the brother in an ambulance and began racing toward the emergency hospital with red lights and siren. The doctor followed and almost sideswiped the ambulance twice. They called for police help on their radio. A Pahrump police officer pulled the doctor off to the side of the road and restrained him for sufficient time to allow the ambulance to arrive at the hospital.
They could not revive the younger brother. They pronounced him dead one hour after arrival at the hospital. The doctor convinced the wife there should be no autopsy. His brother, her husband, had a severe heart condition that was well documented. He explained that there should be no reason to cut his body to satisfy a local ordinance.
The doctor convinced the brother’s family physician to sign the death certificate showing the cause of death as a heart attack. The family physician did so without evidence of such a heart attack. The family physician had not even seen the deceased within six months of his death. The family physician clearly violated the law. He thought the death certificate would help the family who appeared adamantly against the invasive procedures of an autopsy.
The widow was not an intelligent woman. She had limited education in her country of birth, Hungary. She could barely read or write the English language and spoke it with a thick accent. She relied totally on her brother-in-law. He handled the disposition of her husband’s estate. She signed whatever papers he put before her.
One paper he put in front of her was a claim form making claim on the life insurance policy. The claim form did not use the sister-in-law’s address but, rather, a P.O. box held in secret by the doctor. The insurance company, presented with an appropriate claim form signed by the widow and what appeared to be a proper death certificate, immediately issued its check for $100,000 plus interest, made payable to the widow, the sole beneficiary named in the policy.
The doctor received the check. He signed the widow’s name to it and deposited the money in his account. He used the money to pay the debts of the board and care facility and to buy a new home for himself on five acres of desert property outside Pahrump. The widow was left with nothing but debts. She sold the home she and her husband lived in since arriving in the U.S. After paying a commission to the realtor and the funeral expenses she had only $1,000 left. Her brother-in-law loaned her $10,000 which she used to buy some secondhand furniture and move into a small apartment. She met a blackjack dealer at a casino and married him so she would have some means of support.
The doctor lived in luxury for a year off the proceeds and then began planning his next insurance fraud. He has no other brothers to kill, so he decided to obtain life insurance on the residents of the board and care facility none of whom had a long life expediency.
(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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Never Lie on an Application for Insurance
Conceal or Misrepresent Material Facts Requires Rescission in Alabama
Post 4768
Allied World issued general liability policies to Clint Lovette (“Lovette”) and his companies. ((collectively “Lovette Defendants”) for the policy periods of March 16, 2018 to March 16, 2019 and March 16, 2019 to March 16, 2020. Allied World sought a judicial determination in its favor that it does not owe the Lovette Defendants a defense or indemnity regarding two cases.
In Allied World Surplus Lines Insurance Company v. Lovette Properties, LLC, et al., No. 2:22-cv-00738-RDP, United States District Court, N.D. Alabama, Southern Division (March 15, 2024) the USDC resolved the disputes.
FACTS
In early September 2017, the Wheelers threatened to sue Lovette Properties to recover all sums paid if the Wheeler project was not completed by the end of 2017. The Wheelers informed Lovette Properties that they were considering all available options for remedying the situation and asserted that their letter “does not constitute a waiver of any of our rights or remedies, all of which are expressly reserved.”
The 2018/2019 Policy
On April 16, 2018, Clint Lovette, on behalf of Lovette Properties, signed and submitted a “Contractor's Supplemental Application” requesting general liability insurance coverage from Allied World. In the Contractor's Supplemental Application, Lovette falsely represented: (1) that the Lovette Defendants had no losses, claims, or suits against them in the past 8 years; (2) that no claims or legal actions were pending; (3) that the Lovette Defendants had no knowledge of any pre-existing act, omission, event, condition, or damage to any person or property that might reasonably be expected to give rise to any future claim or legal action against any person or entity identified in the application; (4) that the Lovette Defendants had not been accused of faulty construction in the past 8 years; and (5) that the Lovette Defendants had not been accused of breaching a contract in the past 8 years.
The Wheelers filed an Arbitration Complaint against Lovette seeking recovery of the costs associated with completing the renovation of their house; consequential damages for the cost of repairs to the house; the costs for maintaining another household during construction; damages for mental anguish and emotional distress; and “exemplary damages to the extent permitted by law [and] ... the costs of this action, attorneys' fees, expenses, and interest on the judgment as allowed by law.”
The Adams Case
On April 15, 2020, Allison and Carl Adams (“the Adamses”) sued Lovette. In the Complaint, the Adamses alleged that Lovette Properties abandoned the project before completion and left the house in a manner that did not comply with the applicable building codes and industry standards. The Adams case was tried as a bench trial that entered a judgment for $149,214.23 in favor of the Adamses only on the contractual and negligence claims.
DISCUSSION
Allied World asserted that summary judgment in its favor was proper because the Policies must be rescinded and thus Allied World is relieved of its obligation to defend or indemnify the Lovette Defendants in both the Wheeler arbitration and the Adams case.
Rescission under Alabama Code § 27-14-7
Because of the Lovette Defendants' misrepresentations, omissions, concealment of facts, and incorrect statements in the 2018 and 2019 Contractor's Supplemental Applications Alabama statutes prevent recovery under the Policies and an insurer can rescind a policy or deny coverage if, in the application or in negotiations therefor, the insured made misstatements that either (1) were fraudulent (i.e., made intentionally with knowledge); (2) were material to the risk (although innocently made); or (3) affected the insurer's good faith decision to issue the policy for which the insured applied.
In Alabama, misrepresentation of a material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitutes legal fraud.
Under the language of Allied World's policies, even if Lovette's misrepresentations were innocently made, Allied World has a right to void the policy so long as the misrepresentations were (1) material and (2) relied upon. Based on the record, it is readily apparent that the applications contain misrepresentations.
