Insurance is the Only Crime Where the Victim Is Required to Pay for Investigation & Prosecution of the Criminal or No Investigation Will Be Done

 Zalma’s Insurance Fraud Letter, Volume 23, No. 20

Some of the articles you can read in this issue of ZIFL follow:

Most states require insurers doing business in the state to pay a special tax to fund special police agencies called insurance fraud bureaus or insurance fraud divisions. Insurers are compelled by statute and Regulation to maintain Special Fraud Investigation Units (SIUs) and maintain a detailed anti-fraud program. The Departments of Insurance audit insurers regularly to be sure that each insurer works hard to investigate and seek prosecution of the crime of insurance fraud. Simultaneously, the same Department of Insurance punishes insurers for not paying claims rapidly or for not treating insureds or claimants fairly, many of who are experienced insurance cheats who use the Department’s consumer unit to browbeat insurers into paying fraudulent claims. Courts and juries will assess punitive and exemplary damages against insurers who accuse their insureds of fraud looking with 20/20 hindsight at the investigation regardless of the obligation to investigate fraud imposed on insurers by statute.
Similar businesses in the financial sector, who are also regular victims of fraud and other crimes, are not taxed or compelled to investigate crimes committed against them. No one demands that the banking industry pay for prosecuting embezzlers or bank robbers. No one demands that convenience store operators pay for prosecuting people who hold up their stores on a daily basis. No Regulator requires stockbrokers to investigate fraudulent transactions. The imposition upon the insurance industry – and the attendant cost passed to the insurance consumer – is unique.
Insurers are treated differently than all other businesses in the United States. George Orwell was right when, to paraphrase, he had a character in “Animal Farm” say, “all businesses are equal, some are more equal than others.” Clearly, insurers are less equal with regard to crimes perpetrated against them than are other businesses.

Insurance Fraud Is Epidemic  

Advising an Insurer of a Claim When Insurance Obtained by Fraud is a Crime

In Commonwealth of Pennsylvania v. Renee M. Bruder, J-S40005-19, No. 1282 WDA 2018, Superior Court of Pennsylvania (September 30, 2019) Renee M. Bruder, appealed from a sentence of 3 years’ probation, imposed after a jury convicted her of insurance fraud. Bruder was charged with insurance fraud, 18 Pa.C.S. § 4117(a)(2); criminal attempt-insurance fraud, 18 Pa.C.S. § 901(a); false reports to law enforcement, 18 Pa.C.S. § 4906(b)(1); and operating a vehicle without required financial responsibility, 75 Pa.C.S. § 1786(f).

There is no question that Bruder, who applied for and received insurance after an accident that because it started at 12:01 a.m. on the date it was bound, that gave her coverage for the accident and was obtained by fraud. She was convicted of making a fraudulent claim and since she reported it to the insurer the crime was committed. She also committed the crime of obtaining an insurance policy by fraud so the sentence, regardless of the concerns of the appellate court, was fair.

From the California Department of Insurance – Don’t Fool Around With Its Orders 

 Historic $41 Million Payment Closes Book on Decades-long Court Battle with Mercury Insurance Company 

Department Prevails in Fight Against Mercury’s Rating Violations and Unfair Insurance Practices 
        On October 2, 2019 Mercury Insurance Company agreed to pay $41,188,505 ending a two-decades long Department of Insurance legal fight – the largest property and casualty payment in the department’s history.
        The payment resulted from a record $27.6 million penalty plus more than $8.1 million in interest. The California Supreme Court recently rejected Mercury’s request for review of the case and historic fine prompting Mercury to pay the penalty, plus interest, and to settle a second phase for $5,460,868 that had not yet been tried in the courts. The second phase involved false advertising claims the department was preparing to prosecute under the Unfair Insurance Practices Act (Ins. Code, §790.03).
Regulators, like the California DOI, have egregious powers. Mercury tried to fight and went all the way to the California Supreme Court. This decision finds Mercury understanding that it doesn’t pay to fight the DOI in California and will eventually make it easier for the DOI to collect fines from insurers who will be unwilling to fight with the DOI. Hopefully some of the money will be directed to the Fraud Division so it can help insurers, including Mercury, fight fraud.

