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                                                                                                                           SPRING 2008

CHIRO LANDS CRASH VICTIMS                                                                     Florida and Maryland
                                                                                              close o crash reports
WITH FULL THROTTLE PHONING?                                                                       Police accident reports provide
Cold-calling of victims may reach new levels of efficiency                                     often-easy targets for swindlers
                                                                                              who exploit crash victims to bilk
   Texas chiropractor Michael Kent Plambeck may have virtually                                insurers with bogus injury claims.
mechanized the illegal recruiting of crash victims for bogus injury claims against auto           Recruiters comb for names,
insurers with a corporate efficiency rarely seen for this kind of insurance scheme.            addresses and phone numbers,
    His suspected gang allegedly used aggressive telemarketing phone banks that               then phone or knock on victims’
convinced victims to obtain bogus treatments from dozens of clinics he operated in four       doors to seek treatment at
states. Cold-calling victims for schemes isn’t new, nor is contacting victims necessarily     crooked clinics.
crooked. But Plambeck may have done for sleazy recruiting of victims what Henry Ford              But Florida and Maryland, for
did for assembly-line car manufacturing.                                                      example, limit outsider access to
    “To the best of my knowledge it’s unusual, and actually it’s the first time I’ve heard     police reports, says Howard Gold-
                                                                                              blatt, the coalition’s head of gov-
of someone that would go to this extreme,” says Frank Orlando, director of New York
                                                                                              ernment affairs. Only the victims,
State’s fraud unit.
                                                                                              their representatives and journal-
    “We’ve always seen that stuff (phone                                                      ists can see reports for the first
recruiting of crash victims) but nothing                                                      60 days after an accident. Some
that sophisticated,” agrees Anthony                                                           swindlers pretend they’re journal-
DiPaolo, chief of investigations for the                                                      ists, even creating official-looking
Massachusetts fraud bureau. “We’ve                                                            publications to show police.
seen occasional mailings that go                                                                  And Texas just deleted victim
out, but nothing like this.”                                                                  phone numbers from the reports.
    But more, Plambeck                                                                            “(Recruiters) are today’s lazy
allegedly combined a sprawling                                                                ambulance chasers, doing it all
clinic network and sophisticated                                                              by phone. We are trying to put
telemarketing machine into a                                                                  a stop to these calls, or at least
coordinated, MBA-style marriage of crooked medicine and full-throttle phone                   slow them down,” says Mark
marketing that’s unusual for suspected insurance schemes such as these, seasoned              Hanna, with the Texas Committee
                                                                                              on Insurance Fraud, which helped
investigators say.
                                                                                              spearhead the change.
Churned out calls
    Plambeck allegedly cost Allstate so much money that the insurer is trying to gut his
operation with a $10-million federal lawsuit recently filed in Dallas. His headquarters,       INSIDE
Chiropractic Strategies Group, is based in nearby Arlington.
    Plambeck runs about 39 chiropractic clinics sprinkled throughout Texas, Louisiana,        3   Fraud News
Ohio and Alabama. He also set up a Louisiana marketing operation called Media                    States squelch fake insurance
Placement that churned out most of his phone pitches.                                         4   Pro le
    Callers were carefully trained. Using official accident reports, they dialed up crash         Secret economy fuels comp schemes
victims in several states. Callers urged them to visit one of Plambeck’s clinics for a free   6   Crime Watch
exam — even when victims felt no pain or other injury symptoms, Allstate says.                   Alleged crash ring a family affair
    Callers funneled hot prospects to the nearest clinic and even arranged the                7   Legislative Monitor
appointments, Allstate says. Worthless and phantom treatment and tests allegedly                 Budget crises could stifle fraud bills
followed, and Plambeck’s clinics then bombarded Allstate with dirty claims.                   8   Perspective
                                                                                                  Attitudes about insurers declining
                                                                  continued on next page
                                                                     COVER STORY
 Board of Directors
 D       S          , C -C                                       Full-Throttle Phoning
 State Farm Insurance Companies
 J     B      , C -C
                                                                 continued from page 1
 Center for Consumer A airs
 University of Wisconsin-Milwaukee                                   One of Allstate’s strongest charges is that Plambeck’s telemarketers
 D     A           ,T                                            sometimes said they were Allstate or “insurance company” reps who wanted
 Farmers Insurance Group
 S         P    ,S
                                                                 victims to visit a nearby Plambeck outfit. If true, that’s an unusual bit of strong-
 National Association of Insurance Commissioners                 arming that also sets Plambeck apart, fraud fighters say.
 Allstate Insurance E         J. M                                    “Recruiters don’t usually say they’re working for an insurance company.
 American Council on Consumer Interests                          Usually they say they’re working for the clinic,” says Steve Smith, a captain from
 J     B
 American Family Insurance S          S                          the fraud unit of Florida’s Department of Financial Services.