ALLIED WORLD IS ENTITLED TO RESCIND THE INSURANCE POLICIES
An insurer may void a policy if it can show that:
The insurer in good faith would either not have issued the policy or contract or would not have issued a policy or contract at the premium rate as applied for or would not have issued a policy or contract in as large an amount or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.
The key question is the good faith of the insurer in refusing to issue the policy.
To meet its burden, Allied World offers the affidavit of Preston Starr. In his affidavit, Starr states that, had Lovette given a “YES” answer to any of the questions at issue in this matter, it would have charged a higher premium for the Policy and would never have issued a Policy that provided coverage for any claims out of Lovette's work done for the Wheelers.
In addition, Starr affirmed that, whenever an applicant discloses a known incident that could arise into a future claim, C&S consistently and repeatedly attaches a “Known Claimant/Incident Exclusion” Form to the policy that documents “the name of the party alleging potential wrongdoing, the date of the alleged loss, and as many specific details as possible, so that if a claim shows up in the future on the policy, Allied World have an exclusion specifically excluding coverage for that claim.
Under Alabama law testimony from an insurance company's underwriter that is “supported by other uncontradicted evidence in the record” – such as the company's underwriting guidelines – can be sufficient to establish materiality or that a company in good faith would not have issued the policy as written as a matter of law.
For these reasons, summary judgment in Allied World's favor is due to be granted, and both Policies are due to be rescinded.
ZALMA OPINION
Alabama law, like that in most states, allows for rescission of a policy when the insured obtains a policy by concealment or misrepresentation about a material fact. Lovette did not advise Allied World of the pending claims which were material to the decision of Allied World to insure or not insure Lovette. Equity required the policies to be declared void from their inception.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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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Compassion Not Available for Arsonist
No Reason to Release Convicted Arsonist Early
Post 4767
In United States Of America v. Jonathan Paul Wiktorchik, Jr., No. 23-2564, United States Court of Appeals, Third Circuit (March 25, 2024) Federal Prisoner Jonathan Wiktorchik appealed, acting as his own lawyer, from the District Court's denial of his motion for compassionate release.
THE CONVICTION
In 2011, after a jury trial in the Eastern District of Pennsylvania, Wiktorchik was convicted of arson, use of fire to commit a felony, mail fraud, and making false statements. Wiktorchik's conviction was based on a fire he deliberately set to his chiropractic office, which also destroyed four other businesses. Wiktorchik repeatedly lied to investigators regarding his involvement and changed his story on multiple occasions. He was sentenced to 204 months of imprisonment and has an anticipated release date of August 23, 2025.
MOTION FOR COMPASSIONATE RELEASE
In May 2023, Wiktorchik filed a motion for compassionate release arguing that his chronic medical conditions and the COVID-19 pandemic supported his early release. Wiktorchik, who is not vaccinated, was hospitalized in January 2021 after contracting COVID-19 and has since been reinfected at least twice. He asserted that he now suffers from "long COVID" and that each reinfection exacerbated the condition, "leading to further dehabilitating [sic] and deteriorating health conditions" for which he was not receiving proper treatment.
The District Court denied relief. It concluded both that Wiktorchik had not established any extraordinary and compelling reason for his release, and that the relevant sentencing factors weighed against release.
ANALYSIS
The Third Circuit reviews such an appeal for abuse of discretion by a district court's order denying a motion for compassionate release, including a determination that the sentencing factors do not weigh in favor of granting compassionate release. The Third Circuit will not disturb the District Court's decision unless there is a definite and firm conviction that it committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors. The Third Circuit found it could summarily affirm the district court's decision if the appeal fails to present a substantial question.
The compassionate-release statute states that a district court may reduce a defendant's term of imprisonment if extraordinary and compelling reasons warrant such a reduction. Before granting compassionate release, a district court must consider the factors set forth in the statute to the extent that they are applicable. Those factors include the nature and circumstances of the offense, the history and characteristics of the defendant, and the need for the sentence to reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford adequate deterrence, and protect the public from future crimes by the defendant.
Compassionate release is discretionary, not mandatory. Therefore, even if a defendant is eligible for it, a district court may deny compassionate release upon determining that a sentence reduction would be inconsistent with the statute’s requirements.
In reaching its decision the Third Circuit was unable to discern abuse of discretion in the District Court's conclusion that compassionate release was not appropriate. The District Court appropriately considered that Wiktorchik "has a history of committing economic as well as dangerous crimes," and observed that the current offenses were committed less than a year after Wiktorchik was convicted of insurance fraud. It explained that Wiktorchik's crimes showed a disregard for the property of others, noting that other businesses were damaged as a result of the arson. In determining that the factors did not warrant compassionate release the District Court concluded that Wiktorchik received just punishment for his offenses and that adequate deterrence and the protection of the public would be undermined and at risk if Wiktorchik were released for compassionate reasons.
Wiktorchik argued that the District Court failed to give sufficient weight to his rehabilitative efforts, including his lack of a disciplinary record while incarcerated. However, even considering these efforts,
Because this appeal does not present a substantial question, the District Court's judgment was summarily affirmed.
ZALMA OPINION
Arson-for-Profit is a violent type of insurance fraud. It not only destroys the property that was insured for the benefit of the arsonist it destroys the property of other and often causes the injury or death of innocents, neighbors, and firefighters. It is a heinous crime and the defendant must serve the entire sentence to protect the public at large from his criminal acts and deter others from attempting the same crime.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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38
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Litigation Between Insurers Should be Avoided
Potential of Coverage is Enough to Require an Insurer to Defend
Post 4765
When two or more insurance companies issue policies with a potential for coverage of a claim of bodily injury they should work together to protect their mutual insured rather than litigate with the insured and the other insurers. Litigation is expensive and may result in a case they did not wish to have.
