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By John A. Marder, Esq.
California has more than a dozen different laws dealing with the problem of “capping” and “running.” Business & Professions Code sections 6152 and 6153 make it a criminal offense for an attorney to use a “runner or capper . . . to solicit any business for the attorney.” Under Rule 1-400 of the Rules of Professional Conduct, the State Bar can discipline lawyers who use runners or cappers to solicit suits. The State Bar can also seek an injunction against such ambulance-chasing lawyers (Bus. & Prof. Code 6030).
Clients can basically rip up contracts with lawyers who used a runner or capper to obtain them. Business & Professions Code section 6154 states that “any contract for professional services secured by an attorney at law or law firm in this state through the services of a runner or capper is void.”
These laws controlling capping have no teeth. Few lawyers have been disciplined for capping, and even fewer have been criminally prosecuted. Clients do not try to void their contracts with attorneys who bring fraudulent lawsuits. Why should they? Both the client and the lawyer are too busy making money from the staged accident or the phony lawsuit to stop milking this cash cow.
California is a state which is known for its litigation climate. Insurance fraud in California has reached epidemic proportions because too many residents have caught the fever of big verdicts against unpopular, deep-pocket defendants. Unethical, dishonest lawyers and doctors are the germ carriers of this fast-spreading disease.
Fortunately, a little-known, July 1993 law holds the greatest potential for dealing with insurance fraud. While far from a cure, it has the potential for making a tremendous impact and could save insurers hundreds of millions—if not billions—of dollars by discouraging future fraudulent claims.
Under the new law, insurance companies now have the right themselves to bring a lawsuit against ANY person who hires “runners” or “cappers” to procure clients or patients to obtain workers’ compensation benefits (Ins. Code 1871.7). This applies to both attorneys and doctors or clinics.
Even better, this action need not be brought in the insurance company’s name. Instead, the insurance company can act on behalf of the “People of the State of California.”
The best thing about the law is the penalties. Each violation of the law (e.g. every act of capping) subjects the violator to a fine from $5,000 to $10,000 PLUS damages which are THREE times the amount of the claim.
Consider, for example, a worker’s comp “mill” which has used cappers to pursue ten different $15,000 worker’s comp claims. Under the law, the penalty would total $450,000 — $150,000 for the ten violations, PLUS an additional $300,000 in penalties.
All of these recoveries are exclusive of attorneys’ fees and costs. Thus, in the hypothetical example, the total recovery could be well over half a million dollars.
A well-timed and well-presented lawsuit of this nature could essentially put a criminal organization out of business. Hitting these fraudulent clinics and law firms in their pocketbooks may be the most effective way to eradicate the problem.
Who gets to keep the money?
The answer: It depends.
AT A MINIMUM, an insurance company (or other private person or entity) which successfully prosecutes the lawsuit will receive 15% of the total recovery, plus its reasonable attorneys’ fees. At a maximum, the insurer can receive 30% of the recovery, plus attorneys’ fees. The remainder goes to the state.
The way it works is this. The lawsuit is filed under seal. For the first 60 days, the matter is confidential and none of the target defendants—the fraudulent lawyers and doctors—knows about its existence.
During this time, the lawsuit is reviewed by the D.A.’s office and by the California State Attorney General. Either may decide to join the suit. If they do, the credibility of the lawsuit is enhanced, but the insurer’s share of the ultimate proceeds is reduced. If they do not, the insurer can still prosecute the lawsuit as a relator “on behalf of” the People of the State of California, and it potentially can receive some 25% to 30% of the total recovery.
John A. Marder is an attorney with the firm of Manning, Marder & Wolfe in Los Angeles, CA.
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