 American Insurance Association P       F                             “At this point it’s the exception to what we normally see. It may be
 Consumer Action K M E
                                                                 something new,” adds Dana Levitt, who oversees investigation of suspicious
 Consumer Alliance D R                                           injury claims for Hanover Insurance Group.
 Consumer Federation of America                                      But Hanover is probing a chiro outfit that also may use pretext: Someone
 S         B
 Consumer Federation of the Southeast                            phoned a crash victim, claiming he was a doctor employed by Hanover, and
 W         D                                                     urged her to get treatment at a specific chiro clinic in Tennessee, says Levitt.
 Erie Insurance D      R
 Farmers Insurance Group D          A                                The clinic receptionist told the victim not to contact Hanover, assuring her
 Fireman’s Fund Insurance P        S                             the clinic would handle all insurance details, Leavitt says. But the woman grew
 Florida Consumer Action Network B N
 Hanover Insurance Group F           S
                                                                 suspicious and contacted Hanover’s fraud hotline. Hanover still is investigating
 Hartford Insurance Group J         M G                          the chiro’s operations, including victim-marketing efforts.
 International Association of Insurance Fraud                                                                  Most recruiting of crash victims is
 Agencies M      M
 Liberty Mutual Group G          D. W                                                                      more loosely organized and smaller-scale
 Louisiana State Police L . A       C                                   Many accident                      than Plambeck’s alleged multi-state
 Main Street America Group C              M D
                                                                                                           telemarketing, says Orlando.
 MassMutual B
 MetLife, Auto & Home J
                                                                    gangs avoid recruiting                     Recruiters show up at crash scenes,
 National Association of Consumer Agency
 Administrators E             O                                     tactics such as high-                  wait until the police leave, then badger
 National Association of Insurance Commissioners                                                           victims to get treatment at a ring-affiliated
 H .S          P
 National Conference of Insurance Legislators
                                                                    gear telemarketing                     clinic, Orlando says. They also phone
                                                                                                           crash victims at home: Pretending to be
 H .B         K
 National Criminal Justice Association                              that might attract                     hospital employees, recruiters urge victims
 C        C. C
 National District Attorneys Association
 M      G
                                                                    nosey fraud                            to get treatment at a clinic that’s part of
                                                                                                           the scheme. Some miscreants hang flyers
 National Insurance Crime Bureau R
 National Urban League R           M A
                                                                    investigators.                         on lampposts or monitor police radio
 Nationwide Insurance D          B                                                                         dispatches.
 O ce of Attorney General, Pennsylvania
 H .T C
                                                                     In a newer tactic, hospital employees text-message recruiters when accident
 OneBeacon Insurance D         N                                 victims come to emergency rooms, Orlando says.
 Pennsylvania Insurance Fraud Prevention Authority                   In fact, many accident gangs avoid elaborate recruiting tactics such as high-
 R       B
 Progressive Insurance J      M                                  gear telemarketing that might attract nosey fraud investigators, Orlando says.
 Prudential Insurance H          G                                   “I think they’re trying to keep these things lowkey,” he notes.
 SAFECO S        F
 Sentry Insurance J      D. K
                                                                     Staged-accident rings, with schemers maneuvering their own cars into
 Travelers Insurance K J                                         crashes, are more prevalent than gangs trying to recruit real accident victims.
 Unum Group R          D                                         Still, Allstate’s $10-million suit underscores that alleged fraud losses still can be
 Zurich North America B         W
                                                                 sizable. Fraud fighters thus deploy a variety of counter-measures in addition to
                                                                 criminal prosecutions.
                                                                     Florida limits access to police accident reports that rings often use to find
Sta                                                              crash victims (see sidebar). “We do believe the law has been having an effect. It’s
D       J Executive Director
H           G      Director of Government A airs                 made it much tougher for them to recruit,” says investigator Steve Smith.
J     Q      Director of Communications
K       S    Executive Assistant                                     Civil suits by insurers also can deliver serious financial body blows. Huge fines
 The Coalition Against Insurance Fraud is an independent,        can bankrupt ring members, and the burden of proof in civil cases also is lower
nonpro t alliance of consumers, government agencies and
insurers dedicated to combatting all forms of insurance fraud    than criminal cases. Insurers also can move fast, without waiting for lengthy
through public information and advocacy. Fraud Focus is          criminal prosecutions.
published four times a year. Material may be reproduced with
proper attribution to the Coalition Against Insurance Fraud.         If Allstate takes down Plambeck, the insurer will shore up Smith’s belief that
Contact Information: 1012 14th Street, NW, Suite 200, Washing-
ton DC 20005; phone 202-393-7330; fax 202-318-9189; email
                                                                 even the most-elaborate auto-fraud rings can take a long, hard fall. “They’re not
info@insurancefraud.org.                                         as sophisticated as they think they are,” Smith says.

