RiskProf

The Life of a Former Insurance Commissioner

Charles Quackenbush, former CA Insurance commissioner who left office after allegations of official malfeasance,is now a Florida County sheriff's  deputy.  He shot a suspect who took his taser in a scuffle.  (LA Times Blogs) Other insurance commissioners go on to be governors or congressmen.  Old Chuck just wanted the quite life in sunny Lee County Florida. 

Best Sentence of the Day

Is it just me, or is this whole thing starting to resemble a runaway stage coach on fire, careening over rocks and through gullies, wheels flying off and folks jumping out, hoping to land on something softer than a cactus?

from David Rossmiller on the comings and goings in the circus we are affectionately call the Katrina related litigation stagecoach.

It's a Hot Kitchen Moment

We need a word for when a public figure complains about something clearly non-libelous which is said in a blog. 

David Rosmiller has recently taken the the Mississippi AG's office to task for some of its decisions regarding its lawsuit against State Farm and its dealings with people related to civil suits against the company. The director of the insurance fraud unit (Ms. Courtney Schloemer) doesn't like the criticism of her and went out of her way to complain to the press.

"Maybe Mr. Rossmiller considers me collateral damage, but I have three investigators working with me who participated in the State Farm investigation and they deserve better than this. If you want to go after the people who put their names on the ballot or make millions of dollars every year, then have at it, but I would appreciate it if you would at least try to get our side of the story before you drag ordinary people through the mud."

Mr. Rossmiller responds in the link above (and by the way, never mentions any of her staff as he didn't know she had any), but it is apparent that Ms. Schloemer doesn't like the attention. So she probably needs to avoid those warm kitchens.

Change a Few Words ....

If one changes a few words from this Houston Chronicle piece, one sees almost the same charges Scruggs made against State Farm:  Lowballing claims and producing fake documents in support of the claims.

Scruggs created a legal team called the Scruggs Katrina Group to represent policyholders who sued their insurers after the hurricane.

In January, Scruggs' legal team reached a mass settlement of suits with State Farm Insurance Cos. that involved more than $26 million in lawyers' fees.

The lawsuit accuses Scruggs of trying to "freeze out" lawyers from the Jackson law firm, including senior partner John G. Jones, and pay it a "ridiculously low figure" for its "substantial" work.

After the suit was filed, Balducci is accused of having several meetings and conversations with Lackey in which Balducci agreed to pay the judge for ruling in favor of Scruggs in the case, according to the indictment.

Scruggs allegedly tried to cover up the scheme by falsely creating documents that showed he hired Balducci to work on an unrelated case, when he was actually reimbursing him for the cash bribes, the indictment said.

See also David Rosmiller's excellent posts on the matter.  Start with this one and just scroll down.

One thing that I thought of, and it is echoed in David's piece, is what about the real contract disputes.  I know the III claims that 99.99% of the claims have been settled.  However, there were many claims and some non-trivial number of them must have legitimate disputes between the insurer and the homeowner.  Does the misbehavior (this alleged bribe and the real possibility of a contempt of court citation) of the most aggressive Katrina plaintiffs lawyer poison the jury pool against claimants?  The trial bar's (oops ... the justice bar's) self-administered black eyes may be a bar to justice.

               

Blah blah blah RICO blah blah blah blah RICO blah blah blah, yadda yadda yadda, RICO blah blah blah RICO yadda yadda

That is exactly what I thought after reading Mr. Scrugg's diatribic (sic) complaint against State Farm.  Actually, now that I think of it ... I think I had fewer yadda yaddas and some more blah blahs.

via David Rossmiller  (who is doing an excellent job of covering the Katrina Cases.)

Betting on Death

Viatical settlement firms are specialized companies (or more informally a group of investors) that purchase life insurance policies from individuals with relatively short life expectancies (terminally ill individuals). In the US, 90% of viatical settlements cover AIDS victims. 

            At the beginning of the contract both parties must feel they are better off with the contract then without it or they wouldn’t sign on the dotted line. The terminal ill individual typically faces unemployment and large medical and hospice bills and most likely has no health insurance. The viatical settlement firm pays the terminally ill individual between 30% - 70% of the face value of the life insurance policy, and in return becomes the beneficiary on the policy.  The individual uses immediate proceeds to pay for everyday expenses and his/her high medical expenses. On the other end, if the terminally ill individual passes away, the viatical settlement firm reaps large profits from the benefit payment.

            What if the viatical settlement firm tries to sweeten the deal for an HIV-positive person by promising payment of the individual’s health insurance premiums if he/she lived longer than a certain amount of time?  Combine that with the vast improvements in AIDS care that has allowed people to live longer than previously expected and the viatical firm made a huge contractual mistake. The health insurance may allow the patient to afford expensive AIDS medicines that keep her alive longer than ever anticipated, and far longer than the viatical firm ever imagined. Thus by promising to pay for the health insurance, the viatical firm is keeping alive someone they want dead.

            In one situation, the viatical settlement firm is threatening to abandon the contract because the counterparty is living too long.

