Volume 25, Issue 13 – July 1, 2021

Jun 30, 2021

Quote of the Issue

“Rose-colored glasses are never made in bifocals. Nobody wants to read the small print in dreams.” - Ann Landers

Attorneys Should Never Be Involved in Fraud with Clients

The Crime Fraud Exception to The Attorney Client Privilege

In United States of America v. Aron Chervin, Et Al, No. 10 CR 918 (S.D.N.Y. 09/21/2011) an indictment involving multiple health insurance fraud perpetrators attempted to keep from their criminal trial wiretap conversations that seem to establish the crime.

By motion dated June 1, 2011, Defendant Michael Lamond (“Lamond”) moved to suppress nineteen telephone conversations between himself and Defendant Aron Chervin intercepted by the Federal Bureau of Investigation (“FBI”) pursuant to court-authorized wiretaps. Defendant argued that the communications are protected by the attorney-client privilege because Aron Chervin was a client.

The Defendants were charged with creating wholesale and retail shell corporations to perpetuate the fraudulent sale of Durable Medical Equipment (“DME”) to obtain inflated reimbursement from no-fault insurance providers, and financing their scheme through the sale of fraudulent receivables of the clinics to investors who benefitted from the inflated reimbursement generated by the fraud even though New York State prohibits medical professionals from sharing fees for medical services with non-medical professionals.

The sophisticated schemes also utilized the services of lawyers to represent patients, to facilitate payments, and to prevent the insurance companies from detecting the possibility of fraud.

The indictment also alleged that the scheme involved billing for invoices generated by the medical professional corporations and submitted to no-fault insurers through the Law Office of Akiva Ofshtein, P.C., which employed Defendant Lamond and Defendant Vadim Chervin. Defendant Lamond was allegedly an attorney licensed to practice in New York State and an expert in the submission of no-fault insurance claims. The indictment alleged that Lamond’s services were used to draft contracts with financiers and to prevent “unwanted scrutiny” from insurers. Furthermore, the indictment alleged that Lamond allowed use of his attorney’s escrow account to receive monies from financiers purchasing the inflated receivables. This arrangement allowed members of the conspiracy to shield the fact that the insurance payments were received by certain members of the conspiracy rather than the relevant medical corporation.

The privilege, however, is not an unbridled license which protects all communications between attorney and client. One of these exceptions to the privilege is commonly referred to as the crime-fraud exception. Under this exception, the privilege ceases to operate at a certain point, namely, where the desired advice refers not to prior wrongdoing, but to future wrongdoing. Nor can the privileged communications between an attorney and client be carried on with the purpose of furthering or enabling a crime or fraud.

It is well-settled that the party asserting the attorney-client privilege bears the burden of establishing that all the elements of the privilege are present.

The attorney may be innocent, and still the guilty client must let the truth come out. Therefore, Lamond’s knowledge of whether a fraudulent scheme was afoot is not relevant to the application of the crime-fraud exception to Lamond’s interactions with Aron Chervin.

The intercepted calls demonstrate that Aron Chervin used the services of Lamond and the Law Office of Akiva Ofshtein, P.C., to (1) submit fraudulent bills and collect money from no-fault insurers, (2) draft contracts with doctors and investors in furtherance of the fraudulent scheme, and (3) launder monies garnered through the fraudulent scheme.

After reviewing all of the telephone taps the District Court concluded that the allegation of Lamond that the conversations he is seeking to suppress took place in his capacity as legal counsel to Mr. Chervin and involved consultations regarding financing, no-fault insurance collections and arbitration matters and that the conversations do show, however, that the Government has probable cause to believe that Aron Chervin intentionally and knowingly utilized the services of Michael Lamond to further Chervin’s illegal scheme to obtain funds by submitting fraudulent medical bills, traveling in interstate commerce, to no-fault insurance carriers.

The District Court concluded that there was probable cause to believe that Aron Chervin was knowingly involved in a complex mail or wire fraud scheme to defraud no-fault insurance providers and that the crime-fraud exception to the attorney-client privilege applies to this set of facts. Therefore, the District Court denied the motion to suppress.