2 Spring 2008 ! FRAUD FOCUS
                                                    FRAUD                  NEWS

                   States put kibosh on sale of worthless coverage                                                In Brief
                      Several state have shut down a bogus insurer peddling fake
                  discounted health coverage to small businesses and consumers. Florida slapped                 New York state’s fraud
                  the National Trade Business Alliance of America with a cease-and-desist                  fighters recently made their
                  order after nearly 800 residents had lost at least $100,000 in unpaid claims             1,000th workers comp fraud
                                                                                                           arrest since 1996. The anti-
since 2006, the department of financial services says. The coverage was marketed via blast faxes
                                                                                                           fraud effort has saved more
promising health coverage well below market rates. Consumers called a tollfree number to make
                                                                                                           than $312 million…An agent
the purchase. Callers provided their credit-card info or faxed a copy of a check to cover their
                                                                                                           forged competing quotes
premiums. At least 123 people in North Carolina also lost $20,000 to the New Jersey-based                  to dupe the Mescalero Apache
outfit, North Carolina’s insurance department says. The company was unlicensed and left many                tribe into overpaying millions
policyholders with unpaid claims. The Arizona and Massachusetts insurance departments are                  in premiums, the tribe says in
among others to crack down. A large wave of bogus health insurers bilked thousands of small                a lawsuit in New Mexico…The
businesses around the U.S. from about 2000 to about 2004 before regulators shut down the                   vast deserts around Bar-
swindlers. Insurance departments today are urging consumers to contact the regulators to verify            stow, Calif. are graveyards
insurers before buying coverage.                                                                           for vehicles the owners have
                                                                                                           dumped for insurance money,
Coalition working to foreclose looming foreclosure arsons                                                  officials say. Helicopters scan
                                                                                                           for vehicles in especially re-
    Arsons by desperate homeowners facing foreclosure, airbag scams                                        mote spots…Two men posed
and crooked dentists are among the fraud trends the coalition brought                                      as insurance adjusters
to the nation’s attention recently. “Untold thousands of homeowners                                        who ripped off victims of the
are struggling with ballooning subprime mortgage payments, and                                             wildfires in South Lake Tahoe,
fraud fighters are watching closely for a spike in arsons by desperate                                      Calif. last summer. The insur-
homeowners who can no longer afford their home payments,” the                                              ance department fined Steve
coalition said in a recent issue of Fortune Magazine…Airbag scams are a life-threatening                   Lepcevic and Matthew Todd
danger, the coalition also warned the public: “Many cars now on the road could have no                     $200,000...Plans are afoot
airbags or nonworking ones,” the coalition says in a consumer column sent to newspapers                    to launch an international
around the U.S. “Crooked body shops illegally removed or replaced them to steal insurance                  database to target insur-
money. But drivers and passengers won’t know until they’re in a crash and their airbag fails               ance fraud globally. About 140
to open.”…Dental patients also should watch out: “We’re seeing a disturbing spike in the                   nations are expected to take
warning signals that there may be an increase in fraud by crooked dentists,” the coalition said            part, allowing insurers to share
on Good Morning America. A Pennsylvania dentist did jawbone grafts, tooth extractions and                  fraud data internationally…
                                                                                                           Corruption is so wide-
root canals on perfectly healthy patients, the show noted.
                                                                                                           spread among Los Angeles-
                                                                                                           area medical-equipment firms
Tampa a center of fraud-fueled abuse of prescription drugs                                                 that nearly 1,000 firms bilked
                           Overdoses of prescription drugs, often obtained by insurance fraud,             Medicare out of $21 million in
                        soon will overtake car crashes as the Tampa Bay area’s leading cause of            just one year, says a federal
                        accidental deaths, local officials say. The region is fast becoming one of          report. One bogus firm even
                        Florida’s leading problem areas for the abuse of addictive painkillers and         listed an art gallery as its
                        other prescription drugs. Overdoses of painkillers such as OxyContin and           address. Investigators have
                        anti-anxiety drugs are on a pace to kill 550 local residents. The death rate is    uncovered $300 million in po-
                                                                                                           tentially bogus claims over two
70 percent higher than the state as a whole, officials say. Deaths statewide have risen 40 percent
                                                                                                           years…Former insurer exec
in three years, news reports say. Many areas around the U.S. are wrestling with a prescription
                                                                                                           Joe Wehrle has been appoint-
epidemic, and insurance fraud fuels this fast-growing trend, the coalition warns in a new report,
                                                                                                           ed the chief operating officer
Prescription for Peril. Bogus prescription drug claims by doctor-shopping addicts, pharmacies and          of the National Insurance
doctors have made insurance fraud perhaps the trend’s leading financier and enabler, the report             Crime Bureau. Wehrle was
says. More states must install databases to track prescriptions, the report urges. Florida has weak        president of USAA Property
tracking systems, making it easy for addicts and dealers to illegally obtain multiple prescriptions,       and Casualty, and deputy chief
says Dr. Rafael Miguel, a professor at the University of South Florida.                                    of staff in the Air Force.

