johnson

2007 PAAS ANNUAL FORUM: 

2007 PAAS ANNUAL FORUM NEIL I. JOHNSON LYNN E. SZYMONIAK

2006 QUESTIONS: 

2006 QUESTIONS WHAT EXACTLY ARE THE MATERIALS NEEDED TO PROVE PREMIUM FRAUD?

DOCUMENTS MUST PROVE ELEMENTS: 

DOCUMENTS MUST PROVE ELEMENTS ELEMENTS OF THE CRIME ARE SIMILAR TO THE ELEMENTS OF THE TORT (CIVIL ACTION), BUT THERE ARE DIFFERENT STANDARDS OF PROOF CRIMINAL REQUIRES BEYOND A REASONABLE DOUBT CIVIL REQUIRES PREPONDERANCE OF THE EVIDENCE

ELEMENTS: 

ELEMENTS FALSE STATEMENT MATERIAL KNOWINGLY MADE TO INDUCE RELIANCE RELIANCE MUST BE REASONABLE DAMAGES

CRITICAL DOCUMENTS: 

CRITICAL DOCUMENTS THE POLICY is the single most important document. DO NOT ASSUME that lawyers, investigators or prosecutors are familiar with the policy. Item 4 of the Information Page of the Policy: “The premium for this policy will be determined by our Manual of Rules, Classifications, Rates and Rating Plans. All information required below is subject to change and verification by audit.” Include the endorsements.

ADDITIONAL CRITICAL DOCUMENTS: 

ADDITIONAL CRITICAL DOCUMENTS APPLICATION AND SUPPORTING DOCS. LOSS RUNS AUDITS CERTIFICATES OF INSURANCE FIRST NOTICE OF INJURY REPORTS ANY DOCUMENTS SENT BY THE INSURED CLAIMANTS KNOWN TO THE STATE

ADDITIONAL CRITICAL DOCUMENTS EXAMPLE: 

ADDITIONAL CRITICAL DOCUMENTS EXAMPLE WEBER - NO RECORDS FIRST NOTICE OF INJURY REPORTS TO IDENTIFY WORKSITE LOCATIONS APPLICATION/PREVIOUS APPLICATIONS/AUDITS/CARRIER&TEST SECRETARY OF STATE DATABASE CURRENT COVERAGE INFO.(ONLINE/NJCRIB) DEPT. OF HHS FOR NURSING HOME OWNERS, MANAGERS, EMPLOYEES, # OF BEDS

THIRD-PARTY DOCUMENTS: 

THIRD-PARTY DOCUMENTS PUBLIC RECORDS, SUCH AS D&B, ACCURINT, LEXIS, OTHER LITIGATION SUBPOENAED DOCUMENTS FROM PRIOR CARRIERS, SUBSEQUENT CARRIERS, BANKS (DEPOSIT ITEMS), RATING ORGANIZATIONS, MEDICAL PROVIDERS, BUILDING PERMITS

2006 QUESTIONS: 

2006 QUESTIONS WHY DOES IT TAKE SO LONG TO PROSECUTE A PREMIUM FRAUD CASE?

TIME ISSUES #1 INSURANCE COMPANY ISSUES: 

TIME ISSUES #1 INSURANCE COMPANY ISSUES LACK OF EXPERIENCE/CONSISTENCY WITHIN AUDIT AND UNDERWRITING POLICY TIME FRAMES: THE POLICY PROVDES FOR AN AUDIT (USUALLY WITHIN 90 DAYS OF EXPIRATION) WITHIN THREE YEARS AFTER THE END OF THE POLICY PERIOD A STATUTE MIGHT PROVIDE FOR AN EVEN LONGER PERIOD.

EXAMPLE OF AUDIT TIMEFRAMES IN CIVIL CASES: 

EXAMPLE OF AUDIT TIMEFRAMES IN CIVIL CASES AN AUDIT CONDUCTED ON DECEMBER 18, 1998 FOR A POLICY WHICH EXPIRED OCTOBER 1, 1995 EXHAUSTION OF ADMINISTRATIVE REMEDIES - DISPUTE COULD TAKE TWO - THREE YEARS - NO TIME LIMITS ON DISPUTES IN MOST STATES NEGOTIATION (3 MONTHS) CIVIL ACTION FILED DISCOVERY PERIOD ENSUES (18 MONTHS) TRIAL IN 2003 OF 1 1995 PREMIUM DISPUTE

CIVIL TIMEFRAMES EXAMPLE: 

CIVIL TIMEFRAMES EXAMPLE COMMISSIONERS OF STATE INSURANCE FUND v. SM TRANSPORTATION CO.

