Department Takes Hard Line with Fraud, Plans to Continue Strict Enforcement

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.

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 yellow submarine.

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.

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 company’s 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.

The Department revoked former Shreveport City Councilman Roy Cary’s 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.

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.

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.

The Department has continued to clean up the insurance industry. Complaints and anonymous tips helped with the following cases:

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 agent’s 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.

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.

The Fifth Circuit Court of Appeals affirmed a lower court’s 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 court’s 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 company’s insolvency.

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.

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."

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 suspended.

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.