Send Us Your News
   Let us know how your organization is combating insurance fraud. Send your news to: Fraud Focus,            More Fraud News
1012 14th St. NW, Suite 200, Washington DC 20005 or fax to 202-318-9189 or email to                       at news@InsuranceFraud.org

                                                                                                          Spring 2008 ! FRAUD FOCUS           3

  Digging up the underground economy
                           Corrupt builders cheat workers comp insurers
                               out of premiums and exploit workers
    Driven to dodge expensive                 competitors, thus costing jobs and raising        Employers in high-risk California
workers compensation premiums,                prices.                                       industries may hide 75 percent of their
companies in high-risk and low-wage               Corrupt builders deploy a large variety   payroll for those dangerous jobs. This
industries such as construction fleece         of ruses, often camouflaging workers           costs insurers up to $3.8 billion in lost
insurers out of billions a year by hid-                                                           comp premiums annually, says a
ing employees in the shadowy neth-                                                                2007 study by University of Califor-
erworld of America’s underground                                                                  nia Berkeley researchers.
economy.                                                                                              California’s state-run workers
    Corrupt garment makers, restau-                                                               comp insurer has 109 premium-
rants and businesses in many other                                                                fraud investigations and prosecu-
industries also milk comp insurers.                                                               tions underway. More than $100
But construction firms are especially                                                              million in potential premium losses
large players in a vast, subterranean                                                             are on the line, and most cases
job world that both exploits vulner-                                                              involve construction firms, says
able workers by paying substandard                                                                Rick Plein, the insurer’s bureau
wages, and bilks governments by                                                                   chief.
avoiding many taxes.                                                                                  At least 50,000 construction
    In this parallel financial universe,                                                           workers in New York City alone
millions of workers — often illegal                                                               — one of four — are employed
immigrants toiling long hours in              inside dizzyingly complex bookkeeping               off the books or misclassified as
dangerous conditions — pound nails high       cons. Increasingly, for example, employ-      independent contractors, says the Fiscal
on roofs of housing sites, pour concrete in   ees are stashed in shell firms, mislabeled     Policy Institute. Those cons milked $489
rising office buildings, or erect drywall in   as independent contractors, and paid in       million in comp premiums, taxes and
condo complexes.                              cash off the books (see sidebar). If em-      other expenses in 2005 and could reach
                                              ployees don’t exist — at least on paper —     $557 million this year, the Institute esti-
High-risk work                                then workers comp insurers can’t charge       mates. More than 39,500 employers also
    Nearly every state requires employers     premiums for them.                            misclassify workers throughout the state
to carry workers comp coverage, but the                                                     each year, a study by Cornell University
urge to cheat is strong. Construction is      Little data                                   researchers reveals.
high-risk; employees often are injured and        Credible national data are in scarce          Meanwhile down South, premium
sometimes even killed. Workers comp           supply. But states with large Hispanic        schemes are the “largest organized
premiums thus can be high, and bite into      populations and hot construction markets      financial crime in the state of Florida,”
a builder’s profits. Premium schemes can       such as California, Florida and New York      says Geoffrey Branch, investigator with
save a dishonest builder up to hundreds       are cauldrons of workers comp premium         the fraud unit of the state Department of
of thousands of dollars in comp premiums      schemes.                                      Financial Services.
a year.                                           “Premium fraud and tax evasion with-          Premium cons are diverse. In Califor-
    But the ruses also leave injured work-    in the underground economy is a serious,      nia, Mayer Roofing lied that most of its
ers without coverage, bilk insurers of        costly crime throughout California,” says     450 workers were managers or high-level
premium income, and leach taxes. The          Dominic Dugo, head of fraud grants for        employees instead of roofers. Mayer was
sizable premium savings also give dishon-     the San Diego DA’s office and a leading        ordered to repay the state workers comp
est contractors an unfair edge over honest    expert on comp premium fraud.                 insurer more than $3 million.

4 Spring 2008 ! FRAUD FOCUS
    A Florida builder shaved more than
$4 million in premiums by providing more
                                                Premiums schemes fueled by illegal shell companies
than 300 workers fake workers comp in-
                                                     A growing trend in workers comp premium-evasion schemes is to bury employees in
surance certificates. The firm also created
                                                shell firms set up solely for illegally laundering of hidden payroll into cash, usually to un-
bogus payroll records, paychecks and IRS
                                                documented immigrant workers, says Geoffrey Branch, Florida state fraud investigator.
reporting documents.