TIMEFRAMES IN CIVIL CASES #3: 

TIMEFRAMES IN CIVIL CASES #3 FINAL AUDIT TRIGGERS STATUTE OF LIMITATIONS - FINAL AUDITS OFTEN DELAYED BY NON-COOPERATION AND ESTIMATES STATUTE OF LIMITATIONS VARIES STATE TO STATE - BREACH OF CONTRACT - USUALLY 5 YEARS (FROM THE DATE OF THE FINAL AUDIT). INVOICE DATED DECEMBER, 1998 - CIVIL LAWSUIT MUST BE FILED BY DECEMBER, 2003

EXAMPLES OF DELAY: 

EXAMPLES OF DELAY SERIO v. SURGE RESOURCES, INC. S.D.N.Y., 2006 NOT REPORTED IN F.SUPP. 2D, WL 559460 Case brought by Gregory V. Serio, Supt. of Insurance of NY, as rehabilitator of Frontier Insurance Co.

TIMEFRAMES IN CRIMINAL CASES: 

TIMEFRAMES IN CRIMINAL CASES CRIMINAL STATUTE OF LIMITATIONS RUNS FROM THE CRIMINAL ACT - MANY MISREPRESENTATIONS MADE AT APPLICATION ARE REPEATED AT AUDIT STRICTER RULES THAN IN CIVIL CASES EXCEPTION: CONSPIRACY STATUTES ARE BROADLY INTERPRETED AND COVER ALL CRIMES FROM THE BEGINNING OF THE CONSPIRACY

TIMEFRAMES IN CRIMINAL CASES - EXAMPLES: 

TIMEFRAMES IN CRIMINAL CASES - EXAMPLES US v. JAMES DUFF, et al. US v. JERRY BREWER, et al.

2006 QUESTIONS: 

2006 QUESTIONS Are there any statistics in prosecuting premium fraud, successful and not? Discuss some of the cases and how they ended.

PREMIUM FRAUD MAY RESULT IN MILLION DOLLAR LOSSES: 

PREMIUM FRAUD MAY RESULT IN MILLION DOLLAR LOSSES In one 2006 Sacramento, CA, case last year involving a large residential framing contractor, the employer was charged with underreporting employees' wages by $1.9 million. An audit indicated the business owed $2.7 million in additional premiums.

PREMIUM FRAUD DAMAGES: 

PREMIUM FRAUD DAMAGES The damages from five WCI premium fraud cases filed in California during the current fiscal year were allegedly more than $60 million.

PREMIUM FRAUD PROSECUTIONS: 

PREMIUM FRAUD PROSECUTIONS On August 8, 2003, Christie Binn Chung, the owner of 101 Roofing, was sentenced in San Francisco, California, to 36 months in prison and ordered to pay fines and penalties of $2,919,072. Chung operated his company without complying with labor code or WCI laws. He had no coverage for an employee who fell to his death on a job. The employee was not wearing a safety harness.

PREMIUM FRAUD PROSECUTIONS: 

PREMIUM FRAUD PROSECUTIONS On December 7, 2006, Ronald P. Anger and his wife were charged with WCI premium fraud in Worcester, MA. Their company was primarily involved in demolition work. Because of the high rate for demolition work, the Angers claimed to be doing snow plowing, equipment delivery, trucking and excavation for foundations. These misclassifications caused over $200,000 in lost premium.

PREMIUM FRAUD PROSECUTIONS: 

PREMIUM FRAUD PROSECUTIONS On August 24, 2006, Martha P. O’Neill was arraigned in state court in San Francisco and charged with 49 felony counts of workers’ compensation premium fraud. O’Neill owned Avoca Trucking & Excavating Company, which worked primarily for the city and county of San Francisco and other Bay area cities and counties. Avoca employed more than 100 employees from January 1, 2001 through June 9, 2005. As a result of search warrants and bank records analysis, prosecutors charged that Avoca underreported its payroll by $2.2M to the State Compensation Insurance Fund and by $3.1M to the Employment Development Dept. of California.

