Fraud News Weekly

Friday, June 18, 2021

New York’s legislative session adjourned last week with no action on numerous anti-fraud bills. The Coalition monitored 20 anti-fraud bills, the most in the nation. They ranged from no-fault reforms to worker misclassification to vehicle inspections. Not a single bill even advanced from committee to floor votes. That may not be all bad, given that one bill would have vastly restricted an insurer’s ability to use examinations under oath as a fraud-fighting tool. Legislators will next  return to Albany for a regular session in 2022. Look for many of this year’s bills, especially on issues such as identity theft and data privacy, to return again. 

A last-minute flurry of employee misclassifications bills was filed in New Jersey. They appear to be moving rapidly. Among them is a Senate bill that would make it an insurance fraud crime to knowingly misclassify employees in violation of state wage, benefit and tax laws. The bill specifically targets evading the full payment of insurance benefits or premiums. The insurance commissioner would be authorized to impose fines of $5K for the first violation, $10K for the second and $15K for each ensuing violation. Insurers that pay claims due to the fraudulent submissions could also seek restitution.

Pennsylvania is joining the states rushing to adopt standards and ensure continuing access to telehealth beyond the pandemic. newly filed House bill seeks to ensure licensed medical providers are authorized to continue practicing via telehealth. Each medical licensing board in the Commonwealth also must adopt standards to regulate telemedicine within their scope of practice and standard of care. The regulations, however, must not create a separate standard of care for telemedicine. The proposal has been referred to the House Committee on Insurance. 

The Georgia Department of Insurance is shutting down a firm’s clandestine plot to illegally land TPA contracts with medical providers. A Nevada firm called TRPN DirectPay mailed $15 checks to the billing departments of medical providers in Georgia. The mailings included language that made DirectPay the providers’ exclusive third party administrator for processing out-of-network claims. Provider billing department staff often deposited the checks without noticing the contract language. The insurance department’s cease-and-desist order requires DirectPay both to halt any business that requires licensing in Georgia, and stop mailing checks to med providers in the state. The order takes effect June 21. The Georgia medical board alerted the insurance department to the scam. 

As he promised, and reported here last week, Florida Gov. Ron DeSantis signed into law the property insurance reform bill passed during the recent legislative session. While amended significantly, the new law restricts roofing contractor solicitations and creates a new method to assess if attorney fees are owed on property claims. That determination depends on whether, and by how much, the recovery exceeds the insurer’s pre-suit offer. The law also prohibits making a pre-suit demand before an insurer has made a coverage determination, and allows insurers to require mediation or other dispute resolution options upon receipt of suit notice. The new provisions take effect on July 1. 

Meanwhile in Tallahassee, the “veto watch” is on for the bill abolishing the state’s no-fault auto insurance system. After urging the elimination of no-fault for years, many insurers and insurance trade associations are calling for the governor to veto the bill that would replace no-fault with a fault-based auto-insurance system. Drivers would be required to buy bodily injury coverage. The measure cleared the statehouse, though it didn’t contain bad faith and other litigation reforms that insurers wanted. Indications are a veto is likely, but regardless, the governor’s action is expected soon.The White House is warning that companies must do more to protect their data and critical infrastructure through increased cybersecurity efforts. The National Security Council says that the threats are increasing in size and frequency, and the administration is now treating these attacks as a terrorist threat because of their ability to cripple essential functions in the healthcare, government, and energy sectors. This week at least 10 hospitals suffered a data breach that exposed more than 3.7M people’s personal information. The size, frequency, and publicity of these attacks is making it difficult to obtain cyber insurance policies. Organizations that hold these types of policies are frequently the targets of the attacks because hackers assume the victims’ policy will pay the ransom. Some cyber attack insurers are pulling back–– refusing to pay for ransom attacks as part of their policy offerings–– and premiums are rising across the board.

Marquee anti-fraud trend sessions on AI and global insurance fraud were held during the NAIC’s virtual 2021 Insurance Summit this week. The Coalition moderated both sessions in our role as a hub of the anti-fraud community. Noted experts outlined breaking trends and future directions in game-changing subject areas that are defining the fraud fight across all lines of insurance — and throughout nations around the globe. AI: Coalition member Shift Technology presented this session. Presenting were: Dan Donovan (Vice President of Customer Success); and Daniel Sereduick (Senior Counsel, Data Governance & Compliance Officer). Global Anti-Fraud Initiatives: Presenting were: Franklin Pinder, Wade Wickre & Glenn Marr (IBM Luxoft); Maxence Bizien (ALFA) and Dennis Toomey (Protiviti/Global Insurance Fraud Summit).

