Articles Posted in Insurance Law

There is another insurance scam in California. According to recent news reports, a former sales associate with the American Family Life Assurance Company (AFLAC) was arrested this week on mail fraud charges over scamming $4 million in disability benefits from AFLAC by creating a fictitious employer.

Patricia Diane Smith Sledge from Irvine was charged by a federal grand jury with her part in the scam to submit fraudulent insurance claims to AFLAC for fake business with fake injured employees. In this type of fake employer scam, someone registers businesses that do not actually do anything and have no real employees. After registering the business, the scammers file claims of fake employees who lost their jobs or were injured and then take the unemployment and disability insurance benefit checks, which are sent through the mail.

Ms. Sledge was a sales associate with AFLAC who sold the disability policies to other people in the scheme. Soon after getting the policies, the claims for the fake injuries started coming in. Ms. Sledge received a portion of the illegal proceeds from this scam. She was fired by AFLAC in October 2011, due to an AFLAC internal investigation. Now she faces jail time, as each count of mail fraud (Ms. Sledge is charged with four counts)carries a maximum sentence of 20 years in federal prison.

California likes to be at the forefront of things, including those in the technology realm. So it was no surprise last week that California became just the third state in the nation to approve of driverless vehicles, according to news reports. Governor Jerry Brown signed SB 1298 on Tuesday, September 25, at Google headquarters in Mountain View. He said, “Today, we’re looking at science fiction becoming tomorrow’s reality. This self-driving car is another step forward in this long march of California pioneering the future and leading not just the country, but the whole world.” Google has been working on prototypes for this kind of car, but the earliest manufacture date is 2015, if not later. There is still a lot of work to be done before they are commercially viable.

But to a California insurance lawyer this step forward in technology also brings many questions for the future of auto insurance and liability for accidents with these new driverless cars. This will add a layer of complexity to car insurance in the future, if and when these driverless cars become common on our roads. One of the questions that will have to be addressed is if there is a car accident and someone is injured, who will be liable- the owner of the car, who was not driving, or the manufacturer of the car? On the other hand, if these driverless cars prove to be an improvement in safety, as proponents claim, then car insurance premiums could go down for everyone as fewer accidents occur.

Robert Passmore, senior director of personal lines policy Property Casualty Insurers Association of America, went so far as to say that there are those who believe the driverless car could mean the end of auto accidents, translating into the end of auto insurance. It is difficult to imagine that these new cars will have a perfect performance record 100 percent of the time, however. Additionally, there will still be risks with manually driven cars. Legislation in the two other states, Nevada and Florida, where these cars have been approved require the cars to have a licensed operator and the ability to override the computer driving program, as well, meaning that truly driverless cars are even further in the future. Plus these cars are likely to be expensive, especially at first, and owners will still need insurance to protect from theft or property damage. Therefore, it really does not appear as though auto insurance will become obsolete in the near future.

The fight against unfair insurance practices saw another success in California recently. Half Moon Bay, California, has found itself in the enviable position of being flush with cash after the city won a $10 million interim award in an ongoing case against the Insurance Company of the West. Retired California Supreme Court Justice Edward Panelli was the arbiter and he ruled that the insurance company was on the hook for part of the expense due to a bungled municipal drainage project. That project resulted in an $18 million settlement over the Beachwood development project.

The original Beachwood saga started when the city was developing a 24-acre property owned by developer Charles “Chop” Keenan, and it allowed water to pool on the site, inadvertently creating wetlands unsuitable for development. In November 2007, a US District Judge issued an inverse-condemnation judgment against Half Moon Bay for $37 million. Then, in April 2008, Half Moon Bay agreed to pay an $18 million legal settlement with Keenan and took over control of the damaged Beachwood property, issuing bonds to pay for it. This settlement crippled the city’s finances, hit with the nation-wide recession at the same time, and three years later it voted to outsource the police and recreation services to the San Mateo County Sherriff’s Office and the city of San Carlos. Since 2008, Half Moon Bay has been cutting services and laying off employees. However, this month, the $10 million dollar award came as Justice Panelli decided that the city’s liability insurance policy covered Beachwood and ordered the insurance company to pay.