In Admiral Insurance Co. v. Track Group, Inc. f/k/a Securealert, Inc., and Jeffrey Mohammed Abed, and Certain Underwriters At Lloyd's, London Subscribing To Policy No. CJ10028219, No. 1-23-1210, 2024 IL App (1st) 231210-U, Court of Appeals of Illinois, First District, Third Division (March 27, 2024) the Illinois Court of Appeals looked to protect the interests of the insured other than the interest of the insurers.
FACTS
This appeal concerned an insurance coverage dispute between a general liability carrier and a professional liability carrier. Certain Underwriters at Lloyd's, London Subscribing to Policy No. CJ10028219 (Underwriters) and Admiral Insurance Co. (Admiral) both insured Track Group, Inc., a company in the business of electronically monitoring individuals using ankle monitors. Track Group was sued after a person wearing the ankle monitor sustained severe injuries while driving his vehicle. Underwriters had paid the costs of Track Group's defense up to the time of the decision but it argued that Admiral should share in the costs, as it believes both insurance policies provide coverage in this case. The circuit court held that Admiral did not owe coverage under the terms of its insurance policy with Track Group.
BACKGROUND
Underwriters issued Track Group a general liability insurance policy, while Admiral issued a professional liability insurance policy. Track Group sought coverage under both policies in connection with a personal injury lawsuit filed against it in Los Angeles, California. The plaintiff in that suit, Jeffrey Mohamed Abed, alleged that his leg was torn from his body after his foot, on which he was wearing the ankle monitor, became lodged between the gas and brake pedals in the vehicle he was driving. Admiral denied coverage and filed a declaratory action, contending that it does not owe coverage under these circumstances.
The circuit court granted Admiral's motion for summary judgment and denied Underwriters' motion for summary judgment.
ANALYSIS
On appeal, Underwriters argued that the circuit court erred in granting summary judgment in favor of Admiral, contending that the court's interpretation of the Admiral policy was overly narrow. Underwriters argued that Admiral policy covers the injury at issue.
Where policy language is susceptible to more than one reasonable interpretation, it is considered ambiguous and will be construed strictly against the insurer. Courts construe the policy as a whole, giving effect to each provision where possible because the court must assume that the provision was intended to serve a purpose.
According to the plain language of the policy Admiral is potentially liable for wrongful acts arising out of the provision of "professional services" and "technology products." The policy includes a general exclusion for bodily injury and property damage. However, that exclusion does not apply to bodily injury arising out of the provision of "professional services." In other words, Admiral's policy could potentially cover bodily injury arising out of the provision of "professional services."
One of the four components of the ankle monitor is an internal central processing unit. The ankle monitor can make and receive calls, generate alarms, receive radio frequency transmissions, and communicate movements to Track Group. Because the ankle monitor is an electronic device that can store, retrieve, and process data it is potentially a computer. Moreover, the ankle monitor likely constitutes "hardware." Because the ankle monitor is potentially computer hardware, the Court of Appeals held that it is potentially covered by Admiral's policy and potential coverage is all that is required to trigger an insurer's duty to defend its insured.
Because the facts of Abed's lawsuit against Track Group potentially fell within the terms of the policy the decision of the Circuit Court was reversed.
ZALMA OPINION
The court did what the insurers should have done - it read the policy which covered claims resulting from professional services or technology products. Since the ankle monitor was clearly a technology product and was claimed to be the cause of the injury that ripped off Mr. Abed's leg, there was a potential of coverage and all of the insurers owed Track Group a defense. Working together both insurers could have saved money and served their insured fairly.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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62
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Soft Fraud
How Most Get Away With Insurance Fraud
Post 4764
For reasons known only to governmental entities some insist on categorizing fraud into both “hard” and “soft” fraud. By so doing the governmental entities that so categorize fraud make one type of fraud less heinous and less criminal than the other. Fraud, whether categorized “soft” or “hard,” are criminal and if a person is tried and convicted of fraud both can be sent to jail for the same amount of time.
The types of insurance fraud some call “soft fraud” are found in every type of claim presented to an insurer.
Soft fraud, which is sometimes called opportunity fraud, occurs when a policyholder or claimant exaggerates a legitimate claim.... According to the Insurance Research Council, soft fraud is far more frequent than hard fraud. Because of the frequency of soft fraud, it adds more to overall claims cost than hard fraud does.
Soft fraud occurs when a policyholder exaggerates an otherwise legitimate claim or when an individual applies for an insurance policy and lies about certain conditions or circumstances to lower the policy’s premium.
The reality is that Soft Fraud is a criminal violation and a breach of a material condition of the policy. It contributes to increased insurance costs. As a result of increased insurance costs, millions of Americans cannot afford sufficient insurance coverage. One cannot commit an innocent or partial fraud any more than one can be partially dead. Once fraud is committed the contract of insurance is violated and voidable and the crime has been committed.
Soft fraud, in contrast, usually involves legitimate losses that are exaggerated by the policyholder. For example, if a person is in a car accident and files a claim with her auto insurance company but overstates the severity of the damage to her car. The insured did not fabricate the accident or the underlying claim, but nevertheless committed soft fraud by not being completely truthful with the insurance company.
Regardless of whether or not the fraudulent act is soft or hard, insurance fraud is a felony under the law of most states.
The discussion that follows describes the most insidious and prevalent types of soft fraud.
PADDING
Padding is found when injuries or damages are exaggerated to increase a claim’s value. It is what has been called an insidious type of fraud difficult to detect and often considered harmless by insureds, claimants, police, and prosecutors.
Padding can come in a variety of forms. In first party claims, an insured is generally considered to be in the best position to know the value of property for which he or she is making a claim. An insurer depends upon the insured to provide an honest description and estimate of the value of the property, and most courts hold an insured to a high level of honesty when reporting a loss to an insurer.
Padding is found in property insurance when insureds inflate the number of items lost or destroyed or exaggerate the value of the items claimed damaged, destroyed, or stolen. This can be as simple as increasing the size of a stolen television from 32 inches to 42 inches; from a cathode ray tube to flat screen; from $100 cash to $500 cash; or from two pairs of jeans to five pair.