“… did you ever think having an auto accident may trigger a behind-the-scenes scheme devised to determine your insurance policy’s limits in an attempt to potentially collect hundreds of thousands of dollars? In several states, disclosing your liability limits prior to litigation is prohibited for good reason: to combat such schemes to treat up to the amount of the policy limit,” attorney Gene Weisberg writes in the latest article in the Journal of Insurance Fraud in America. “Consequently, a cottage industry, otherwise known as ‘Policy Search Companies,’ arose. They work hard to obtain and sell consumers’ protected insurance limits to attorneys so they can build unwarranted injury cases and get your insurance company to pay those limits or even try to go after your personal assets.” Gene is a founding member of GladstoneWeisberg ALC, and is a member of the Coalition’s Legal Affairs Committee. 

A detailed playbook can furnish a concise action framework that helps shape and guide an organization’s anti-fraud strategy. Step away from theory and into practice. Check out a real-world playbook that’s downloadable to fraud fighters — from insurers to insurance departments, vendor partners and beyond, FraudBlogs, Sophia Carlton, CFE, at Grant Thornton. “The entire playbook is meant to move you from theory into practice, so it is filled with tools and templates that can help you do just that,” Thornton writes. “Each play includes key questions and checklists. The questions are intended to help spark meaningful discussion within your organization and the checklists provide a clear roadmap from start to finish.”

Another DNA scam is making the rounds, the BBB warns consumers nationally. Someone claiming to be from Medicare or an official-sounding health organization calls a consumer. They offer free genetic testing to see if you’re predisposed to heart disease, cancer or another common disease. The scammers ask extensive questions about your medical history, even back to your grandparents’ histories. Or sometimes the scammers go door-to-door or set up stands at health fairs — but their plots are the same. They’re trying to steal your Medicare info. This could lead to ID theft and thousands of dollars charged against your account. How to protect yourself: Avoid anyone offering DNA testing or cancer screening that’s “free” or covered by Medicare. DNA testing is a legit service, but thieves don’t need your Medicare info if the test is truly free. Never give out your Medicare number unless it’s to your trusted physician or other med provider. Never give out medical info over the phone, either. Nor does Medicare call you to ask for your info.

An explosion rocked the house owned by Christopher and Isabella Hale, destroying the place and seriously damaging a neighboring home in Montgomery, Minn. Luckily the Hales’ home was vacant and for sale. Investigators eliminated a gas line leak as the blast’s cause. Here’s what allegedly happened next: Police then found evidence of flammable liquids and determined the fire was arson. Christopher met with police and denied involvement in the blaze. Yet he paid an employee of Hale’s Minnesota Kitchens Company to set the fire. The hired torch was spotted at the house before the fire, and was at the hospital ER the night of the fire. He had lacerations on his face and body. Christopher also contacted his State Farm agent before the fire about property coverage. He was mostly concerned about how much insurance he’d be paid if the home was damaged. Yet State Farm wouldn’t insure the house if it was vacant. So Isabella submitted a lease with another person’s forged signature to State Farm. The so-called lessor, however, denied signing the document. Christopher then made a $365K claim to State Farm for damaged and lost property less than a month after the fire. The demand included almost $44K of personal property damage, though investigators found few possessions inside the wreckage. The Hales also sent a $9.2K invoice to State Farm for purported roof repairs a month before the fire. The named contractor denied doing the repairs or being paid. The Hales are charged with insurance fraud and arson.

A pharmacy exploited no-fault insurance to falsely bill more than $4M of unneeded prescription pain meds in New York, GEICO contends in a lawsuit. The insurer’s suit alleges: SMK Pharmacy illicitly charged GEICO for compound creams, pain gels and ointments, and pain patches. SMK also dispensed the fraudulent pain meds to motorists involved in auto accidents. The pharmacy colluded with prescribing healthcare providers and unlicensed laypersons. The providers work at, or are associated with, medical clinics that almost exclusively treat no-fault auto collision patients. SMK steered the prescribing providers and unlicensed laypersons to prescribe large volumes of “boilerplate, formulaic, and medically unnecessary prescriptions” in exchange for kickbacks. The pharmacy allegedly gave the clinics rubber stamps and labels to make the prescriptions, which were directed to SMK. GEICO seeks to recover more than $1.1M, and wants a declaration that it doesn’t have to pay at least $1.9M in pending claims. GEICO is a Coalition member — and is represented by the law firm of Rivkin Radler, also an active Coalition member.

