Wednesday, May 27, 2015

First Circuit holds that in fraud sentencing, sentence is based on amount of fraudulent claim not fraudulent plus legitimate claim

John Alphas owned a wholesale produce distributor.  He routinely obtained insurance for produce shipments.


Starting in March, 2007, Alphas submitted at least ten fraudulent claims to his insurers for lost, stolen or damaged produce.  Some of the claims were partially legitimate and partially fraudulent.


The federal government prosecuted Alphas.  Alphas pleaded guilty.  However, Alphas and the government did not agree on the amount of loss, a necessary step for determining sentencing. 


Alphas argued that the loss figure should exclude legitimate claims embedded in the fraudulent claims. 


The government asserted that the amount should be based on the total amount Alphas claimed, not how much he received.  It argued that the under the terms of the policies the insurer would have voided an entire claim if it had known that any part of it was fraudulent.


In United States v. Alphas, __ F.3d __, 2015 WL 2124771 (1st Cir. 2015), the United States Court of Appeals held that the loss-computation should distinguish between a fraudster who wholly fabricates a non-existent claim and a fraudster who artificially inflates s a legitimate claim.  "A fraudster who has suffered no loss at all but invents a $100,000 claim out of thin air is not the same as a fraudster who has suffered a legitimate $50,000 loss but artificially inflates his claim to $100,000." 


The court noted that the void-for-fraud clause in an insurance policy imposes on the fraudster a penalty for acting corruptly: "if the insurer discovers the fraud, the insured forfeits everything."


But the concept of loss under the criminal sentencing guidelines serves a different purpose.  The guidelines are "designed to ensure that the sentence imposed on the defendant 'reflect[s] the nature and magnitude of the loss caused or intended by [his] crimes.'"  It would make no sense to impose a more severe penalty on a fraudster whose policy has a void-for-fraud clause than on a fraudster whose policy does not contain that clause. 


The court held that, contrary to the government's position, the correct inquiry is what the fraudster reasonably expected to "euchre" (to outwit or cheat, not to play a card game in which jacks are high) out of his victim, not what would have slipped through is fingers had he not been caught.  That amount excludes sums that the fraudster would have been paid absent the fraud. 


The court also held that the restitution amount is the fraudulent amount only, not the legitimate claim, regardless of a void-for-fraud clause. 







Wednesday, May 6, 2015

Massachusetts Appeals Court defines risk of loss from misrepresentations in insurance application

Kevin Fitzgerald was injured in a car accident and brought suit against the car's owner, Marcio De Oliveira.  De Oliveira was insured by Commerce.  Commerce denied coverage over the $20,000 compulsory limit. 


Commerce asserted that when he purchased the policy, De Oliveira, who is Brazilian, had supplied materially false information in the form of an altered Brazilian driver's license.  The alterations were to the license's expiration date and to the Brazilian government identification number (equivalent to a social security number in the United States.)


Fitzgerald argued that the alterations to the license were not "material."  He cited Mass. Gen. Laws ch. 175 §186(a), which  provides that insurers may deny coverage based on a misrepresentation in insurance applications only when the misrepresentation was made "with actual intent to deceive" or when "the matter misrepresented . . . increased the risk of loss." 


The trial judge found, after a bench trial, that both criteria were met.  On appeal Fitzgerald argued that the alterations did not increase the risk of loss because De Oliveira had a valid Brazilian driver's license at the time of the application, the license remained valid during the policy period, and his separate license number appeared on the license so that the insurer could gain access to his driving history in Brazil.  Fitzgerald also argued that based on those facts the alterations could not have been made with the intent to deceive. 


In Commerce Ins. Co. v. De Oliveira, 73 Mass. App. Ct. 1001, 2015 WL 1880299 (unpublished), the court held that Fitzgerald's argument was based on too narrow a conception of what it means for an insurance applicant to increase the insurer's risk of loss.  The alterations "were of the sort that would have raised obvious red flags to one considering whether to take on the risks that the applicant presented."  "The concept of 'risk of loss' is not limited to an increase in the actual risk loss, but rather embraces an insurer's generally increase risk of economic loss or exposure." 

Thursday, April 9, 2015

U.S. District Court holds insurer's removal to federal court untimely based on information in underlying complaint

Addison Automatics filed a lawsuit in Suffolk Superior Court seeking a declaration that defendant Netherland Insurance Company had a duty to defend and indemnify Precision Electronic Glass Company in a class action lawsuit.  In the underlying action Addison alleged that Precision violated the law by sending junk faxes. 




Netherlands removed the case to the United States District Court for the District of Massachusetts.  Addison filed a motion to remand the case to state court, contending that the removal was untimely because it was not done within 30 days of service of the complaint.  Netherlands asserted that it was not until a decision of the Superior Court on a motion to dismiss that it knew that the suit was a class action suit that could be removed.


In Addison Automatics, Inc. v. Netherlands Ins. Co., 2015 WL 461958 (D. Mass.), the court held that there was enough information in the initial complaint for the defendants to ascertain that it was a class action suit.  Among other things, it referred to the complaint in the underlying litigation, which was a class action.  The defendants could have determined from that that Addison was seeking relief not just for itself but as a representative of the class. 



Tuesday, March 17, 2015

SJC holds that under PIP statute any licensed health care practitioner can conduct IME

I posted a few months ago, here, about a Massachusetts Appeals Court decision in Ortiz v. Examworks, Inc. in which plaintiff Flor Ortiz sued his insurer for having an IME for a PIP claim conducted by a physical therapist.  The Appeals Court dismissed the claim on the basis that Ortiz suffered no damages, and did not address whether the insurer had acted in bad faith. 