The $10 million is more than 90 percent of the city’s yearly budget, according to local officials. Mayor Allan Alifano called it “obviously a huge deal”. The city’s attorney said it would still take several months for the city to be paid and that there is a second phase of arbitration that must be heard. The city will ask for legal fees from the arbiter as well, to cover the estimated $100,000 spent on attorneys. The city’s attorney maintained it was still a “great victory”. Half Moon Bay already secured $5 million from an Association of Bay Area Government’s insurance plan, which was used to pay down the debt from the bonds. Mayor Alifano said much of the $10 million from the Insurance Company of the West will also likely go to further, paying off the bonds, but the City Council has the final say in how the money is used. Regardless of the new windfall, the city still plans to keep an initiative for a proposed half-cent sales tax on the November 6 ballot, but it may be a harder sell with the new rosy outlook from this legal victory.

Those working in the California insurance industry probably remember a shameful case several years ago involving so-called “living-trust mills”. That was an elaborate scheme that bilked hundreds of millions of dollars from seniors by having “experts” visit their homes, presenting themselves as professionals, to prepare trusts and other estate planning documents. Then these “experts”, having gained the seniors’ trust and personal financial information, would use that information against the seniors to convince them that their current financial holdings were unwise. They would persuade their victims to close out their holdings and to buy inappropriate annuities from these “expert” agents; a money making scheme without consequence to the interests of the duped seniors who lost their entire savings.

This problem is ongoing for seniors as scam artists have continued to operate under the guise of estate planning, and as attorneys, and they are willing to do anything to make a buck. The California Attorney General’s website says some get jobs at assisted living facilities or nursing homes, and even churches, to try to hook unwitting seniors with free seminars and presentations.

This problem is not exclusive to California. In 2009, the Ohio Supreme Court fined two California companies, American Family Prepaid Legal Corp. and Heritage Marketing and Insurance Services, Inc., $6.39 million for 3,800 counts of the unauthorized practice of law for selling revocable living trusts and annuities to elderly Ohio residents. The companies were also permanently barred from providing such services in Ohio.

Another unlicensed insurance agent has been caught trying to dupe consumers in California, as our San Francisco insurance attorneys recently noticed in the news . We know that consumers must be careful, as a lot of insurance scams do exist. Californians need to be vigilant, checking into anything that seems suspicious, and watching out for news of any new problems, like we do.

Last week,Howard Thomas Jackson, 59 and an unlicensed insurance agent in Oceanside, was arrested on suspicion of defrauding clients of more than $300,000. He was arrested on charges of six felony counts of grand theft, embezzlement, and theft of fiduciary funds, as well as suspicion of possessing more than 28.5 grams of marijuana for sale, according to reports from the California Department of Insurance and the San Diego County Sherriff’s Department. Mr. Jackson was booked into Vista jail last Wednesday and, according to the jail, is being held without bail. His next court appearance is scheduled for September 17. The Investigation Division, Criminal Operations – Point of Sale [C.O.P.S.] Unit investigated this case, and now the San Diego County District Attorney’s Office will prosecute under the Life and Annuity Consumer Protection Program.

A Department spokesperson, Dave Althausen, said that the investigation was prompted by a complaint filed in August 2011 by a victim Mr. Jackson scammed out of $80,000. Thereafter, the Department determined that Mr. Jackson had allegedly diverted two of his customers’ funds for his own use without their knowledge or consent. He also allegedly persuaded clients to refinance their homes and placing the proceeds into life insurance policies and an investment company associated with himself. Two San Diego area residents gave Mr. Jackson money for refinancing mortgages to pay premiums on policies and investments they believed they were buying. Instead, Mr. Jackson only paid one year’s worth of premiums on the policies and took the rest of the money for his personal and business expenses. Others of Mr. Jackson’s victim clients made monthly payments believing the proceeds were going towards investments, when again Mr. Jackson was simply taking that money for himself.

Our San Francisco insurance attorneys always follow legal developments within the insurance industry. A new bill was passed this week in California, Assembly Bill 2138, which will increase funding to prosecute health and disability insurance fraud. In some cases, this law would double the the current annual assessment of ten cents per insured paid by health and disability insurers to up to 20 cents per insured.