Prosecutors continue crumpling a far-flung crash ring to debris in New Orleans. Two more members pled guilty to angling big-rig trucks and other large vehicles into collisions for large and false injury claims. Doniesha Gibson was a passenger in a setup wreck, with a “slammer” ramming a 2014 Dodge Avenger into a bus on Interstate 10. Erica Lee Thompson was a passenger in a separate crash with a tractor-trailer on Interstate 10. Thompson and Gibson both sued, seeking large insurance payouts for phony injuries. Then justice caught up. They were named in an indictment centered on Cornelius Garrison, an alleged slammer accused of crashing into 50 big rigs. Garrison, however, was shot dead at his apartment just days after the indictment. His killing remains unsolved. Some 22 of 33 accused ring members have pleaded guilty in Operation Sideswipe. Insurer defense attorneys first caught wind of the brazen scam, thus jumpstarting the investigation. Gibson and Lee each face up to five years in federal prison when sentenced.

Seriously injured workers had no comp coverage because a builder falsely classified them as independent contractors to duck premiums and taxes, prosecutors say in Media, Pa. Mid Ulster Construction worked at numerous sites around Delaware County. Among the sites were the Media Townhouse restaurant, an Amazon GO store and the Tri-State Mall, where two Mid Ulster employees were seriously injured. Sean Hughes is an Irish national who worked for the builder. He’s in hospice care, unresponsive since doctors reattached his skull after a fall. Another worker suffered broken ribs and other injuries from that fall. They allegedly worked 20-30 feet off the ground with no fall protection in place. Prosecutors charge: Investigators talked with numerous employees who received 1099 tax forms from Mid Ulster saying they were independent contractors. In fact they were employees paid in cash or checks, with no tax withholding taken out. Mid Ulster also lied to its comp insurer about the number and types of employees it had in order to illegally lower premiums. And the firm lied that it doesn’t provide 1099 forms to employees or pay them in cash. Mid Ulster also lied that employees worked only up to 15 feet in the air or on roofs. Owners Brian McGarrity and Christopher Flanagan are charged with insurance fraud, workplace misclassification and other crimes.

Swindlers earned more than $2M of commissions after stealing the personal info of nearly 5K Naval service members to buy unneeded life policies behind the service members’ backs. Several scammers ran Go Navy Tax Services out of a trailer just outside of the front gate of the Naval base in San Diego. They advertised free income tax prep for military members. The trailer was draped with military flags that deceived service members into thinking the firm was affiliated with the U.S. military. Go Navy lured service members into the trailer for their supposed tax prep, then conned them into buying retirement accounts. Instead of opening the accounts, the scammers used the service members’ personal info to buy expensive life policies without their knowledge or consent. Go Navy earned over $2M in commissions for nearly 5,000 policies and annuity contracts. Paul Flanagan received a year of house arrest and must repay $500K to the victim service members. Ranjit Kalsi was given a year in jail and also must repay $500K. The California insurance department, San Diego DA and other agencies joined forces in the investigation. 

Dishonorably bounced from the Air Force, Brandon Leross Bailey lied about winning the Purple Heart and being an Afghanistan combat vet. His lies were part of his scheme to scarf more than $818K of federal disability and other benefits. The Mobile, Ala. area man was a major in the Air Force, and was booted for drug possession and theft. Air Force administrators never received the notice. The feds contend: Exploiting the admin error, Bailey portrayed himself as a retired Air Force nurse, combat rescue officer, combat vet in Afghanistan and Purple Heart recipient. Bailey used his bogus credentials to illegally receive disability benefits. Several medical conditions made him unable to work and disqualified from military service, he lied. Bailey received $155,396 in disability. All the while, the supposedly disabled vet worked as a “veteran’s consultant” and part time faculty member at a private university in Alabama. Bailey never disclosed this work to the feds. He also defrauded a federal farm program for vets and his own father, plus other ruses. He faces up to 10 years in federal prison if convicted. 