                                                    “A facilitator sets up a shell company, usually in a false name or name of someone
    In New York, a firm called Complete
                                                who is or will be out of the country. The facilitator incorporates, obtains a general oc-
Construction Consortium avoided nearly
                                                cupational license for the company, then obtains the smallest work comp policy they
$800,000 in comp premiums by alleg-
                                                can,” he says.
edly creating four shell companies for
                                                    The shell has a vanilla name such as “DM General Services.” The owner rents its
paying employees off the books. CCC
                                                name, occupational license and workers comp certificate to firms that want to hide
wrote checks to the shells, then listed
                                                payroll from comp insurers and tax agencies, Branch says.
the checks as “materials” on its general
                                                     When the building project is done, the general contractor cashes a check at a
ledger and tax returns, prosecutors say.
                                                check-cashing store that’s in cahoots with the con. The shell firm and store take their
Commercial check cashers also allegedly
                                                cut, and the rest goes to the firm and its workers.
helped CCC pay some workers in cash
                                                    At least three check outfits drove across Florida with vans, allegedly cashing
under the table.
                                                checks for crooked builders, Branch says. Pronto Cash, La Bamba and Atlantic Check
    California roofer Michael Amzie Hol-
                                                Cashing have been busted, Branch says.
ley allegedly avoided more than $700,000
in premiums by lying that he had no em-
ployees. He paid workers cash under the           California roofers also must carry            to exploit a rule exempting certain sole
table, mislabeling them as subcontrac-        comp coverage whether or not they have            proprietors from comp premiums.
tors, and leasing some from other firms,       employees, according to a 2007 law.                   Premium schemes also will be
prosecutors say.                              Insurers also must audit roofer clients’          influenced by how the next U.S.
                                              payrolls annually. There were 6,000               president deals with the flood of immi-
Scams unopposed
                                              licensed roofers in California in 2006.           grants who fuel the underground econo-
    State and federal agencies are striking   That number had dropped by half in early          my, the coalition’s Jay notes. Unabated,
back with growing force. Until recent         2007, according to news reports.                  illegal immigration could encourage the
years, many premium scams went unop-                                                            conditions that allow premium fraud
posed because many officials were intimi-                                                        to thrive. So U.S. immigration policy
dated by their complexity, and didn’t grasp        Unabated, illegal                            thus must consider the impact on
premium fraud’s financial and social costs.                                                      costly societal problems such as premium
    “Crackdowns are gaining much-need-          immigration could                               fraud.
ed steam,” says Dennis Jay, executive
director of the Coalition Against Insur-
                                                encourage the conditions                            That need grows even more urgent
                                                                                                because fraud fighters often find it’s
ance Fraud. “It’s not enough to cherry          that allow premium                              nearly Mission Impossible to stay ahead
pick bogus injury claims by employees.                                                          of the large volume of dishonest builders
Premium fraud, abetted by the under-            fraud to thrive.                                plying America’s underground economy.
ground economy, also imposes intolerable                                                            As for having enough resources,
costs on insurers, society and workers.”                                                        “the short answer is no…” says Geoffrey
    States such as California, New York,          A grand jury plus a task force of local,      Branch, Florida’s fraud investigator. “A
Florida, Illinois, New Jersey and Texas       state and federal officials are focusing on        task force of local, state and federal law
have made workers comp premium fraud          premium schemes in Florida.                       enforcement officers could work for years
a specific felony.                                 Frequent worksite sweeps catch                and not get to all the facilitators and
    County and regional task forces are       wrongdoers. Florida issued more than              construction companies involved.”
springing up in California to investigate     2,500 stop-work orders and imposed                    “Despite billions of dollars in workers
suspected schemes and develop broader         more than $75 million in fines in fiscal            compensation fraud in California, law
clampdown strategies. San Diego County        year 2006-2007, says the state division of        enforcement is only provided $49 million
started the first task force in 1996, and      workers compensation.                             annually to investigate and prosecute
others have sprung up more recently.              A Florida law also makes it harder for        these crimes,” adds Dugo. “To significant-
Helicopters swoop down on worksites for       firms to avoid comp premiums by lying              ly reduce the level of workers compensa-
site inspections in Riverside County, for     that employees are sole proprietors or in-        tion fraud in California, law enforcement
instance, in a program called CON Air.        dependent contractors. Crooked firms try           needs additional resources.”

