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By D. Michael Bush
In Los Angeles, an insurance company recently filed suit against a group of lawyers and doctors who were allegedly involved in the submission of fraudulent claims. The Department of Insurance, along with representatives from the Los Angeles District Attorney’s office, executed search warrants on some of the defendant’s homes and offices. Any monies recovered in the form of settlements or judgments will be split between the insurance company and law enforcement. Sound fantastic? Even better, the recovery is at least double the amount of the claim, plus fines and attorney’s fees.
Dennis B. Kass and Barry G. Thorpe of the law firm of Manning, Marder and Wolfe crafted a complaint based on the new California “whistle blower” law, Insurance Code 1871.7.
In addition to liability for using a capper, an insurance carrier can now file a civil suit against anyone who merely submits a fraudulent claim. “This is a less cumbersome approach than the filing of a RICO action,” explained Kass.
“We initially identified some unusual patterns,” recalled Kass. “Many of the cases involved new polices with an insurance agent’s office in an outlying area; the policy had lapsed just after the accident; the drivers had only temporary licenses; the cars were newly acquired; and the accidents involved primarily people of Russian and Hispanic origin.” After a pregnant pause Kass added, “Then we got a confession.”
Kass feels strongly that a confession is a critical cornerstone of such a case. “The insurance company can still be liable for malicious prosecution, including attorney’s fees, so it’s important to carefully select the right case,” he warned.
Some defendants have already offered to settle their cases. “The sooner and more completely one cooperates, the easier the terms of the settlement,” Kass said with a wry smile. He has not yet decided if he will entertain offers to have the settlements remain confidential.
There is concern that the defendants will try to hide their assets. “We know what they have and will institute immediate legal action if they try to move those assets.” Kass said.
Any judgment entered against the defendants based on fraudulent actions may not be discharged in bankruptcy. Of course a defendant who loses may also have criminal problems. This is potentially a very powerful tool.
Kass also stressed that just because someone was named in the lawsuit does not mean he is guilty. “It’s important not to deny a claim simply because a certain doctor or attorney is involved; but a case can be carefully examined if factors are present that are similar to those seen in other cases that were not legitimate,” explained Kass.
Not everyone is supportive of the new statutes that allow the law enforcement community and the insurance industry to combine forces in fighting a common problem. In a story in The Los Angeles Daily Journal, Richard Moss, who has been head of the Los Angeles District Attorney’s major fraud division – and who currently represents one of the criminal defendants – reportedly criticized the statute that allows this type of action as “the kind of special interest legislation we’ve seen over the last few years in which insurance carriers subsidize the investigation and prosecution of insurance fraud.”
Kass points out that there is still the old problem of having a one-way street of information. He provides information to law enforcement and was even present as a resource when a couple of search warrants were being served. However the law enforcement officers do not feed information back to the insurance companies. Kass is considering filing a motion to unseal the search warrant that allowed officers to seize files, log sheets and computers. Presently, it is not clear to what extent the California Department of Insurance, the Attorney General’s office or the Los Angeles District Attorney’s office will become involved in the case. If they let the insurance company do all the work, the government will recover some of the proceeds from any settlement or judgment. If government takes the lead they will recover slightly more money than if they had stayed on the sidelines. Kass suggested that states considering enacting their own whistle blower statutes might want to look closely at how proceeds are split so that law enforcement will have a fair incentive to become an active part of the investigation from the inception of the case.
Kass anticipates over 300 depositions will be taken, including office managers, employees and the parties to the underlying accidents. Although there will be significant up-front cost incurred, his client hopes for a significant recovery, including attorneys fees and costs. They also intend to send a clear message that they will stand firm against insurance fraud.
D. Michael Bush is a defense attorney in southern California and guest writer for the JCIFR. He can be reached at (310) 437-2767.
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