Health and disability insurance fraud costs everyone much money and is a drain on the California economy. The National Health Care Anti-Fraud Association (NHCAA) estimates that the financial losses due to health insurance fraud are in the tens of billions of dollars each year – nationwide. In California, the Department of Insurance received more than 6,000 health and disability related suspected fraudulent claims complaints between 2007 and 2010. The Department estimates that these types of fraud cases cost California $223 million per year. Insurance Commissioner Dave Jones said about the bill this week, “I am pleased that the State Legislature passed this bill giving local communities the necessary resources to fight the growing problem of insurance fraud. This type of fraud hurts everyone from policyholders to providers, and, unfortunately, it is becoming more sophisticated.

I applaud Assembly Member Blumenfield for authoring this important anti-fraud legislation.” This legislation has been in the works for a long time. The Department’s Advisory Task Force on Insurance Fraud, which is composed of law enforcement officials, insurance industry representatives, and consumer advocates, found, in a study conducted several years ago, that there were insufficient funds for health and disability anti-fraud measures. Now that it has passed in the Assembly, Bill 2138 is waiting for approval in the State Senate before going to the governor for a final signature.

Our San Francisco insurance attorneys have been following a big California insurance story as it continues to unfold. In July, this blog discussed a lawsuit filed by groups of California doctors against Aetna insurance for denying patients access to out-of-network doctors, even when the patient purchased a policy that allows for this out-of-network option (see post here).

This week, one of the doctor’s groups involved in the lawsuit, the California Medical Association, which is the largest such group in the state with 35,000 members, accused Aetna, the country’s third largest insurance provider, of refusing to negotiate with member doctors and kicking member doctors out of the network in retaliation for this lawsuit. Dr. David Aizuss, an ophthalmologist in Los Angeles and a plaintiff in the lawsuit, said Aetna notified him earlier this month that his contract would terminate in November. He claims it is retribution for participating in the lawsuit. The result, says the California Medical Association, is that patients are being further limited in their access to their regular doctors. Dr. Aizuss told the Los Angeles Times, “They are impacting the doctor-patient relationship for thousands of people.” nurse.jpg

Aetna responded to this latest argument from the California Medical Association by saying it is fighting on behalf of patients. But Aetna may not be so happy with the outcome, as the director of health insurance studies at the UCLA Center for Health Policy Research says many consumers choose their insurance specifically to be able to stay with their doctor, and these actions will probably lose Aetna customers. But Aetna has been firm in claiming that doctors are overbilling insured patients for procedures outside of the network, and filed its own lawsuit to this effect in February. Aetna claims that these doctors are unscrupulously steering patients to out-of-network facilities that they own or partly own for their own profit, without informing patients of this conflict of interest as required by federal law. The company claims these inflated bills jack up prices for patients and increase premiums for all consumers.

Our San Francisco insurance lawyers were excited to see the California Supreme Court’s decision in State of California v. Continental Insurance. The case dealt with the Stringfellow Acid Pits, one of the most contaminated sites in the US, which was created in 1956 from the depths of an old quarry. Approximately 30 million gallons of industrial waste were dumped in this site. It was closed in 1972 after the state determined that the waste was seeping into the groundwater. In the late 1990s California was found liable and ordered to clean up the site, which was estimated to cost $700 million.

For years, California sought money from its insurers to pay for the clean up bill. The state collected about $150 million in insurance money but was entitled to much more and fought with the insurance companies in court over this. In the current case, the state was seeking $60 million against Continental Insurance Co, Continental Casualty Co, Yosemite Insurance Co, Horace Mann Insurance Co, Employers Insurance of Wassau, and Stonebridge Life Insurance Co, all of which provided excess commercial general liability policies to the state of California during a 12 year period from 1964 to 1976.

The trial court in Riverside County decided against California, and said that the state should not be able to “stack” multiple policies purchased over the years and that it should not be able to recover more than the policy limits. The court agreed with the defendant insurance companies, who argued that they should only be asked to cover a proportionate share for a single policy period. The trial court’s decision capped California’s recovery at $48 million. At that time, California had already reached settlements worth more than twice that amount, so the trial judge awarded the state nothing. The Fourth District Court of Appeal then reversed that decision.

