What do dancing hamsters have to do with insurance fraud?

Insurance fraud is not usually a laughing matter, but one cannot help but chuckle at the news this week that a California man, Leroy Barnes, was in fact receiving disability insurance payments for thousands of dollars while at the same time showing off his dance moves as one the dancing hamsters in the famous Kia commercials.  In June 2010, Barnes said he was hit by a piece of ceiling during a sound check.  Soon after, he began collecting disability and workers compensation checks, earning more than $51,000 between September 2010 and September 2011.  During this same period, Barnes continued to bust his moves as a Kia hamster and tour as a backup dancer for Madonna and other performers.

The California Department of Insurance is not exactly laughing as workers compensation fraud in the state of California costs the system almost $400 million a year. 

Barnes is expected in court on July 2. He could face six years in prison and $75,000 in fines if found guilty.

Enjoy his moves while you still can:

“There’s nothing more thrilling than nailing an insurance company” . . .

. . . is a line from John Grisham’s “The Rainmaker.”  We at The Risk Tip love non-movie-villian insurance companies, so this is not a view we could possibly endorse in real life. 

But, we were reminded of the quote when we read that well known, high quality law firm has been sued for $500,000 by a former client alleging that the firm failed to nail (or at least mail) the client’s own insurance company.  Specifically, the malpractice claim arises out of an underlying case in which the firm’s client was sued by a competitor for defamation, illegal competition, and contractual interference.  The firm appears to have defended the case well enough, but it allegedly failed to advise the client to check for insurance coverage or notify its insurers.  The client ultimately did notify its insurers mid-way through the litigation, and the insurers agreed to pay some defense costs, but not those of the firm prior to the notice.  The client then sued their lawyers for the unreimbursed costs.

Who knows how the case will come out, but the firm would be well served if it had addressed the insurance issues in its engagement letter.  For example, the firm might have expressly carved out insurance coverage advice from the scope of its representation.  Alternatively, the firm would be in a good position if it had in its form of engagement agreement a statement providing:

You should carefully check for any insurance policies that might relate to the work we do for you, and notify your insurers promptly to protect your rights. Unless you tell us about these policies and provide us with copies, we cannot be responsible for advising you about the existence or applicability of insurance coverage.

If it did so, the malpractice case should lack the twists and turns of a Grisham novel.

Returning to John Grisham’s “The Rainmaker” (or is it “John Grisham’s The Rainmaker”?), the film earned mixed, some less than admirable, reviews.  Further, one could hold an ethics seminar on the more egregious violations of the rules of professional conduct by many of the attorneys in the movie.  That said, there’s some quality scenery chewing by Mickey Rourke and Jon Voight, and we would watch the late, great Roy Scheider in anything (well, most anything).  Lastly, for those who are wondering what Mr. Grisham’s next novel may bring, you might enjoy this short story from a recent collection by B.J. Novak.

Honesty is the Best Policy

In the attached clip from Along Came Polly, Sandy Lyle (played by Philip Seymour Hoffman) gives an empowering speech urging a life insurance company to underwrite Leland Van Lew, a particularly high-risk client.  The risk management takeaway is the importance of full disclosure in the application process.  Leland does not hide his crocodile fighting or volcano climbing ways.  He provides an accurate and complete disclosure of his high-risk lifestyle.  While it may be tempting to fib on an insurance application — either to increase your chance of approval or to decrease rates — it rarely pays off.  Whether it is a patient’s medical history, a company’s financial reports, or a list of prior claims against a manufacturer, underwriters review the information on a potential insured’s application to determine whether to accept the risk and what premium to assign it.  And then they put that application away, until later.  Remember, the general rule is that a material misrepresentation or omission made in an application for insurance will void the insurer’s obligations under the policy — and courts are increasingly deferring to the insurer in determining what the insurer considers material.  At the end of the day, honesty is the best policy.



Insurance Affairs

Is there any single profession as glamorous as an insurance investigator?  We think not.  Then, again, we spend too much time at the movies.

In the real world, insurance investigators devote a significant amount of their time to investigating insurance fraud.  On the policyholder side, insurance fraud occurs when any act is committed with the intent to fraudulently obtain some benefit or advantage to which an insured or beneficiary is not otherwise entitled.  In the real world, insurance fraud is big business. Experts estimate that nearly $80B in fraudulent claims are made in the U.S. each year. Insurers are forced to perform the difficult balance between fighting fraud and avoiding bad faith claims.  Most insurers have implemented highly technical and strategic units to investigate and identify fraud.  Many risk managers are doing their part as well, particularly in the worker’s compensation arena.  Common red flags for identifying potential worker’s compensation fraud include accidents: occurring shortly after hiring, involving disgruntled or recent disciplined employees, and where the employer first learns about the injury from the employee’s attorney.  Insurance fraud is a crime in every state, and, as of late, state authorities are increasingly focusing on the involvement of attorneys in insurance fraud.

Earlier this year, disbarred attorney Miles Lamar Gammage pled guilty in the Northern District of Georgia to mail fraud for stealing $2.5 million in workers’ compensation settlement funds from 50 of his clients. Gammage settled many of the fraudulent cases without the knowledge of his clients and forged their signatures on their settlement checks so that he could keep the funds for personal use.  Los Angeles Attorney Susana Ragos Chung was disbarred earlier this year for her role in submitting false claims to insurance carriers based on the staged accidents and phony bills (and of course keeping portions of the payments made by insurance carriers for her own personal gain).

We don’t know the details of the investigations that led to the above actions against these attorneys, but we certainly hope they involved dancing.