Handed 40 months in jail for medical fraud and kickbacks, the office manager of a homecare firm saw his conviction reversed by the Fifth Circuit Court of Appeals. Abide Home Health Care Services approved unneeded care plans. Jonathon Nora assigned patients, processed kickbacks and knew about the firm’s illegal re-enrolling of Medicare patients, the lower court found. Nora appealed: “… there was insufficient evidence to prove that Nora understood that Abide’s practices were fraudulent or unlawful. Though the government offered evidence that Nora received compliance and Medicare training, there was no evidence of ‘what this training entailed or if it discussed health care laws or Medicare regulations[.]’” the law firm of Vinson & Elkins blogs. “Even a form signed by Nora stating that he had been briefed on compliance and that he would report ‘any fraudulent behavior and/or abuse’ as soon as possible was insufficient.” 

  • Key takeaway: “The Court’s decision sets a high bar for willful conduct that could potentially apply beyond the Medicare fraud context to other white-collar crimes and securities violations.”

Hungry alligators seemingly chewed up Mike Williams after he fell from a boat during a chilly winter duck hunting trip with his best friend Brian Winchester near Tampa, Fla. Mike’s body wasn’t found despite a massive search of Lake Seminole. In fact Winchester pushed Mike from the boat, shot-gunned him in the face as he struggled to stay afloat, then buried his body at the end of a rural road. Killing Mike freed Winchester and Mike’s wife Denise to collect $1.75M of life insurance. They also were having an affair behind Mike’s back. Conveniently for the murder plot, Winchester was an insurance agent. He wrote the life policy in collusion with Denise Williams. An appeals court overturned Williams’ eventual murder conviction, though leaving her 30-year conspiracy sentence intact. It was the max term the court could impose. The state Supreme Court then declined to review Williams’ murder overturn. The decision entitles Williams to a new sentencing hearing on her conspiracy conviction — without her murder conviction as a legal context. Winchester wasn’t charged with Mike’s murder despite outlining the whole plot to investigators. He did turn against Williams in court, however. Winchester later received 20 years for holding Denise at gunpoint after their relationship soured. 

  • Gator clue: The murder case stalled for years with investigators believing alligators ate poor Mike. Until an astute observer noted that alligators hibernate in winter; they wouldn’t eat Mike. That revelation helped reopen the case.

Click the map to read about these and other fraud cases around the U.S.

The Coalition’s Workers Compensation Fraud Committee continues its work of calculating a new figure that quantifies the amount of comp fraud taking place in the U.S. Led by Co-Chairs, Dominic Dugo and Gene Donnelley, the pair has assembled a multi-disciplinary collective of WC experts to update the decades-old $7B estimate. Excluding self-insureds, the committee has come up with a preliminary estimate of $32B in WC fraud divided between premium and claim fraud. The committee examined recent studies and reports to ascertain the value of premium fraud. It used projections based on California’s population (12% of the total U.S. population) and Frank Neuhauser of the University of California Berkeley’s study on the Underground Economy and Payroll Fraud, which estimated approximately $3B in premium fraud. A 2020 study by the Bureau of Economic Analysis pegged the U.S. underground economy at more than $2T and a 2017 study of California’s underground economy (believed to be $170B annually) was also considered. These figures were extrapolated to determine the potential premium fraud taking place in a given year. The committee also contacted experts and academics to capture the cost of claim fraud. Dr. Michael Skiba, PhD and Department Chair of Criminal Justice at Colorado State University Global, estimated a 16% fraud rate in the claim volume based on research with dozens of carriers. Based on the 2020 written premium, and using the 16% number, the estimated amount of fraud in WC claims is $9B. The committee wants anyone with relevant expertise or access to authoritative reports/information on fraud in the WC system to share any information that may better inform their working estimate of $32B. If you have questions about the committee’s methodology or would like to participate in the effort to update the WC figure, please contact Dominic Dugo at

Our industry is ever-changing, as is the fraud we investigate. It’s our responsibility as  insurance professionals to continually learn and grow our knowledge. The CIFI certification is one of the most-widely recognized designations in our industry. If you don’t already hold this credential, I urge you to review the requirements for CIFI certification and apply online to take the exam. Many of your peers took the exam virtually during the pandemic, with in-person exams at local events being cancelled. We’ll continue to offer the exam online, and we’re pleased to announce we’ll provide the CIFI and CIFA exams and prep courses in-person at IASIU’s 2021 Annual Seminar. If you’re scheduled to take your exam online but prefer to take it in Orlando, contact our office to make the switch. Earning an IASIU designation is a great achievement. You’ll feel a sense of pride knowing that you belong to an elite group of investigators. If you have direct reports, have you talked to them about the CIFI, CIFA or CIFR? Earning a certification is the perfect professional development goal. Read more about them and consider applying today.