Adapted from Zalma on Insurance Claims Part 108 -Second EditionAvailable as a Kindle book or Available as a paperback

Wisdom

“The most dangerous untruths are truths moderately distorted.” —Georg Christoph Lichtenberg

“America, my friends, is the only country in the world actually founded on liberty — the only one. People went to America to be free.” —Margaret Thatcher

“For liberalism, the individual is the end, and society the means. For fascism, society is the end, individuals the means, and its whole life consists in using individuals as instruments for its social ends.” —Alfredo Rocco

“Civil rights used to be about treating everyone the same. But today some people are so used to special treatment that equal treatment is considered to be discrimination.” – Thomas Sowell

An Insured Cannot Commit A “Little” Fraud Anymore Than Be A “Little Dead”

Minor Claims Fraud Voids Entire Policy

After a fire destroyed plaintiff’s house, plaintiff made a claim on his homeowner’s insurance policy with defendant insurer. Defendant investigated and ultimately denied the claim. Plaintiff sued and in response defendant asserted that the insurance contract was void due to plaintiff making misrepresentations during defendant’s claim investigation. The trial court granted summary judgment for the defendant, based on the contract being void. In Matthew Kelly and Shelly Kelly State Farm Fire and Casualty Company, an Illinois Corporation, 312 Or App 361, No. 422 A169464, Court of Appeals of The State of Oregon (June 16, 2021) the Court of Appeals was asked to interpret the statutory fraud language in the policy.

FACTS

In 2017 there was a large house which was insured under a homeowner’s policy issued by defendant to plaintiff and his then-wife. A fire completely destroyed the house on May 16, 2017. The fire marshal was unable to determine the cause of the fire but could not rule out that it originated at the grinder.

Plaintiff filed an insurance claim. Defendant made an advance payment of $10,000 to plaintiff for loss of personal property. An adjuster interviewed plaintiff on May 22, taking an initial recorded statement. During the interview, plaintiff represented that he made $150,000 annually as a general contractor with his business, Kelly and Sons Construction, Inc. He also represented that, in the five months before the fire, he had been staying in the property’s guesthouse or with his girlfriend.

After the interview, defendant set loss reserves on plaintiff’s claim. It also began paying “Additional Living Expense” (ALE) benefits to cover the cost of alternative housing.

In connection with the ALE benefits, plaintiff represented to defendant that he had moved into the “Boxwood property” on June 19, lived there until August 31, and incurred $1,500 per month in rental charges to live there. Defendant paid plaintiff $3,600 in ALE benefits based on that information.

Meanwhile, on June 22, defendant’s special investigations unit began investigating concerns of potential fraud in connection with the insurance claim and, in November 2017, interviewed plaintiff. Defendant’s investigation revealed that plaintiff owned the Boxwood property, that he had not moved into or lived at that property after the fire, and that he had sold the property on August 29, 2017. Further, defendant learned during its investigation—and plaintiff admitted in his November interview—that plaintiff had been in jail from December 29, 2016, until May 10, 2017, not living in the Aumsville guesthouse or with his girlfriend. Defendant also learned—and plaintiff then admitted—that plaintiff’s construction company had last been active in 2014, that plaintiff had made about $51,000 doing construction work for other companies in 2016, and that plaintiff had not received any 2017 income as of May 2017.

In May 2018, defendant denied coverage on plaintiff’s insurance claim. Defendant invoked the “Concealment, Misrepresentation or Fraud” provision of plaintiff’s home insurance policy, which defendant asserted applied because plaintiff had willfully concealed facts and made misrepresentations regarding his income and work history, his incarceration and residency, and the ALE claims.

The trial court granted summary judgment to defendant. The trial court concluded that plaintiff’s misrepresentation about where he was living during the five months before the fire was material and that defendant relied on it in paying $37,666 in ALE benefits and setting loss reserves, which was yet another reason that the policy was void.

ANALYSIS

ORS 742.208 requires a fire insurance policy to contain a provision regarding concealment, misrepresentations, or fraud by the insured. The provision in plaintiff’s fire insurance policy with defendant is identical in substance to the statutory language.

The purpose of ORS 742.208 is to discourage insurance fraud. That includes discouraging false claims concerning the amount of loss or the circumstances of the fire and false statements that prevent or hamper investigation of the claim. Only “material” misrepresentations void a policy. How the materiality requirement applies in practice depends on the context in which a misrepresentation is made. In the context of claim fraud, a misrepresentation is material if it is relevant and germane to the insurer’s investigation as it was then proceeding.

A misrepresentation after the loss as to a single material fact will forfeit the entire insurance contract. Thus, under longstanding Oregon law, the general maxim disfavoring forfeiture of insurance contracts is trumped by the concealment, misrepresentation, or fraud policy provision required by ORS 742.208.

