Past Shows Hard Work
Fraud is pervasive in the insurance industry. The cost is $120 billion annually
according to industry calculations.
The recent wave of insurance insolvencies in Louisiana led investigators to find
that in many instances, fraud was an element in a company's failure.
The Fraud Division has been busy following leads on many forms of fraud; here are
a few examples.
Yellow Submarine Scam
The Department of Insurance Fraud Division, in a joint effort with the Turks and
Caicos Island government, put insurance criminal Gerald Thornton in a British jail
for three-and-one-half years and fined him $7,000.
In addition to those fines, Thornton was called to an administrative hearing in
April, 1994 for numerous violations having to do with the sale of unauthorized insurance
and failure to remit premiums.
On May 10, 1994, Administrative Law Judge Rufus Hayes issued a ruling whereby Thornton
was fined $120,000; the insurance company he operated, Kelmer Court, Ltd., was fined
$120,000; and another related entity, First Premium Services, was fined $45,000.
Using a submarine touring service as a cover, Thornton traveled between the U.S.
Mainland and the British-owned Turks and Caicos Islands running his scam on his
When Thornton was released he was immediately arrested in the U.S. where he is awaiting
federal trial in April 1997 for defrauding policyholders in Louisiana, Mississippi
and Texas of $1.7 million.
Scare Tactics/Unethical Advertising
Louisiana Insurance Commissioner Jim Brown issued a cease and desist order to United
American Insurance Co. of Dallas, TX to stop possibly unlawful advertising practices
against the elderly by the companys representatives.
Brown said, "The sales people used scare tactics calculated to get their foot
in the door by insinuating they were from the government and then leading the elderly
to believe that their Medicare benefits were in jeopardy." The cease and desist
order requires UAIC to receive prior approval of all proposed insurance advertising
from the La. Department of Insurance.
Former City Councilman Convicted
The Department revoked former Shreveport City Councilman Roy Carys insurance
license after he allegedly used his position as councilman to further his insurance
business. Specifically, he secured a city job for an individual in return for the
man's buying a life insurance policy from him.
Cary was convicted of extortion and fraud in August 1995; sentenced to one year
in prison and 6 months in a halfway house; and fined $150,000.
Attorney Flees with Insurance Checks
The Fraud Division of the Department worked with the New Orleans Police Department
to investigate a New Orleans-area attorney accused of forging clients' signatures
on settlement checks from insurance companies. The attorney has been arrested and
charged with theft of over $120,000.
Unlicensed Company Put into Rehabilitation
The Department learned in early 1994 that a legitimate claim was not being paid
by American Capital Assurance Insurance Company. Further investigation by the Department
revealed American Capital Assurance was not incorporated in Louisiana or licensed
to sell insurance in any state.
The company was placed in rehabilitation with the Receivership Division of the Department
of Insurance by the 19th Judicial District Court as a result of the investigation.
"The Department is proud of the work we have done in the past, but the fight
has just begun," said Brown.
Present Work Protects Consumers
The Department has continued to clean up the insurance industry. Complaints and
anonymous tips helped with the following cases:
Agent Selling Without a License
An anonymous tip to the Department led to the arrest of a former insurance agent
in Monroe selling insurance without a license. Before his license was revoked, the
agent pocketed money from policy refunds instead of returning it to the policy holders,
and he accepted money for policies that did not exist.
After the Department received several complaints, the agent was called to a hearing
in July 1996. Even though the agents license was revoked by the DOI, the agent
continued to sell insurance to small, locally owned businesses. The anonymous tipster
informed the Department that the former agent was continuing his activities, even
without a license.
Deceptive Sales Pitch
An agent in Lafayette who was intimidating potential policyholders with an outrageous
sales pitch was fined by the Department in March. Using a sheet listing the price
of chemotherapy cancer drugs based on cost per ounce, the agent showed how the drug
costs ranged from a low of $734.16 to a high of $639, 632. The figures were misleading
since actual doses are minimal percentages of an ounce ranging in cost from $7.40
to $13.51. The agent was fined by the Department for unfair trade practices and
misleading and deceptive advertising.
Executive Mail Fraud
The Fifth Circuit Court of Appeals affirmed a lower courts conviction of three
former executives of the Sovereign Fire and Casualty Insurance Company on August
22 for crimes of mail fraud and conspiracy to commit mail fraud. The Court affirmed
the convictions of Earl W. Krenning, former President and CEO, Richard P. Rushting,
senior financial officer, and Steven L. Schmittzehe, former comptroller. The Court
also vacated the original sentences and remanded them for resentencing after finding
that the lower courts method had "no reasonable relation to the actual
or intended harm of the offense." The original 15 count indictment involved
the three executives scheme of inflating company assets by "renting"
overvalued assets and reporting them to the Commissioner of Insurance in order to
hide the companys insolvency.
Staged Accident Scheme
A fraud claim report received by the Department in the fall of 1995 led to the New
Orleans Police Department exposing a insurance scam ring that involved $1.5 million
in fraudulent claims for vehicle damage and personal injuries. In August 1996, the
NOPD arrested 26 people who staged automobile accidents in Jefferson and Orleans
Parishes. The scam artists would drive in front of another car, stop abruptly, and
force a crash. When DOI received the fraud claim report last year, it forwarded
the information to the NOPD. Focusing on 47 automobile accidents between December
1995 and April 1996, the NOPD formed Operation Sudden Impact to investigate the
situation that later led to exposing the insurance scam.
"Too Good to Be True" Life Insurance Scam
In February, Commissioner Brown warned consumers about American Family Benefits
Group Inc., a Florida-based corporation that was under investigation for its insurance
selling scheme that offered mega benefits for a low cost. For a $99 payment, a client
received the title of "marketing executive" that entitled the client to
enroll other members for $99 each, with the marketing executive collecting a portion
of the fee.
Clients were also entitled to purchase a $280,000 life insurance policy, to receive
a $5000 certificate of deposit and to receive a $2,500 credit limit on a major credit
card. Brown alerted consumers by saying, "The only thing I can see you actually
get for your $99 is the title of marketing executive, which has absolutely no value
in Louisiana and may get you in trouble if you in effect are acting as an insurance
agent without a license."
Using Company Money for Personal Expenses
On Oct. 16, 1996, John Bennett Kiefer, former head of Charter Title Ltd., pleaded
guilty to charges of conspiring to commit mail fraud, conspiring to submit false
statements to federally insured institutions, and lying about his income on federal
income tax returns by not including personal loans he took out from his company.
The Department personnel aided law enforcement officials in the investigation of
these fraudulent acts.
The investigation began when individuals contacted the Department with their concerns
about Charter Title Ltd.
For these charges, he faces fines of more than $350,000 and up to eight years in
prison. Kiefer's agent license and also the license of his agency were summarily
Lawyer Ann Schneider, his former business partner, and Theresa Horgan, the company's
office manager, pleaded guilty on October 9, 1996 to the same charges.