The Supreme Court in its ruling earlier this month agreed with the Fourth District, and said that “standard policy language permits stacking.” Justice Ming Chin wrote for the court, saying, “If an occurrence is continuous across two or more policy periods, the insured has paid two or more premiums and can recover up to the combined total of the policy limits. There is nothing unfair or unexpected in allowing stacking in a continuous long-tail loss.” The decision also said the insurers must pay “all sums” due on each policy issued. The decision declined to reduce insurer policy payments because the state had gone without private insurance for some periods during the time Stringfellow Acid Pits was in operation. And the court awarded the state $54 million in defense costs, as well.

California insurance claims lawyer agree that this is a victory for policyholders and a clear message for insurance companies on some of the most litigated insurance issues. So it is not only a win for California, but for policyholders all over the state. It is also being heralded as one of the biggest insurance related environmental coverage rulings from the California courts in decades.

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Our California insurance attorneys noticed a story about the problems residents in the mountainous regions of our state are having with homeowner’s insurance. Many consumers are worried because insurance companies, such as Allstate, are not renewing policies for homes located in areas designated as at risk for wildfires and are also refusing to issue new policies to new homeowners in these areas. There are over 160 insurance companies that sell homeowner’s insurance in California, but Allstate, State Farm and Farmers control over half the insurance market.

This comes after a decade of severe and damaging wildfires in southern California, and the insurance companies are, as always, more concerned about profits and shareholders than their hard working California customers. Since 2000, about 1,000 homes per year have been destroyed in southern California. Just this month, wildfires burned 1,800 acres across the southern part of the state in the foothills of the San Jacinto Mountains, getting very close to the San Bernardino National Forest. At least three structures, including one home, were destroyed in this most recent blaze. At least nine more homes were evacuated as a precaution. In a nearby area south of Riverside County, fires started by lightning have burned another 2,300 acres in San Diego County. Hundreds of firefighters are tied up trying to control these fast moving and destructive wildfires. fire.jpg

Due to these catastrophic numbers, insurance companies have been looking closely at properties to insure. In cases where the home is in a steep area or accessible by only one road in and out or with limited turnaround access for emergency vehicles, and particularly areas at high risk for wildfires, insurance companies have increasingly made it difficult to renew existing policies or find comparable policies for new houses.

As this blog discussed in a previous post, most Californians do not have earthquake insurance, despite living in the so-called “Ring of Fire” where about 81 percent of the world’s biggest earthquakes occur. Our San Francisco insurance claim attorneys saw some interesting articles on earthquake insurance in recent weeks, and thought it would be a good time to discuss the topic again.

The San Francisco Chronicle published an interesting story in July on the issue, answering some policyholder questions about earthquake insurance. For example, some incidental damage caused by an earthquake indirectly would be covered by homeowners insurance, such as if a fire was started due to an earthquake. Also things such as theft or vandalism due to an earthquake would be covered by homeowners insurance, not earthquake insurance. But most other types of related damage caused indirectly by earthquakes are not covered by homeowners insurance, such as water main breaks that flood your home, or landslides due to earthquakes. Damage from these incidents would be covered by policies issued by the California Earthquake Authority, and not by standard homeowners or renters insurance.

Another recent article talked about the practicalities of earthquake insurance in California. In California, a high risk earthquake state, the CEA’s average rates are about $4.50 per $1,000 of coverage. In less risky states, that ratio is more like 50 cents per $1,000. There are other things Californians can do to save money and avoid high premiums, though. The CEA offers a 5 percent discount to residents who retrofit their homes to make them more earthquake resistant, for example. This retrofitting can consist of improvements such as bolting or bracing the structure to the foundation, putting sprinklers in your home, installing metal straps to the walls and roof, or using different trusses. Also, there are discounts for homes built after 1979, when stricter building codes were enforced and for wood frame houses, because wood houses hold up better in earthquakes than brick or masonry. earthquake.png

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