Whether a $3,600 misrepresentation is “material,” since there is no factual dispute that plaintiff misrepresented that he was renting the Boxwood property and that that misrepresentation had a monetary value of $3,600. In this case, where the statements were admittedly made and the finding of their falsity is not attacked on appeal, the question seems to be purely one of law.

False sworn answers are material if they might have affected the attitude and action of the insurer. They are equally material if they may be said to have been calculated either to discourage, mislead or deflect the company’s investigation in any area that might seem to the company, at that time, a relevant or productive area to investigate. Under that standard, plaintiff’s misrepresentation that he was living at the Boxwood property from June 19 to August 31, 2017, at a cost of $1,500 monthly, was material, in that it undoubtedly might have affected the attitude and action of defendant, particularly with respect to paying ALE benefits under the policy.

The Court of Appeal concluded that the trial court did not err in concluding that plaintiff’s misrepresentation that he was living at the Boxwood property at a cost of $1,500 per month was material for purposes of the “Concealment, Misrepresentation or Fraud” provision in his insurance policy.

Forfeiture of the entire policy is undoubtedly a harsh penalty. However, it is the penalty that the legislature appears to have intended in enacting ORS 742.208, and it is what the policy requires under existing case law.

ZIFL OPINION

The Oregon Court of Appeal applied the law as written. Presenting a false claim to an insurer with knowledge that it is false voids the entire policy. The amount of the fraud is irrelevant. An insured cannot say: “You caught me on the $3600 claim but must pay the legitimate part of my claim.” To do so would emasculate the reason for the Concealment, Misrepresentation or Fraud provision of the policy. A little fraud voids the entire contract just as easily and importantly as a big fraud.

Kentucky Claimed Millions in Unallowable School-Based Medicaid Administrative Costs

Report from the Office of Inspector General U.S. Department of Health & Human Services

What OIG Found

Kentucky did not claim school-based Medicaid administrative costs in accordance with Federal requirements. It used an invalid RMS to allocate costs to Medicaid, and it included unallowable costs in its cost pools. In addition, Kentucky claimed these costs without promptly submitting CAP amendments to DCA for review and without obtaining DCA approval. As a result, the $58.9 million ($29.4 million FFP) that it claimed in school-based Medicaid administrative costs for FFYs 2009 through 2014 was unallowable.

What OIG Recommends and Kentucky’s Comments

The OIG recommended that Kentucky:

(1) refund $29.4 million to the Federal Government;

(2) amend its CAP to address the statistical validity issues we identified;

(3) enhance RMS procedures to ensure that its RMTS methodology complies with Federal requirements for statistical validity;

(4) enhance RMS procedures to ensure that its Medicaid administrative cost claim complies with Federal requirements for allocable costs;

(5) enhance policies and procedures to ensure that changes to its RMTS methodology are incorporated into a CAP amendment and promptly submitted to DCA for review; and

(6) review school-based Medicaid administrative costs claimed after our audit period and refund any unallowable amounts. comments warranted changing our findings and recommendations. You can read the full report at https://oig.hhs.gov/oas/reports/region4/41700113.pdf

Good News From the

The Georgia Department of Insurance is shutting down a firm’s clandestine plot to illegally land TPA contracts with medical providers. A Nevada firm called TRPN DirectPay mailed $15 checks to the billing departments of medical providers in Georgia. The mailings included language that made DirectPay the providers’ exclusive third party administrator for processing out-of-network claims. Provider billing department staff often deposited the checks without noticing the contract language. The insurance department’s cease-and-desist order requires DirectPay both to halt any business that requires licensing in Georgia, and stop mailing checks to med providers in the state. The order takes effect June 21. The Georgia medical board alerted the insurance department to the scam.

Handed 40 months in jail for medical fraud and kickbacks, the office manager of a homecare firm saw his conviction reversed by the Fifth Circuit Court of Appeals. Abide Home Health Care Services approved unneeded care plans. Jonathon Nora assigned patients, processed kickbacks and knew about the firm’s illegal re-enrolling of Medicare patients, the lower court found. Nora appealed: “... there was insufficient evidence to prove that Nora understood that Abide’s practices were fraudulent or unlawful. Though the government offered evidence that Nora received compliance and Medicare training, there was no evidence of ‘what this training entailed or if it discussed health care laws or Medicare regulations[.]’” the law firm of Vinson & Elkins blogs. “Even a form signed by Nora stating that he had been briefed on compliance and that he would report ‘any fraudulent behavior and/or abuse’ as soon as possible was insufficient.”