According to an Insurance Research Council (IRC) study, approximately 90 percent of the costs of insurance fraud are the result of claims padding. Claimants add damage, injuries, and fictitious passengers to their insurance claims. The other 10 percent are the result of organized accident staging rings. Because of the sheer number of offenders, and the light sentences received by the few that are convicted, pursuing these crimes has not a priority for law-enforcement or insurers. [Whyen v. Summers, 58 Misc.3d 1223(A), 97 N.Y.S.3d 57 (Table) (N.Y. Sup. Ct., 2018)]
On third party claims the padding can be as simple as adding a week of lost earnings that, in fact, was not lost; allowing the doctor to bill for three visits not made; or going to a chiropractor who charges for x-rays not taken.
Standard fire insurance, all-risk property insurance, package first party property policies and most third party liability policies state that the policy is void if the insured intentionally conceals or misrepresents any material fact or circumstance about the insurance or a claim, whether before or after the loss.
When an insured submits fraudulent invoices to inflate a claim the insurer has the right, under the policy wording, to void the entire policy. The insured’s argument that he was entitled to recover that part of his claim not supported by fraudulent documents should be dismissed out of hand. One cannot commit a small fraud any more than a person can be just a little dead.
A slight misstatement of value normally will not be sufficient to allow an insurer to void an insurance policy for fraud unless the insured knew at the time the misstatement was made that the statement was false and the insurer can prove that the misstatement was made with the intent to deceive it. Misrepresentation, concealment, and fraud are not limited by the amount of the fraud but by the intent of the person making the claim. An insured who presents, with the intent to defraud, $1,000 in false invoices is as culpable as an insured who presents, with the intent to defraud, $1,000,000 in false claims. In both cases, if proved, the policy of insurance, by its terms and conditions, is void and the claim is forfeited.
If the differences in numbers between those presented by the insured and those presented by the insurer are honest differences of opinion or calculation errors a policy cannot, and should not, be declared void. The insured must intend to deceive and the insurer must be in a position to prove that intent and that it was deceived before it can void the policy.
Honest people deceive their insurers. They think the deception is just harmless fudging. “Soft fraud” wrongfully takes money from an insurer and is also a crime. Soft fraud, like hard fraud, raises everyone’s insurance costs. The greatest amount of money lost to fraud is lost to schemes designated as “soft fraud.” Since most soft fraud succeeds the amount it costs the insurance industry is difficult, if not impossible, to determine. Prosecuting some “soft fraud” perpetrators can put the fear of prison in the minds of the general public and save more money, in the long run, than prosecuting and convicting a single major fraud perpetrator. Unfortunately, police and prosecutors are often unwilling to prosecute cases of so-called “soft fraud” even when the evidence is damning.
Years ago, the author took the Examination Under Oath of an insurance broker who inflated a claim for damage to personal property by creating, with the use of white out paint and a photocopy machine, fake invoices for the replacement of property never replaced to collect the difference between actual cash value and replacement cost value. At Examination Under Oath the insured admitted to faking the receipts and was eventually convicted of insurance fraud and served a few months in jail for her crime.
ZALMA OPINION
Insurance fraud is working to destroy the economy and the ability of insurers to service their clients properly. States attempt to deter it by enacting statutes making it a crime to defraud an insurer and make the insurers, by statute, to investigate and enforce the crime. Yet prosecutors don't like insurance fraud cases because they are document heavy and no person has been physically injured. Prosecution of insurance fraud is anemic and prosecution of soft fraud is non-existent. Learn from this and defeat fraudulent claims by refusing to pay. You will have no help from police or prosecutors but you can deter the attempts to defraud a proactive insurer.
This blog was adapted from my book "Insurance Fraud - Volume One available on Amazon.com
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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71
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1
comment
Red Flags of Insurance Fraud
Indicators of Insurance Fraud are Investigative Tools
Post 4763
Indicators of Insurance Fraud are Investigative Tools
Post 4763
58
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3
comments
Prison Employee Commits a Crime She Was Employed to Prevent
GUILTY OF WORKERS' COMPENSATION FRAUD
Post 4762
On January 10, 2022, defendant Tiffinie Marvell Jones was convicted by a jury of one count of insurance fraud. Jones filed a motion for a new trial, which was denied. On appeal, Jones argued that there was insufficient evidence to support the verdict, that her trial counsel provided ineffective assistance, and that the trial court abused its discretion when it denied her motion for a new trial.
In The People v. Tiffinie Marvell Jones, F085205, California Court of Appeals, Fifth District (March 14, 2024) the Court of Appeals affirmed her conviction
FACTS
On January 10, 2022, Jones was found guilty by a jury. Jones was sentenced on September 30, 2022. Jones was granted probation for a term of two years. One of the conditions of probation was that Jones serve the first 180 days of her probationary period in jail.
The Prosecution's Case
Jones worked for a state prison in May 1995. She was a return to work coordinator for the prisons. If a staff member was injured, they would go through the return to work office to file workers compensation claims so the staff member could be paid while he or she was off work.
On February 14, 2014, Jones filed a DWC-1 form (an application to file a workers’ compensation claim), alleging that on February 11, 2014, a large file shelf fell on her, injuring her left thigh and below her knee.
As soon as a workers’ compensation claim is filed, the state prison informs the insurance company. The insurance company does an investigation, and either accepts or denies the claim. If it is accepted, the insurance company lets the state prison know, and the state prison will pay the injured worker for the first 52 weeks. This is referred to as industrial disability leave (IDL).
Injured workers are allowed to get a second job, but they need to report the income to the insurance company (reporting a second job, without reporting the income, is not sufficient). The insurance company then reduces the amount it pays the injured worker by the amount the injured worker makes at his or her second job.
In February of 2017, Jones began working for a real estate company as a sales associate. Jones's IRS form 1099 for 2017 from the real estate company indicated that, after certain amounts were deducted, Jones earned $25,095.