Life Partners [the viatical firm] has been trying to get out of its contract, claiming Smith should pay her own health premiums and at one point sending a letter saying, "The investors ... are no longer willing to support the cost of your health insurance."

And why should the investors want to keep paying for her health insurance, she is only valuable to them if she is dead. What a morbid business.

Fraud Rundown

According to one source (the Coalition Against Insurance Fraud), insurance fraud costs Americans at least $80 billion dollars per year, or nearly $950 for each family.  Another study conducted by the National Insurance Crime Bureau shows property/casualty fraud costs Americans nearly $30 billion each year. Purportedly, fraud costs every household between $200 and $300 each year in higher insurance premiums.

We have discussed insurance fraud in the past.  Here are a couple of recent insurance fraud cases:

(1) A man in Maryland burned his 2002 Chevrolet Tahoe and reported it stolen to his insurance carrier.  State Farm paid him $38,126.13 in benefits.  After an investigation, the man plead guilty to one count of felony insurance fraud and paid $25,000.00 in restitution to State Farm. 

What puzzles me about this is that although he has to serve 18 months supervised probation, he seemingly made $13,126.13 on the deal.  This doesn't exactly deter fraud in the future.

(2) A pair of teachers from Pennsylvania were caught attempting to deceive State Farm in a fraudulent insurance claim for less than $800 to repair a wrecked snowmobile. Two revelations: (a) these teachers are not very good role models; (b) teachers do not get paid enough if they have to stoop to such low levels for less than $800.

Insurance Fraud Hall of Shame

The Insurance Journal has a piece spotlighting the year's largest, most-brazen, tragic or stupid convicted insurance criminals.  Here is a sampling:

Surgery patients cut no breaks -- Tam Vu Pham paid more than 5,000 healthy people to have surgeons operate on them so his Southern California medical clinic could fraudulently bill insurers more than $96 million. Surgeons performed colonoscopies, sweaty-palm surgery and other invasive procedures.

Princess was pauper -- Antoinette Millard pretended she was a Saudi Princess and hobnobbed with Manhattan society. Millard actually was the daughter of a Buffalo steelworker. She couldn't afford the swanky living, and tried to raise cash by lying to Chubb Insurance that a thief stole $226,000 worth of her jewels.

Sick health plans -- William Paul Crouse and Carmello Zanfei sold fake health insurance to tens of thousands of victims through their sham firm, TRG Marketing. Florida roofer Rusty Baker committed suicide when TRG wouldn't pay his medical bills. Champion NASCAR driver Pete Orr died of cancer after delays in finding new coverage.

Blight of the living dead -- Molly and Clayton Daniels dug up the body of an elderly woman, dressed her in Clayton's clothes, put her in his car, torched it and pushed it off a cliff near Georgetown, Tex. They faked Clayton's death for $110,000 in life-insurance money. Clayton returned disguised as her new boyfriend.

Unhealthy health switch -- Brian Shechtman bilked more than 1,200 Florida seniors out of at least $4 million. He told them they'd bought discount health coverage but actually sold overpriced life insurance. Many seniors gave up their real health coverage, and some lost their homes and savings to pay medical bills themselves.

Keep in mind these are just the ones that were caught.  Makes you curious about the ones that got away with it …

Step Right UP...

Carnival operators get conned by a bogus insurance company. During a routine inspection, a certificate of insurance was later determined to be bogus. The certificate indicated coverage at Lloyd's of London through Richard Brooks and Associates of River Forest, Ill., but Richard Brooks and Associates has no authority to act on behalf of the underwriters at Lloyd's.

I would have thought this group of customers were savvy enough to see through scams.  Maybe that ring does fit on the bowling pin after all?!

Meanwhile back at the Ranch ....

Now that Mr. Spitzer is no longer distracting the insurance industry (as he is distracted by his own problems  — like running for governor and not losing any more cases), we are seeing attention returning to the problem of insurance regulation. 

The National Association of Insurance Commissioners (NAIC) is saying we need state regulation and the states are, in fact, doing a pretty good job.  Insurance Agents and others want the SMART Act  passed (which would essentially take away most state powers to regulate prices and market conduct) while life insurers would like to have a dual charter system like the banking system.  According to the NY Times, this Optional Federal Charter has been pushed most recently by a large group of insurers (including AIG) and would allow insurers to choose whether they wanted to be regulated by the states or by a federal regulator.* 

Evidently consumer groups also oppose federal regulation (see above linked NY Times article).  Having a dual regulatory structure reduces the influence consumer advocates can have as long there is a Republican controlled Congress.  Presumably, Congress will look at the SMART Act this summer and that a Optional Federal Charter bill will be introduced soon too.  (I recall seeing an American Bankers Association draft of one some time ago.)

I don’t think the consumer advocate bandwagon has been able to get its steam up yet, but it will be interesting to see the comments and themes develop about how bad federal regulation will be.

*Just a snarky note, the NY Times article linked here refers to the NAIC as the National Association of Insurance Regulators.