In Ortiz v. Examworks, Inc., 2014 WL 7930423 (Mass.), the SJC has now taken up that question. 


The SJC quoted the PIP statute, Mass. Gen. Laws ch. 90 §34M, which provides that an injured person claiming PIP benefits "shall submit to physical examinations by physicians."  The SJC held that the word "physicians" in the statute refers not only to medical doctors, but also to "additional types of licensed health care practitioners."  The court stated, "We interpret the statute to intend the broader definition of the word because it is the one most consonant with the statutory purpose." 

Sunday, March 8, 2015

Appeals Court affirms trial decision on commissions due to insurance agent

Marguerite Cocco owned an insurance agency.  In 2002 she contracted with another insurance agency, LJM, to refer customers to it in exchange for fifty percent of commissions received from her referrals.


After a number of years LJM reduced the percentage of commissions paid and then abruptly ceased paying all commissions.  Cocco sued.


The trial judge allowed LJM's motion to preclude any evidence of unpaid commissions owed prior to August 13, 2004, based on the six year statute of limitations for breach of contract. 


After the jury-waived trial the judge found in favor of Cocco and awarded her damages for commissions due from and after August, 2004.  The judge offset the amount due by $2,000 on the ground that LJM had paid that amount in 2008. The total amount awarded was $23,058.57 plus interest. 


Cocco appealed the preclusion of evidence and the offset. 


In Cocco v. LJM Ins. Agency, Inc., 87 Mass. App. Ct. 1106, 2015 WL 709623 (unpublished), the Massachusetts Appeals Court affirmed the rulings of the trial court.


The Appeals Court held that, contrary to Cocco's argument, nothing in LJM's 2008 payment was intended to renew its promise to her so that the statute of limitations would be reset. 


The court also held that the judge properly offset the 2008 payment from the judgment.  Cocco argued that the payment should have been applied to payments due prior to 2004.  The court held, "as the judge excluded all evidence of debts prior to 2004 on statute of limitations grounds, there was no evidence properly before the court of debts prior to August, 2004."  This ruling only makes sense if Cocco made no proffer of evidence of the pre-2004 debt for the purpose of showing that the 2008 payment was for the older debts.  The exclusion of evidence of debts prior to 2004 for the purpose of recovering those debts does not equal the exclusion of debts prior to 2004 for the purpose of showing that certain payments were to offset those debts.


It is worth noting that the court also held that both of  Cocco's arguments were deemed waived as not properly preserved for appeal.   


One of the hats I wear is as an appellate lawyer.  This case serves as a reminder that the time to start thinking about an appeal is at the beginning of the case.



Tuesday, January 27, 2015

U.S. District Court holds Progressive automobile policy website violates 93A

Named plaintiffs in a putative class action suit purchased automobile insurance from Progressive Insurance Company.  Some purchased the policies by telephone and others through the Progressive website.  All were subsequently denied PIP benefits because their policies had an $8,000 PIP deductible.  They sued Progressive alleging that they purchased the policies with a deductible because of Progressive's unfair and deceptive acts and practices. 

From 2008 to 2010 Progressive's website gave Massachusetts customers the opportunity to answer a series of questions.  If they indicated that they or their household members did not have health insurance, it generated plans and quotes with no PIP deductible.  If they indicated that they and their household members all had health insurance, it generated plans and quotes that included an $8,000 PIP deductible.  The customers could then choose different options on the website and compare premiums.  The deductible changed the policy price by $3.00.  A customer who chose an $8,000 PIP deductible for himself or herself could purchase $8,000 PIP coverage for household members for no additional charge.

Progressive knew that PIP deductibles were not customary in Massachusetts.  Approximately 90 percent of Massachusetts insureds purchased PIP with no deductible whether or not they had health insurance.  In June, 2008 Progressive held a focus group that found that customers did not understand the PIP deductible. 

In 2009 Progressive began receiving formal complaints through the Massachusetts Department of Insurance from customers who had bought policies with a PIP deductible but thought they were buying policies that did not have a PIP deductible. 

In 2010, as a result of negotiations with the Department of Insurance, Progressive added a line to its website, "Your PIP coverage currently includes a deductible.  You may elect a deductible of up to $8,000 or no deductible."  It also changed the website so that the default position for customers with health insurance was a $250 PIP deductible instead of an $8,000 deductible. 

In Estrada v. Progressive Direct Ins. Co., __ F.Supp.3d __, 2014 WL 5323422 (D. Mass.), the United States District Court for the District of Massachusetts dismissed plaintiffs who had purchased Progressive policies by telephone, as allegations with respect to telephone sales practices were not included in the complaint. 

With respect to claims by plaintiffs who purchased Progressive policies online, the court first dismissed counts alleging only violation of Mass. Gen. Laws ch. 176D, as a private right of action for violation of that statute exists only through a 93A claim.  It also dismissed a count alleging violation of Mass. Gen. Laws ch. 175 §181, as that statute does not create a private cause of action for an insured under an automobile policy.

The court denied summary judgment to Progressive on the 93A count.  It held that the evidence taken as a whole was sufficient to establish that the website had the "capacity or tendency to deceive."  The fact that the plaintiffs testified that if they had been told that they could obtain PIP coverage for their household members with no increase in premiums they would have done so was sufficient to establish causation on the 93A claim. 

Progressive argued that the because after review the Department of Insurance and the Massachusetts Attorney General's office allowed the website to remain, its website was affirmatively permitted by the laws of the Commonwealth, creating an exemption from 93A liability.  The court disagreed, because there was no evidence that the DOI or AG's office explicitly approved the manner in which the website defaulted customers to an $8,000 PIP deductible for themselves and their household members.