The latest convictions: Lois Russell, Tanya Givens and John Diggs teamed with passenger James “Curtis” Williams to stage a crash with a tractor-trailer. Roderick Hickman drove Russell’s car, intentionally struck the 18-wheeler and then fled the scene with Damien Labeaud. Russell lied to police that she drove the car. She made false injury claims, along with Givens and Diggs. The insurers paid out $272.5K. In a related setup, Henry Randle and Dakota Diggs maneuvered another tractor-trailer into a crash, lying the truck was at fault. Ring members next set up another truck for a crash. The collisions typically involve a vehicle maneuvering innocent truckers into fake sideswipes of cars driven by ring members on a local highway. Damien Labeaud, who earlier pled guilty, drove a crony’s Chevy Avalanche into a truck — claiming the trucker was at fault. A colluding plaintiff attorney paid Labeaud $7,500 the day of the crash. The attorney arranged bogus injury treatment for several Chevy “passengers.” Lucinda Thomas had unneeded neck surgery to increase her insurance take. The truck’s dashcam later tipped off investigators. Suspicious injury suits also are spreading. In a $1M action, motorists claim a semi struck their 2010 Chevy Impala on I-10. The trucker says the driver moved to the left lane, then suddenly backed to the center lane to cause a collision. Defense attorneys say they’ve flagged 100 cases for criminal investigation.

Homeless people were foils for a ring that spread more than 3.7M painkillers and other addictive meds onto the streets of Texas. Drs. Caesar Mark Capistrano and Tameka Lachelle Noel wrote the scripts. They used a network of recruiters who brought in “patients” from homeless shelters and the general community. The recruiters paid each patient $50-$200 cash to obtain bogus scripts from Capistrano and Noel. The recruiters then filled the scripts at complicit pill mill pharmacies, then shuttled the drugs for resale on the streets. The pharmacies charged the recruiters $200-$800 per script. Back at the clinic, office manager Shirley Ann Williams examined many patients. Yet she had no medical license or DEA registration. After a token conversation with patients, Williams coordinated the false scripts with Capistrano and Noel. The entire ring was federally convicted. Among the fraudsters: Capistrano got 20 years, Noel eight years and Williams six years.

Pay back the stolen money, convicted fraudster Greg Lindberg’s own insurers demand in a lawsuit in Wake County, N.C. Lindberg bought more than 100 insurers, then secretly diverted $2B of assets via shady personal loans. The profligate self-dealing stretched his life insurers thin, jeopardizing their solvency. Lindberg tried to bribe insurance commissioner Mike Causey $2M in political donations to ease up regulatory pressure on his teetering empire. Instead, Causey had the FBI wire him. Lindberg and several cronies spilled the plot in wired conversations with Causey. Lindberg received more than seven years in federal prison. Now four of his insurers are suing to retrieve the diverted money that made Lindberg so wealthy. They want the court to force Lindberg to abide by an MOU he signed in 2019 to repay the “loans.” The insurers, with a state-appointed rehabilitator in charge, argue the MOU was a binding agreement that Lindberg never lived up to. Lindberg says the MOU was simply an “agreement to agree,” not an enforceable contract. What’s beyond dispute is that Lindberg was summarily inducted into the Insurance Fraud Hall of Shame.

A longtime political operative helped run election campaigns in North Carolina while lying he was too injured to work. McCrae Dowless stole $14K of disability money from Social Security. He worked on U.S. congressional and state campaigns as a consultant. Dowless hid more than $135K a consulting group paid him despite telling the feds he was disabled. He cashed the checks instead of depositing them in his bank account in order to avoid detection. That allowed Dowless to claim he wasn’t working, so he could keep getting disability checks of up to $721 a month. The disability fraud charges emerged from an investigation into his alleged absentee ballot scheme in a 2016 Republican congressional primary. Dowless and assistants allegedly collected hundreds of people’s incomplete ballots and signed some themselves, or even filled in votes for races the voters had left blank. Dowless pled guilty to the disability charges and faces up to 180 months in federal prison when sentenced. He’s still dealing with state charges of trying to rig the 2016 and 2018 elections.