Jones did not report that she was earning secondary income to her claims adjuster at the insurance company, and the adjuster never asked. Jones did fill out a secondary employment form from the state prison, listing her secondary employer as a real estate company. It was approved on behalf of the warden on or around April 24, 2017, as required by the state prison's policy. Jones was deposed on October 11, 2017, regarding her workers' compensation claim. When asked how many houses she had in escrow, she responded, "Two." However, based on Jones's 1099 form from the real estate company, prior to the date of the deposition Jones had already closed seven home sales and earned $20,312.
DISCUSSION
When evaluating a sufficiency of evidence claim, the appellate court will review the whole record in the light most favorable to the judgment to determine whether it discloses substantial evidence-that is, evidence that is reasonable, credible, and of solid value- from which a reasonable trier of fact could find the defendant guilty beyond a reasonable doubt.
An intent to defraud is an intent to deceive another person for the purpose of gaining some material advantage over that person or to induce that person to part with property or to alter that person's position to its injury or risk, and to accomplish that purpose by some false statement, false representation of fact, wrongful concealment or suppression of truth, or by any other artifice or act designed to deceive.
There was substantial evidence from which a jury could reasonably infer that Jones knew that she was supposed to report her real estate income to the insurance company, that she did not do so, and that she lied about not having real estate income at the deposition.
The Trial Court Did Not Abuse its Discretion in Denying Jones's Motion for a New Trial
In making the determination, the trial court found that Jones "clearly received income" yet intentionally failed to disclose it. Contrary to Jones's assertion, the trial court addressed the expense evidence as to the specific intent element and found that Jones knew that she had to report her income even if it was exceeded by her expenses but intentionally failed to do so.
ZALMA OPINION
Ms. Jones lied at deposition about her earnings with a secondary employer while on workers' compensation which she knew, from her employment with the state prison, that she was required to report to the insurer about her secondary employment. Her appeal was incredible and the court refused to give any credibility to her appeal. She will spend a small time in the prison where she used to work and will go back to making more money selling real estate.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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57
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1
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Prison Employee Commits a Crime She Was Employed to Prevent
GUILTY OF WORKERS' COMPENSATION FRAUD
Post 4762
14
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Prison Employee Commits a Crime She Was Employed to Prevent
GUILTY OF WORKERS' COMPENSATION FRAUD
Post 4762
On January 10, 2022, defendant Tiffinie Marvell Jones was convicted by a jury of one count of insurance fraud. Jones filed a motion for a new trial, which was denied. On appeal, Jones argued that there was insufficient evidence to support the verdict, that her trial counsel provided ineffective assistance, and that the trial court abused its discretion when it denied her motion for a new trial.
In The People v. Tiffinie Marvell Jones, F085205, California Court of Appeals, Fifth District (March 14, 2024) the Court of Appeals affirmed her conviction
FACTS
On January 10, 2022, Jones was found guilty by a jury. Jones was sentenced on September 30, 2022. Jones was granted probation for a term of two years. One of the conditions of probation was that Jones serve the first 180 days of her probationary period in jail.
The Prosecution's Case
Jones worked for a state prison in May 1995. She was a return to work coordinator for the prisons. If a staff member was injured, they would go through the return to work office to file workers compensation claims so the staff member could be paid while he or she was off work.
On February 14, 2014, Jones filed a DWC-1 form (an application to file a workers’ compensation claim), alleging that on February 11, 2014, a large file shelf fell on her, injuring her left thigh and below her knee.
As soon as a workers’ compensation claim is filed, the state prison informs the insurance company. The insurance company does an investigation, and either accepts or denies the claim. If it is accepted, the insurance company lets the state prison know, and the state prison will pay the injured worker for the first 52 weeks. This is referred to as industrial disability leave (IDL).
Injured workers are allowed to get a second job, but they need to report the income to the insurance company (reporting a second job, without reporting the income, is not sufficient). The insurance company then reduces the amount it pays the injured worker by the amount the injured worker makes at his or her second job.
In February of 2017, Jones began working for a real estate company as a sales associate. Jones's IRS form 1099 for 2017 from the real estate company indicated that, after certain amounts were deducted, Jones earned $25,095.
Jones did not report that she was earning secondary income to her claims adjuster at the insurance company, and the adjuster never asked. Jones did fill out a secondary employment form from the state prison, listing her secondary employer as a real estate company. It was approved on behalf of the warden on or around April 24, 2017, as required by the state prison's policy. Jones was deposed on October 11, 2017, regarding her workers' compensation claim. When asked how many houses she had in escrow, she responded, "Two." However, based on Jones's 1099 form from the real estate company, prior to the date of the deposition Jones had already closed seven home sales and earned $20,312.
DISCUSSION
When evaluating a sufficiency of evidence claim, the appellate court will review the whole record in the light most favorable to the judgment to determine whether it discloses substantial evidence-that is, evidence that is reasonable, credible, and of solid value- from which a reasonable trier of fact could find the defendant guilty beyond a reasonable doubt.
An intent to defraud is an intent to deceive another person for the purpose of gaining some material advantage over that person or to induce that person to part with property or to alter that person's position to its injury or risk, and to accomplish that purpose by some false statement, false representation of fact, wrongful concealment or suppression of truth, or by any other artifice or act designed to deceive.
There was substantial evidence from which a jury could reasonably infer that Jones knew that she was supposed to report her real estate income to the insurance company, that she did not do so, and that she lied about not having real estate income at the deposition.
The Trial Court Did Not Abuse its Discretion in Denying Jones's Motion for a New Trial
In making the determination, the trial court found that Jones "clearly received income" yet intentionally failed to disclose it. Contrary to Jones's assertion, the trial court addressed the expense evidence as to the specific intent element and found that Jones knew that she had to report her income even if it was exceeded by her expenses but intentionally failed to do so.