Legislators Work to Deal With Inflated Claims and Public Adjusters 

Licensing of Public Adjusters

In 2019 state legislatures in Florida, Texas, Louisiana, Virginia and North Dakota passed bills that limited the circumstances under which anyone but a licensed public adjuster can negotiate property damage claims on behalf of a policyholder. In Wisconsin, the National Association of Public Insurance Adjusters is lobbying for legislation to make that state the 46th to require public adjusters to be licensed.
NAPIA President Jeff O’Connor reported that NAPIA has actively supported some of the legislation, but lawmakers are introducing measures on their own to tighten regulations without any input from his group. Proposals to combat fraud and abuse by restricting the practice of claims adjusting to licensed professionals are supported by both Republicans and Democrats.
Bills to tighten licensing requirements for public adjusters have also garnered strong bipartisan support in Virginia, Louisiana and North Dakota this year. Virginia Gov. Ralph Northam signed Senate Bill 1415 into law on March 19 after the measure passed unanimously in both the House and Senate. The bill bars anyone other than licensed public adjusters from preparing a claim or negotiating on behalf of an insured.
Louisiana Gov. John Bel Edwards on June 4 signed into law Senate Bill 83. The bill makes the unlicensed practice as a public adjuster a felony that can result in a prison sentence of up to two years.

In my blog at the post “Fraud by Public Adjuster Imputed to Insured I reported that in Chubb & Son Inc. et al. v. Pio Consoli et al., Defendants, and Melvin Steinberg et al., 283 A.D.2d 297, 726 N.Y.S.2d 398 (N. Y. App. Div May 22, 2001), the insured who signed an inflated proof of loss knew that the claim was inflated by his public adjuster and took the money found a New York court required the money be returned to the insurer. Earlier, in my blog post “The Danger of Retaining an Unlicensed and Dishonest Public Adjusters” reporting on Reverse Now VII, LLC v. Oregon Mutual Insurance Company, Case No. C16-209-MJP, United States District Court Western District Of Washington At Seattle (September 20, 2018) the actions of a putative public adjuster and his close friend, pretending to be an impartial appraiser, deprived the insured of its right to the benefits of the policy. Adding expense and insult to the injury the court will require Reverse Now to repay Oregon Mutual the benefits it paid when it was unaware of the fraud. The insured, Reverse Now, made the mistake after receiving a favorable appraisal award to sue Oregon Mutual who then learned of the fraud. Not only did the fraud not pay it cost Reverse Now a great deal of money that it may only try to regain from its putative and dishonest public adjuster.

State Finds Florida Specialty Insurance Insolvent

Florida personal lines insurer Florida Specialty Insurance Co. (FSIC) was ordered into receivership and will be liquidated after state regulators determined the company is insolvent and unable to establish a viable business plan moving forward.
The Florida Department of Financial Services has been appointed as the receiver and the insurer’s more than 90,000 policyholders have been notified to find a new insurance company immediately. DFS has also alerted agents to assist their policyholders with finding new coverage.
Regulators reported that they have spent more than a year helping the company develop a plan to continue, and just over a month after ratings agency Demotech downgraded its Financial Stability Rating (FSR) of the company from A (Exceptional) to M (Moderate).

The Current Issue Contains the Following:

  •  Prosecution of the Criminal or No Investigation Will Be Done
  • Advising an Insurer of a Claim When Insurance Obtained by Fraud is a Crime
  • Sad News – Michael H. Boyer, RIP
  • Good News from the Coalition Against Insurance Fraud
  • From the California Department of Insurance – Don’t Fool Around With Its Orders
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Barry Zalma, Inc. Provides the Following Services
  • Legislators Work to Deal With Inflated Claims and Public Adjusters
  • State Finds Florida Specialty Insurance Insolvent
  • Insurance Claims Library –
  • Excellence in Claims Handling Courses From 
  • Has Published Five Courses by Barry Zalma 


The Zalma on Insurance blog has posted over 2850 digests of insurance appellate decisions and other important insurance materials and articles published five days or more a week and are available at
Zalma’s Insurance 101 that consists of 1022 three to four minute videos starting with “What is Insurance” and moving forward to insurance fraud investigations explaining the basics of insurance and insurance claims handling in a painless fashion that can be viewed every morning with the first cup of coffee at  Zalma’s Insurance 101.
If you start at Volume 1 at the bottom of the blog’s first page and view one or two videos a day you will have approximately 12 to 24 hours of training a year until you get to the last video.
The videoblog is adapted from my book, Insurance Claims: A Comprehensive Guide available at the Zalma Insurance Claims Library