                                                                                                          Spring 2008 ! FRAUD FOCUS             5
                                          CRIME                WATCH

        In Brief                                Suspected crash ring is family a air led by grand dad
      Arson Fed up with mold                    A staged-accident ring’s 20-year crime wave screeched to
 problems, Lorinda Sutton                        a halt when 40 people were rounded up around Los Angeles, police say.
 torched her home by stack-                      Three generations of one family allegedly were involved — including a
 ing paper towels on a hot          grandfather, sons, daughters and grandchildren. The suspected gang raked in mil-
 stove burner. The Hanover,         lions in bogus injury and collision-repair claims. It was one of California’s largest and
 Ohio woman received three          longest-running staged-accident operations, officials say. One claim alone fleeced
 years…Insurer An adjuster          State Farm for nearly $137,000, officials say. Grandfather and suspected ringleader
 for Western Agricultural Farm      Curtis H. Connor picked up battered old cars at auctions, then bought coverage for
 inflated 120 injury crash claims    each car from several insurers using aliases or stolen identities — including a home-
 to steal nearly $587,000 from
                                    bound quadriplegic who couldn’t even drive, prosecutors say. Connor family members
 his employer. Joel John Jalovec
                                    and buddies posed as fake passengers who lied they were hurt in rear-end collisions
 intercepted checks at his office
 or had them sent to a mailbox.     that actually never happened, police say. Ring members gave insurers photos of cars
 The Scottsdale, Ariz. man          that were damaged before Connor even had bought them. The “injured” victims went
 received six months…Auto           to his daughter — a chiro — for worthless treatment. Connor’s lawyer cronies then
 Daniel Turocy claimed someone      allegedly submitted bogus medical claims. Inflated repair claims were funneled through
 stole his 2005 Cadillac. But the   his South Los Angeles body shop, police say.
 Norwalk, Conn. man torched it
 for insurance money. How did       Jobless agent allegedly steals
 police know? His crony left the    identities to stay employed
 gas can sitting on the ruined          Insurance agent Darrius Wright didn’t know
 car’s front seat…Insider           when — or how — to quit, Ohio prosecutors allege.
 Florida personal-injury lawyer
                                    The Cincinnati-area man sold too many policies
 Patrick Joseph Dooley alleg-
                                    that insurers refused to accept. Unable to repay
 edly stole $254,166 in client
 insurance checks by forging        his insurers their commissions, Wright’s reputation
 their names to the checks and      soon fell into disrepair and he couldn’t find agency work. So he simply stole another
 pocketing the money, or simply     agent’s identity and kept selling policies anyway, officials allege. The Ohio insurance
 refusing to pay the clients…       department found out, and yanked Wright’s license. Undeterred, he allegedly stole the
 Workers comp Bryan Rose            identities of two other agents and landed work as a contractor with other unsuspecting
 said he hurt his back working      agencies. Then to inflate his commissions, Wright then secretly bought more-expensive
 for UPS. But the Sacramento-       policies than he quoted to clients, prosecutors say. Insurers soon discovered the sus-
 area man was caught playing        pected scheme and asked the real agents to repay the extra commissions. What extra
 Wiffle ball, coaching football      commissions, the surprised agents asked? Wright allegedly pocketed up to $20,000 in
 teams and lifting a heavy          commissions from 10 insurers. He faces up to 32 years in prison if convicted.
 laundry basket. He must repay
 $20,000…Health An Atlanta-         Huge comp scheme steals $75 million, harms workers
 area doc injected patients with        Hundreds of thousands of employees had no workers comp protection when four
 commercial-grade weed killer       men stole more than $75 million in premiums by providing fake workers comp cover-
 then disguised the treatments
                                    age to unsuspecting professional employer organizations (PEOs). The gang convinced
 to steal $650,000 in insurance
                                    PEOs to offer the coverage for small businesses that had hired the PEOs to provide
 money. Totada Shanthaveer-
 appa repaid the money…Med-
                                    workers comp coverage and other services. The gang used the names of purported
 icaid Baltimore-area clinical      insurers and offshore companies to create an air of legitimacy. They also hired insur-
 social worker Tammy Smith          ance brokers to peddle the bogus coverage, further bolstering the scheme’s seeming
 billed Medicaid for patient        legitimacy. The human toll was severe: One uncovered worker lost both legs in a con-
 therapy when she was hospital-     struction accident and couldn’t even afford a second prosthetic leg so he could walk.
 ized, for 42 hours of treat-       Truck driver Mitchell Powell suffered brain damage from a work injury but received no
 ment on one day, and for nine      salary or hospital benefits; he lost his home and wife. Another woman lost her home
 months of treating someone         and lived in her car because of mounting medical bills. Five other families had no
 she never saw.                     death benefits after fatal job accidents. Donald Touchet, Robert Jennings and Richard
       CRIME NEWS                   Standbridge face up to life in federal prison when sentenced in May, and could have
   every business day at            to give up $78 million in assets. They’re also forfeiting luxury cars and at least one
  www.InsuranceFraud.org            Picasso painting. Jerry Brewer, the suspected ringleader, is on the run.

