Cases Across the Country: Small, Big and in Between

, New York Law Journal

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Evan H. Krinick
Evan H. Krinick

The legal issues governing insurance fraud that are discussed in this column typically focus on New York law or on federal law and its application to New York cases. The world of insurance fraud is quite extensive, however, as illustrated by recent insurance frauds alleged or uncovered from across the country—including some unusual, if not completely bizarre, examples.

$100 at a Time

Not every insurance fraud is a well-thought-out effort by criminals to hit it big all at once. Sometimes, it is the frauds that are perpetrated for small amounts—again and again—that really add up.

Consider recent allegations by the fraud division of the California Department of Insurance (CDI) against six individuals whom it charged with running a "glass harvesting ring."

According to the CDI, the defendants filed more than 1,000 false insurance claims for windshield repair, totaling nearly $100,000. On average, the claims were just $100 each, but, the CDI contended, it nonetheless was quite a windfall for the defendants. The government said that, using actual consumers' insurance policies, the suspects submitted fraudulent claims for automobile insurance windshield chip repairs to multiple insurance companies between May 9, 2011, and May 24, 2012.

The CDI said it believed that the individuals involved initially were operating a legitimate auto glass repair business and completed authorized repairs. The CDI said, however, that its investigation revealed that the defendants retained consumers' policy information and sometime later allegedly filed fraudulent claims on consumers' policies, without the policyholders' knowledge or permission. The defendants were charged with multiple felony counts of grand theft, false personation of another, and filing fraudulent insurance claims.

As California Insurance Commissioner Dave Jones pointed out, consumers should "pay close attention to any notifications received from their insurance company" and "should review their policy claim history annually, upon renewal, to ensure the claim information is accurate. If there are errors or questions about the claim history, consumers should contact their agent or broker."1

The $1 Billion Case

Then, there are the big, big dollar insurance frauds and frauds related to insurance policies.

In early December, a federal jury in Miami convicted Fort Lauderdale attorney Anthony Livoti Jr., of conspiracy to commit wire and mail fraud, conspiracy to commit money laundering, and mail fraud, in violation of 18 U.S.C. Sections 1349, 1956(h), and 1341, respectively, after nearly a three-month trial before U.S. District Judge Robert N. Scola. Federal prosecutors said that the verdict was the result of Livoti's participation in a scheme to defraud approximately 30,000 victims who invested in the viatical and life settlement company Mutual Benefits Corp. (MBC).

According to the evidence presented at trial, from approximately 1994 to May 2004, MBC purchased life insurance policies from the elderly, as well as from persons suffering from AIDS and the chronically ill. Thereafter, the government said, MBC sold fractionalized interests in insurance policy death benefits, known as "viatical settlements," to approximately 30,000 investors.

As alleged, MBC told investors that its viatical settlements offered a fixed rate of return with low risk, and that investors' principal and returns were paid by the insurance companies. The government presented evidence at trial, however, to the effect that MBC had misrepresented many important facts relating to its viatical settlements, including, for example, the estimated life expectancies of the insured persons, the methods MBC used to acquire life insurance policies, the risks associated with certain policies, the payment of premiums, and the source of funds used to pay investors.

The government asserted that Livoti was MBC's premium trustee and, as a result, was entrusted with millions of dollars of investor money placed in bank accounts under his control; he also was the designated "trustee" of thousands of the insurance policies sold by MBC. According to the government, Livoti assisted MBC with the marketing of its fraudulent investment by meeting with investors in his Fort Lauderdale law office and encouraging them to purchase MBC investments. Witnesses testified that new investor money regularly was used to pay premiums on life insurance policies purchased by earlier investors and to pay investors who requested their money back.

In a statement, the U.S. Attorney for the Southern District of Florida, Wifredo A. Ferrer, stated, "For nearly 10 years, Anthony Livoti, Jr., used the prestige of his law license to further this massive, multi-million dollar fraud scheme. It is outrageous that an attorney would prey on investors by promising them their money was safe and secure when in reality he was misappropriating their funds."

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