ZALMA OPINION
Ms. Jones lied at deposition about her earnings with a secondary employer while on workers' compensation which she knew, from her employment with the state prison, that she was required to report to the insurer about her secondary employment. Her appeal was incredible and the court refused to give any credibility to her appeal. She will spend a small time in the prison where she used to work and will go back to making more money selling real estate.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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241
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Insurer Must Report Suspected Fraud
When an Insurer Reports Fraud to the State Without Malice It is Immune From Suits Claiming Defamation
No Cause of Action for Libel, Slander or any Other Relevant Tort
Post 4761
Justice Broussard writing for the California Supreme Court dealt with a case where the plaintiff obtained a judgment for $15,271 in general damages, $250,000 for emotional distress, and $1.25 million for punitive damages in an action for misconduct of an insurer in dealing with a claim for stolen property. The principal issue raised is whether the insurer's report to the Bureau of Fraudulent Claims (hereinafter Bureau) was privileged so as to preclude recovery for injuries sustained as a result of a criminal proceeding.
In Clydelho Frommoethelydo v. Fire Insurance Exchange et al., S.F. 24881, 228 Cal.Rptr. 160, 42 Cal.3d 208, 721 P.2d 41, Supreme Court of California, In Bank (July 24, 1986)
Rehearing Denied September 25, 1986.
The Supreme Court concluded that the report was privileged and that while it affirmed the judgment to the extent of the value of the property stolen, $8,871, less the $100 deductible, the judgment should be reversed as to the additional damages.
FACTS
In August 1978, plaintiff's home was burglarized, and he submitted a claim for $17,185. The insurer ultimately paid $10,784. In late June 1979, the house was burglarized again. Plaintiff claimed a loss of $8,871, including $3,000 for stereo and video equipment he claimed was bought from Matthew's TV and Stereo. Plaintiff attached a pink copy of a bill of sale to his sworn proof of loss. The copy was one page of a five-page form. The date "1/03/79" appeared in handwriting in the upper left-hand corner, but the cash register printout date on the right-hand side had been erased and obliterated. The other four copies of the bill of sale had a cash register printout date of "7/19/79," which was after the second burglary.
The Bureau determined to investigate and assigned one of its senior investigators who concluded that it appeared that insurance fraud had occurred in violation of Insurance Code section 556. Plaintiff was arrested at the fire station where he worked in March 1980 by the investigator.
Plaintiff's attorney subsequently convinced the deputy district attorney that the latter could not prove beyond a reasonable doubt that the claim, as opposed to the receipt, was false. The deputy district attorney dismissed the criminal charges on September 8, 1980, the morning of trial. The insurer was not advised of the existence of the witnesses until after dismissal of the criminal charges.
The jury found for plaintiff on the causes of action for breach of the duty of good faith and fair dealing, breach of fiduciary duty, and violation of section 790.03.
DISCUSSION
A covenant of good faith and fair dealing is implied in every insurance contract. Insurance Code section 12992 provides that an insurer "which believes that a fraudulent claim is being made shall, within 60 days after determination by the insurer that the claim appears to be a fraudulent claim, send to the Bureau of Fraudulent Claims, on a form prescribed by the department, the information requested by the form...."
Section 12993 provides that an insurer shall not be subject to civil liability "for libel, slander or any other relevant tort cause of action by virtue of the filing of reports, without malice, or furnishing other information, without malice, required by this article or required by the commissioner under the authority granted in this article."
The Supreme Court noted that when the insurer reported to the Bureau, the facts known to the insurer provided a reasonable inference of insurance fraud.
Compliance with a statutory duty to report and furnish does not provide a basis for tort liability so long as the information is accurate and complete. A true and complete report to the Bureau is not actionable.
The malice necessary to defeat a qualified privilege is "actual malice" which is established by a showing that the publication was motivated by hatred or ill will towards the plaintiff or by a showing that the defendant lacked reasonable grounds for belief in the truth of the publication and therefore acted in reckless disregard of the plaintiff's rights. (Roemer v. Retail Credit Co. (1975) 44 Cal.App.3d 926, 936 [119 Cal.Rptr. 82].
In almost every case if not every case where an insurer reports a claim believed to be fraudulent to the Bureau, the insurer stands to profit if the insured is successfully prosecuted. If ability to profit warranted a finding of malice, the insurer would be required to guarantee the accuracy of information obtained and to act at its peril whenever it reported information to the Bureau, and the statutory privilege would be meaningless.
The potential that the insurer may escape liability on the insured's claim is not sufficient to show malice. Rather, the requirement of malice in the statute must be viewed as a legislative determination that the insurer's pecuniary interest without more does not make the report actionable.
Once an insurer has evidence providing probable cause to believe an insurance fraud has occurred and determines to make a report to the Bureau, it may properly make its report, and the fact that the report is designed to secure prosecution does not show malice so long as the report does not contain known inaccuracies and is not incomplete.
Application of the duty to investigate to actions based on a report by an insurer to the Bureau would be in conflict with the privilege established by section 12993 for nonmalicious reports. The privilege applies unless the insurer acts out of hatred or ill will or in reckless disregard of the insured's rights. The Supreme Court concluded that when an insured seeks damages on the basis of an insurer's report to the Bureau, the privilege of section 12993 must take precedence over the ordinary duty to investigate. In the instant case, plaintiff has failed to present evidence that the insurer acted maliciously in making its report to the Bureau.
By awarding damages for economic loss, the jury obviously determined that plaintiff had suffered the loss. The judgment was affirmed insofar as it awards plaintiff $8,771. In all other respects it is reversed. Each side shall bear its costs on appeal.