6 Spring 2008 ! FRAUD FOCUS
                                   LEGISLATIVE MONITOR

             Budget crises                     bureau, and raising current penalties for
                                                                                                            In Brief
                                               comp-fraud convictions.
             may slow down
                                                    Kansas and Mississippi are tack-
             fraud measures                    ling diversion of addictive prescription
                                                                                                      Louisiana is debating a bill
                                                                                                 making it a specific crime to forge
    More states than normal are facing         drugs such as the painkiller OxyContin.           insurance documents such as auto-
potentially serious budget shortfalls, with    Both states are on the verge of creating          insurance cards…New Hampshire
no help from the shaky economy.                prescription-monitoring programs. These           is expected to increase the fine im-
    Many fraud bills thus may be delayed       central databases let pharmacies and              posed on insurers that fail to report
or totally shelved while harried legisla-      others track people’s prescription histories      suspected frauds to the insurance
tors focus on balancing tight budgets          and spot patterns of drug fraud and abuse.        department, as now required…“Why
this year. This is especially true of larger   Such programs have proven effective in            can private citizens simply walk into
fraud bills that would take serious effort     other states against a drug trend that is         a police department and purchase in-
                                                                                                 formation that describes an accident
to pass. Many legislators won’t have the       heavily financed by insurance schemes.
                                                                                                 and may include personal private
time, attention span, patience or political         Florida is debating imposing stiffer
                                                                                                 information of the victims?” the
will unless a fraud bill speaks to an urgent   penalties against agents who bilk seniors         coalition’s Howard Goldblatt
crime problem that can’t wait.                 by conning them into needlessly selling           asked in a recent National Under-
    The legislative year still is getting      life policies that have built-up cash value.      writer story about swindlers buying
underway in most states, and it’s too early                                                      accident reports to recruit patients
to say if 2008 will be largely a wash. But     Smaller reforms on tap
                                                                                                 for phony injury claims…New
so far, fewer major fraud bills are heading        Many other fraud bills, however, are          Mexico’s legislative session already
toward the pipeline than normal. Some          fairly low-impact procedural measures.            has shut down. A bill would’ve let
states may pass only smaller procedural        But at least upgrading America’s anti-            courts impose stricter fraud penalties
reforms if budget crises keep occupying so     fraud machinery can be helpful, even if           by lumping together several smaller
much time. Call it anti-fraud lite.            meatier reforms are off the table for now.        bogus claims into one larger sum — a
                                                   Utah passed a bill making it easier for       bigger theft would’ve meant a bigger
    Some fraud bureaus also may take
                                               insurers to share case information without        sentence…Hawaii once again is
budget hits. Arizona’s legislature, for in-
                                                                                                 considering expanding the fraud
stance, is considering reducing the fraud      being sued. Tennessee and New Jersey
                                                                                                 bureau’s jurisdiction beyond its sole
bureau’s budget. The unit likely would lay     are considering similar measures.
                                                                                                 focus on auto fraud…Kentucky and
off investigators if money is taken away,          Iowa and New Hampshire are dis-               West Virginia’s legislatures closed
coalition sources say.                         cussing expanding the suspected frauds            for 2008 without passing bills limiting
                                               that insurers must report to the insurance        outsider access to the data in vehicle
Protect crash victims                          department.                                       event data recorders (so-called black
    Here are the more-substantive re-              Maryland appears on the verge of              boxes)…West Virginia effectively
forms on tap, though the future of many        requiring insurers to print fraud warn-           banned controversial stranger-owned
is unclear.                                    ings on claim checks, policies and other          life settlements (called STOLIS), in
    Minnesota is considering protecting        documents that that up in the hands of            which people invest in life policies of
victims of vehicle accidents from preda-       consumers.                                        people they’ve never met…A nation-
tory medical providers who solicit them            Exhaustion will slow reforms in               ally known fraud expert now heads
for bogus treatment at insurer expense.                                                          up Maine’s insurance department.
                                               Florida, which needs more laws to clamp
                                                                                                 Former assistant university professor
A bill would prohibit chiros and other         down on rampant staged-accident rings.
                                                                                                 Mila Kofman worked closely with the
providers from contacting crash vict-              Florida went through a bruising battle        coalition to expose fake health plans
ims directly without the victim’s              to reinstate its lapsed no-fault auto insur-      several years ago…The National
permission.                                    ance system last fall. So for now, few legis-     Association of Insurance Com-
    Dishonest body shops may take a            lators have the stomach for more high-            missioners will hold its summer
hit in Rhode Island, where lawmak-             stakes insurance drama. Much-needed               meeting May 31-June 3 in San
ers are considering a measure yanking          bills clamping down on rampant staged             Francisco. Visit www.naic.org…The
the licenses of shops that pay customers       accident rings thus likely won’t happen           National Conference of Insur-
illegal rebates or discounts to offset their   this year.                                        ance Legislators will hold its sum-
auto-policy deductibles. But the body              Illinois is debating setting strict licens-   mer meeting July 10-13 in New York.
shop lobby is formidable, so the outcome       ing rules for public insurance adjusters,         Visit www.ncoil.org...The National
is anything but certain.                                                                         Insurance Crime Bureau will host
                                               and allowing the insurance department to
                                                                                                 an Illinois fraud summit May 21. Visit
    Vermont is taking on substantive           yank the licenses of adjusters who violate
workers comp reforms. Lawmakers are de-        the license requirements or are convicted
bating opening up a workers comp fraud         of a crime.