Health Insurance Fraud Convictions

Manhattan Doctor Sentenced to Nearly 5 Years in Prison

JEFFREY GOLDSTEIN, a doctor who practiced in New York, New York, was sentenced today in Manhattan federal court to 57 months in prison for conspiring to violate the Anti-Kickback Statute, in connection with a scheme to prescribe Subsys, a potent fentanyl-based spray, in exchange for bribes and kickbacks from Subsys’s manufacturer, Insys Therapeutics. GOLDSTEIN previously pled guilty, on August 16, 2019, before U.S. Magistrate Judge Henry B. Pitman, and was sentenced today by U.S. District Judge Kimba M. Wood.

Doctor Sentenced to Federal Prison for Health Care Fraud Violations

Grigoriy T. Rodonaia, 45, of Port Neches, Texas, was convicted by a jury on Nov. 17, 2020, of 12 counts of health care fraud, three counts of aggravated identity theft, and one count of making a false statement. Rodonaia was sentenced to 84 months in federal prison on June 24, 2021 by U.S. District Judge Marcia Crone. Rodonaia was additionally ordered to pay $195,607.76 in restitution.

Mr. Rodonaia’s criminal acts inflicted significant financial harm on the TRICARE system and involved identity theft from military service members and their families according to the U.S. Attorney.

Rodonaia, a physician practicing in Beaumont, Texas with Rodonaia Family Medicine and Aesthetics, was indicted on March 18, 2020. According to information presented in court, beginning in January 2015, Rodonaia participated in a health care fraud scheme by issuing prescriptions for specially compounded scar creams using the names, dates of birth, and Health Insurance Claim Numbers of TRICARE beneficiaries, and caused the prescriptions to be forwarded directly to Memorial Compounding Pharmacy in Houston, Texas. These prescriptions were issued without consultation with the patient and without the patient’s knowledge. The pharmacy billed the prescriptions to the military health care program, TRICARE, at approximately $9,000 to $13,000 per prescription, with multiple refills authorized per prescription. Rodonaia issued over 600 prescriptions in the names of approximately 140 beneficiaries in furtherance of this scheme.

Before the scheme was detected, TRICARE paid approximately $6.7 million in TRICARE funds to Memorial Compounding Pharmacy. Further, to conceal his criminal activity, Rodonaia forged patient records to create the false appearance that he had examined those patients, and he submitted the fraudulent records to the Defense Health Agency in response to an audit.

Free Insurance Videos

Barry Zalma, Esq., CFE has published five days a week videos on insurance claims, insurance claims law, insurance fraud and insurance coverage matters at

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

Other Insurance Fraud Convictions

Texas Attorney and Client Sentenced for Conspiracy to Defraud the U.S. And Income Tax Evasion

John O. Green, a lawyer and his client, Texas inventor Thomas Selgas, were sentenced yesterday for conspiracy to defraud the United States and tax evasion. Selgas was sentenced to 18 months in prison and Green to six months.

Imad Dawara Sentenced to 9 Years in Federal Prison for Starting Massive 2018 Old City Fir

Imad Dawara, an arsonist who set a fire in 2018 in Old City, Pennsylvania, destroying condos and businesses, has been sentenced to nine years in federal prison. The judge told the prosecutor in the case “it takes an evil mind to commit this type of act.”

A man whose condo was lost in the fire told a judge Tuesday that his two children were sleeping inside when neighbors pounded on their door to get them to safety.

The February 2018 fire that burned for nine hours on the 200 block of Chestnut Street in Old City and destroyed so many businesses and even a condominium building where families lived is still fresh on the minds of so many. About 160 people were displaced, and a few businesses never reopened.

Federal prosecutors advised that he and his brother had taken out $750,000 in insurance on his hookah lounge just weeks before setting the blaze. He later admitted in court to charges connected to insurance fraud and arson.

Natasha Darcy Found Guilty of Murder After Claiming Her

The Compact Book of Adjusting Property Insurance Claims – Third Edition

Available as a Kindle book.Available as a paperback.

The Compact Book on Adjusting Liability Claims, Third Edition

A Manual for the Liability Claims Adjuster Newly Updated and Edited

Available as a Kindle book Available as a paperback.

“It’s Time to Abolish The Tort of Bad Faith”

The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence.

Available as a paperback here. Available as a Kindle book here.

Legal Disclaimer

ZIFL is made available by the publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using ZIFL you understand that there is no attorney client relationship between you and the publisher. ZIFL should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Zalma's Insurance Fraud Letter