ZALMA OPINION
The insurer, in good faith, complied with its statutory requirement to report to the state its suspicion that a fraud had been attempted. The Fraud Bureau (now the Fraud Division) found sufficient evidence to arrest the insured and at a Preliminary hearing a judge found there was sufficient probable cause to take him to trial. That the prosecutor got cold feet and dismissed the case on the day of trial is not evidence of any malice on the part of the insurer and the civil suit brought by the plaintiff failed because the insurer was protected by the privilege. Although this case is hoary with age it is the law of California while the statute numbers have changed.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
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55
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Pollution Exclusion Deters Deliberate or Negligent Behavior that Leads to Environmental Harm
No Insurance Policy Covers Every Risk of Loss
Post 4760
Pollution Exclusions Deter Polluters
In the world of business, corporations obtain commercial insurance to protect their assets, and commercial insurers customarily include exclusion provisions in their policies. Exclusion provisions dispel the notion that insurance coverage is without limits and place the insured on notice about actions or omissions that will trigger an insurer's denial of coverage. Insurance policies that include pollution exclusion provisions accomplish even more.
In Gold Coast Commodities, Incorporated v. Travelers Casualty and Surety Company of America, No. 23-60087, United States Court of Appeals, Fifth Circuit (March 18, 2024) the Fifth Circuit established the reason for a pollution exclusion.
An insurance policy's pollution exclusion deters deliberate or negligent behavior that leads to environmental harm. When a court affirms a pollution exclusion the insured is prevented from coverage, the Fifth Circuit protect the insurer's right to disincentivize corporations from engaging in bad faith actions with a known environmental impact. This case arises from claims asserted against an insured and, due to a pollution exclusion, those claims fall outside the insurance policy's reach.
BACKGROUND
Gold Coast Commodities, Inc. ("Gold Coast") is a business corporation located in Rankin County, Mississippi. Gold Coast converts used cooking oil and vegetable by-products into animal feed ingredients. Gold Coast became insured under Travelers Casualty and Surety Company of America ("Travelers"), Policy.
In July 2018, the City of Brandon filed suit in the Circuit Court of Rankin County against Gold Coast and its principals alleging that Gold Coast dumped "significant amounts of high-temperature, corrosive, low-pH wastewater into the City's sewer system." These actions or omissions are alleged to have occurred during the Policy period. The City of Brandon seeks to recover for damages from negligence resulting from the "discharge" or "release" of "pollutants" as the term "pollutants" is defined in the Policy.
In June 2021, adding to Gold Coast's problems the City of Jackson filed suit in the Circuit Court of Hinds County against Gold Coast and its principals alleging that Gold Coast dumped "high temperature and corrosive" industrial waste into the City's sewer system.
Travelers denied coverage for defense or indemnity of the two suits and Travelers cited the Policy's pollution exclusion as the basis for its denial of coverage.
Travelers filed a Motion for Partial Summary Judgment arguing that it had no duty to defend Gold Coast and its principals in the respective lawsuits and Gold Coast filed a Motion for Partial Judgment on the Pleadings arguing that: (1) Travelers has the duty to defend Gold Coast and its principals in the respective lawsuits; and (2) Travelers has a duty to reimburse Gold Coast and its principals for their defense costs.
The district court denied Gold Coast's Motions for Partial Judgment on the Pleadings and granted Travelers' Motion for Partial Summary.
DISCUSSION
An insurance company's duty to defend its insured is triggered when it becomes aware that a complaint has been filed which contains reasonable, plausible allegations of conduct covered by the policy. No duty to defend arises when the claims fall outside the policy's coverage. Exclusionary clauses are strictly interpreted and the language within them must be clear and unmistakable.
The district court concluded that all the claims in the complaints were clearly and unambiguously excluded from coverage based on the Policy's pollution exclusion.
The Fifth Circuit concluded that the language unambiguously excluded Gold Coast's actions.
A substance is an irritant or contaminant at its core when no matter where it is, how it is contained, or whether it is in contact with something it is an irritant or contaminant. A substance can become an irritant or contaminant when it comes into contact with something and is actively irritating or contaminating it.
"The allegations in both the City of Brandon's and the City of Jackson's complaints present facts that are paradigmatic for the application of the Policy pollution exclusion."
The deliberate discharge of toxic industrial waste is precisely the type of activity to which Traveler's Policy pollution exclusion was intended to apply. There is not a reasonable interpretation of the wastewater's form or qualities that would conclude that it was not an irritant or contaminant. Therefore, the Fifth Circuit concluded that the Policy is not ambiguous. Because the Policy is not ambiguous, the claims are excluded from coverage.
Gold Coast, therefore, did not sufficiently plead facts that trigger Traveler's duty to defend and the District Court’s decision was affirmed.
ZALMA OPINION
The Fifth Circuit established one of the important reasons for exclusions in insurance policies like that issued to Gold Coast by the Travelers. Exclusion provisions are present to reveal to insureds that insurance coverage is limited and place the insured on notice about actions or omissions that will trigger an insurer's denial of coverage. Insurance policies that include pollution exclusion provisions accomplish even more because they deter wrongful conduct. Gold Coast learned that lesson the hard way: it must pay for defense of the lawsuits and pay from its assets the tort damages.
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Statute Limited to Acts of Insured Cannot be Used Against Insurer
Court Must Read Statute as Written
Insured Seeks to Impose Damages on Insurer under the Fraud Act
Post 4759
Losses claimed under a policy of insurance issued to Plaintiff Volunteer Management & Development Company (“Volunteer”) by Defendant State Auto Property & Casualty Insurance Co. (“State Auto”) resulted in a suit where Volunteer claims breach of contract and insurance fraud against State Auto and filed a petition to compel appraisal and appoint umpire. State Auto moved to dismiss the claims under the Insurance Fraud Act, “agency,” and punitive damages.
In Volunteer Management & Development Company, Inc. v. State Auto Property & Casualty Insurance Co., No. 1:23-cv-00041, United States District Court, M.D. Tennessee, Columbia Division (March 7, 2024) resolved the claims.