                                                                                                        Spring 2008 ! FRAUD FOCUS      7

              Insurers must show how costly schemes are                                              money to buy new Toyotas. The ads
                                                                                                     treated fraud as a parlor game that’s
              BY DENNIS JAY
                                                                                                     fun for the whole family.
                                                                                                          With fraud being normalized in
   I’ve never subscribed to the sim-             is hurt or the scheme is widespread, the
                                                                                                     America’s popular culture, small
plistic idea that people commit insurance        study also shows.
                                                                                                     wonder people can so easily dredge up
fraud just to “get back” at their insurer for        And fewer than one of four adults
                                                                                                     rationales for bilking insurers.
charging high premiums, denying an earlier       think highly of insurers. Positive attitudes
                                                                                                           Further fueling America’s edgy
claim, or some other unpopular decision.         toward the insurance industry overall have
                                                                                                     moral climate, insurers are targets of
     People make moral choices for many          dropped from 53 percent a decade ago to
                                                                                                     public ire simply because they wield
reasons. Peer pressure, economic down-           37 percent today.
                                                                                                     so much power over people’s lives.
                                                     Toyota’s ill-advised TV commercials
turns, ease of committing the scam, and                                                              The Toyota ads were popular, in part,
                                                 during the last holiday season reflected —
low chances of getting caught are some of                                                            because insurance is a business Ameri-
                                                 and reinforced — those backsliding public
the many reasons people bilk insurers.                                                               cans love to trash.
                                                 attitudes. The widely viewed spots showed
     Often we make an unethical choice                                                                    Deservedly or not, insurer credibil-
and then find an intellectual reason to                                                               ity also took a hit over controversies
                                                    Positive Perceptions of Industry                 about the handling of Katrina claims.
justify it, psychologists say. Our inner voice      80
might say, “Well, I’m a good person but I                   1997                                     And withdrawals from territories,
                                                    70      2007                                     unreasonably high premiums, unfair
inflated that burglary claim because my
premiums are too high.” Or, “Everybody              60
                                                                                                     claim denials and other actions have
does it, so why not me?”                                                                             inflamed consumers for years. The bid-
     Whatever people’s motives, their at-
                                                    50                                               rigging scandals may have tarnished
titudes toward insurance fraud and insurers                                                          all insurers as well, even though only a
                                                                                                     few were involved.
are growing worse. Each problem feeds the
                                                    30                                                    Larger moral fissures also continue
other, so both must be addressed forcefully.
                                                                                                     opening in society at large. Enron-style
Left to fester, they could snowball and seri-       20
                                                                                                     scandals, for example, may have erod-
ously cost insurers and society.
                                                    10                                               ed people’s trust in all corporations.
     More people tolerate insurance fraud
                                                                                                          Insurers thus have little margin of
today than 10 years ago, reveals the coali-          0
                                                         Insurance   Your Insurance Your Insurance   error in this incendiary environment.
tion’s recent national study of consumer                  Industry     Company          Agent
                                                                                                     But who says life is fair? The question
attitudes.                                                                                           is, what are insurers doing about it?
     Insurance fraud also can be acceptable      average Americans wrecking their cars               Not nearly enough.
if the dollar amount isn’t too high, nobody      so they could illegally collect insurance                At one time, property-casualty in-
                                                                                                     surers worked harder to teach Ameri-
                                                                                                     cans about the value insurance brings
                                                                             FIRST CLASS             to society. Insurers showed consumers
                                                                             U.S. POSTAGE
                                                                                                     how the industry made America safer
                                                                           PERMIT NO. 5659           by creating Underwriters Laboratories,
   1012 14th Street, NW • Suite 200
                                                                           ALEXANDRIA, VA            promoting airbags and seatbelts, and
   Washington, DC 20005
                                                                                                     funding training for firefighters.
                                                                                                           Insurers of all lines have a credible
                                                                                                     story to tell. Life in America would
   Please fax label                                                                                  be harder for nearly everyone without
   corrections to                                                                                    insurance protection.
   202-318-9189                                                                                           Why aren’t insurers more aggres-
                                                                                                     sively telling this story? Why aren’t
                                                                                                     insurers trying harder to convince
                                                                                                     Americans that fraud is a costly and
                                                                                                     corrosive crime?
                                                                                                          Taking action will be expensive.
                                                                                                     But the cost of inaction is unthinkable.
                                                                                                     Dennis Jay is executive director of the
                                                                                                     Coalition Against Insurance Fraud.

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