THE AVOCA PROSECUTION: 

THE AVOCA PROSECUTION DAMAGES TO THE STATE FUND: $283,528.44 DAMAGES TO CALIFORNIA EDD: $629,235.18

THE AVOCA PROSECUTION: 

THE AVOCA PROSECUTION CHARGES: 5 FELONY COUNTS OF PREMIUM FRAUD 5 FELONY COUNTS OF PREPARING FALSE DOCUMENTS 3 FELONY COUNTS OF KNOWINGLY PROVIDING A FALSE OR FORGED DOCUMENT 30 FELONY COUNTS OF EMPLOYMENT TAX FRAUD 4 FELONY COUNTS OF TAKING A PORTION OF WORKERS’ WAGES IN CONNECTION WITH A PUBLIC WORKS PROJECT

PREMIUM FRAUD PROSECUTIONS: 

PREMIUM FRAUD PROSECUTIONS On July 7, 2004, Sam Saeid Afghani, Siamac A. Afghani and Renee Laws were arrested in Los Angeles for their suspected roles in a fraud case involving government construction projects in Ventura and Los Angeles counties. The defendants were owners or officers of AFCO Builders and AFCO Construction. They were accused of falsifying payroll records. The insurance companies involved lost over $700,000. Unpaid taxes and penalties for state unemployment tax were estimated to be $540,000 and back wages owed to employees for unpaid overtime pay were $584,000.

PREMIUM FRAUD PROSECUTIONS: 

PREMIUM FRAUD PROSECUTIONS On September 6, 2005, Verna Ray Brown and her daughter, Nicole Brown, and Rodney Glenn Fessenden were indicted by a state grand jury in Greeley, Colorado, on 44 felony charges related to a workers’ compensation premium fraud scheme. The three defendants operated Spectrum Staffing, a company which also operated as Absolute Staffing, Recruitment Specialists, Specialized Staffing and 3B Enterprises. They were accused of forging certificates of insurance which falsely showed that there was coverage in place for temporary workers which were supplied to area businesses.

PREMIUM FRAUD PROSECUTIONS: 

PREMIUM FRAUD PROSECUTIONS On June 25, 2004, Carl T. Nicks of Indian Harbor, FL was charged with four counts of workers’ compensation fraud. Nicks operated A-1 Restoration and Construction. He acted as a subcontractor for two general contractors, and gave the general contractors fraudulent certificates of insurance showing he had workers’ compensation coverage. Nicks was uninsured, a felony in Florida. An employee of Nicks was injured on the job and incurred over $30,000 in medical bills which were paid by the policy of the general contractor.

2006 QUESTIONS: 

2006 QUESTIONS What was the premium auditor’s role in cases brought to trial?

PREMIUM AUDITOR’S ROLE: 

PREMIUM AUDITOR’S ROLE Impartial Fact Witness Recite Chronology of Events Introduce Key Documents Explain the Information Provided to Determine the Premium In Most Cases, Explain the Information Sought but Not Obtained Identify the Key Players

PHILLIPS CHEMICAL COMPANY: 

PHILLIPS CHEMICAL COMPANY Involved litigation arising from an explosion at Phillips Petroleum Co. K-Resin Unit in TX on March 27, 2000. Plaintiffs - injured employees - argued that they were NOT covered by WCI. Main Argument: the code for chemical plant workers was omitted from the policy; and There was no evidence that chemical plant workers had been picked up at Final Audit.

LOCAL NEWS ALERT:: 

LOCAL NEWS ALERT: In a tragedy in the suburbs today,a mature date palm tree fell and crushed two workers. Both workers died at the scene. They were employed by Palm Beach Exotic Trees.

HYPOTHETICAL : 

HYPOTHETICAL PALM BEACH EXOTIC TREES, INC. (“PBET”) is the named insured on the policy you are auditing. PBET had 20 employees who were nursery workers. They also used 8 workers who were paid by a temp help company. When these workers worked overtime, they were paid in cash by PBET.

HYPOTHETICAL: 

HYPOTHETICAL The two injured workers were not on the payroll of PBET. PBET claims that Worker #1 was a new hire; auditor does not include any exposure.

HYPOTHETICAL: 

HYPOTHETICAL Worker #2 was on the payroll classified incorrectly; auditor accepts the misclassification. Auditor observes only one person doing retail sales - 7 are claimed by PBET. Auditor compares revenues v. expenses and refers for potential fraud.

Name the Possible Crime:: 

Name the Possible Crime: Undisclosed Cash Payments Defraud the WC Carrier and the IRS; undisclosed cash payments to illegal immigrant workers may also violate immigration laws. Misclassification, Overtime paid off-the-books