BACKGROUND
To survive a motion to dismiss, a complaint must contain sufficient factual allegations, accepted as true, to state a claim for relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads facts that allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
When a court reviews a motion to dismiss, the court construes the complaint in the light most favorable to the plaintiff, accepts its allegations as true, and draws all reasonable inferences in favor of the plaintiff. Thus, dismissal is appropriate only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.
ANALYSIS
Plaintiff asserted a claim for insurance fraud under Tenn. Code Ann. § 56-53-103(a)(1). Defendant seeks dismissal of that claim because the cited statute applies only to actions of “an insured.” Defendant, as the insurer, contends it cannot violate that statutory provision.
PLAINTIFF MAY NOT MISLEAD COURT BY IGNORING LIMITATION IN STATUTE
In response, Plaintiff quoted the same statute, but omits the operative phrase, “by or on behalf of an insured,” effectively changing the scope of that statute so that its claim is cognizable.
The Court began, as it must, with the plain language of the statute. In this narrow respect, Plaintiff’s Response is correct. Clear and unambiguous statutes will be enforced according to their clear terms. As Plaintiff also acknowledges, but fails to actually do in its response, that every word of the statute will be given effect. The statute only applies to insureds and cannot apply to an insurer.
With regard to an award of punitive damages, Defendant is correct that punitive damages are generally not available in a breach of contract case.
Defendant's Motion to Dismiss was granted as to the claim for insurance fraud under Tenn. Code Ann. § 56-53-103(a)(1).
ZALMA OPINION
A plaintiff should never lie to a court. When the insured acknowledged that the statute only applies to fraud by insureds on appeal it tried to sneak into a fraud case against State Auto, by not fully quoting the statute. It didn't work. The fraud statute is limited to fraud by insureds and there is no way it could be applied against an insurer. This was not even a good try, it was an attempt to defraud the court.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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$16 Million to $1
Failure to Provide a Proper Standard for Damages Reduced Judgement
Post 4758
In Malcolm Wiener v. AXA Equitable Life Insurance Company, No. 3:18-cv-00106-RJC-DSC, United States District Court, W.D. North Carolina, Charlotte Division (March 8, 2024) Wiener obtained a $16 Million jury award that the Fourth Circuit required the USDC to address AXA's argument for post-trial relief challenging the amount of damages AXA argued that the jury rested its $16 million award on an improper standard, and thus, that the award lacks a basis in substantial evidence.
BACKGROUND
In 1986 and 1987, Malcolm Wiener purchased three life insurance policies from AXA Equitable Life Insurance Company with a total face value of $16 million. In December 2013, each of the three policies lapsed for nonpayment of premiums. Wiener sought reinstatement, but AXA denied his application.
The current case relates only to AXA's negligence in coding Wiener's medical history. In January 2018, Wiener filed the present action alleging, among other things, that AXA was negligent in “failing to adequately read, understand and verify and accurately report Plaintiff's medical history, conditions and events to third parties." According to evidence introduced at trial, Wiener sought new insurance coverage from at least eight carriers but two denied him coverage altogether and those that offered insurance made only preliminary, revocable offers for $10 million policies at double the standard rate. Wiener's history of atrial fibrillation and monoclonal gammopathy was the basis for the refusals.
The Fourth Circuit addressed the causation issue, holding that “[a]mple evidence supported the jury's verdict for Wiener.” “But because AXA's argument for post-trial relief challenging the amount of damages . . . was neither raised nor briefed before [the Fourth Circuit],” the panel remanded that narrow issue back to the USDC.
DISCUSSION
AXA contended the jury based its award on an improper standard (the $16 million death benefit from his lapsed policies); and second, that, even if the $16 million death benefit was an appropriate measure, Wiener failed to provide necessary evidence of future premiums to offset that $16 million award.
Under North Carolina law, the party seeking damages must show that the amount of damages is based upon a standard that will allow the finder of fact to calculate the amount of damages with reasonable certainty.
Here, the jury awarded Wiener actual damages of $16 million before deducting $8 million for his own failure to mitigate. The jury's award, AXA argued, relied upon an improper standard because this action sought compensatory damages for AXA's negligence in coding Wiener's medical history, not reinstatement of Wiener's previous policies.
The Court found that Wiener's lapsed $16 million death benefit is an improper baseline of damages. Because Wiener offered no baseline to support the jury's $16 million award, the award lacks a sufficient evidentiary basis.
Throughout this case, Wiener has offered no expert testimony or other evidence of the damage caused by his effective uninsurability. And the record makes clear that, even absent the erroneous MIB codes, Wiener was effectively uninsurable or uninsurable at a reasonable cost. The Court found that “no substantial evidence” supports the jury's $16 million actual damages award.
Even extending Wiener “the benefit of all reasonable inferences” and resolving all disputed facts in his favor, the Court found that no jury, viewing the evidence in the light most favorable to the winning party, could have properly reached the conclusion reached by this jury on compensatory damages. The Court found that the damages award was against the clear weight of the evidence and conditionally granted a new trial in the event that the Order is vacated or reversed.
AXA Equitable Life Insurance Company's Renewed Motion for Judgment as a Matter of Law, was granted. The jury verdict was set aside, and Plaintiff Malcolm Wiener is instead entitled to an award of nominal damages in the amount of one dollar ($1).
ZALMA OPINION
Nothing is certain in the law. The $16 million verdict was overturned because, although the jury felt bad for Mr. Weiner, the reason his insurance policies lapsed was that he did not pay the premium and when he tried to reinstate them his health conditions had changed and he was uninsurable. The jury rewarded him with the cash value of the policies that would have been available if he had paid the premium which had no relationship to the actual alleged tortious conduct. The big verdict became nothing more than a piece of paper that counsel could frame and hang on a wall but will not result in cash to the plaintiff.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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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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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.
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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.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Insurance Fraud & Politics
US Senator Charged with Insurance Fraud & Other Crimes Fights Search Warrants
Post 4751
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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