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True Crime of Insurance Fraud Video Number 67



See the full video at https://rumble.com/v13iw9q-true-crime-of-insurance-fraud-video-number-67.html and at https://youtu.be/z_MSwzqJtLw

Deriving from stories where I was personally involved, this story comes from the US Tenth Circuit Court of Appeal.

An insurer made claims against its insured for fraud and unfair enrichment. The Tenth Circuit was asked to determine whether Colorado law allows an insurer to reclaim a settlement payment made on behalf of its insured for fraud.

The insured fraudulently obtained insurance for his inpatient care center, and when the insured was sued by a previous patient, the insurer took over the insured’s defense, subject to rights. Even after finding out that the insured had fraudulently obtained the insurance, the insurer settled with the former patient under pressure from the insured and threats of litigation in bad faith. The insurer sought to reclaim the settlement payment from its insured.

IN Evanston Insurance Company v. Aminokit Laboratories, Inc., No. 19-1065, DC No. 1: 15-CV-02665-RM-NYW, United States Court of Appeals for The Tenth Circuit (judgment of 18 March 2020). Aminokit Laboratories, Inc., a Colorado Corporation, owned and operated an addiction treatment center in Lone Tree, Colorado. On October 19, 2014, Aminokit obtained insurance for this treatment center from Evanston Insurance Company. The policy included “outpatient drug / alcohol rehab services[.]“To ensure the policy, Aminokit made several material misstatements and omissions.

For example, Aminokit failed to disclose that it had overnight beds for its patients, but instead claimed that it operated only between 10:00 and 17:00 Aminokit also wrongly denied that any of its employees had ever been evaluated or treated for alcoholism or drug addiction and incorrectly presented the circumstances under which its CEO had lost his chiropractic license.

Brandon Lassley, a former Aminokit patient, sued Aminokit, Dr. Jonathan Lee (Aminokit’s Chief Medical Officer) and Tamea Rae Sisco (Aminokit’s CEO) in the Colorado District. Evanston initially refused to defend Aminokit, concluding that the claims were outside the scope of the allegations, as they were alleged to be intentional and deceptive.

Lassley changed his complaint and added government claims against Aminokit and Dr. Lee for negligence and breach of trust. Evanston, who again concluded that no coverage was offered for the Lassley process, but due to the change, Evanston accepted Aminokit’s defense “subject to a full reservation of rights – including the right to withdraw the defense and the right to seek compensation from Aminokit… while it s[ought] a declaration of its rights and obligations under the policy. “

In a mediation, Aminokit’s lawyer, Jerad West, pressured Evanston to pay the full settlement amount of $ 260,000 demanded by plaintiff Lassley by threatening to make a malicious claim against Evanston. In the messages that followed, Evanston made it clear to West that if the case was resolved, it would “seek compensation for the full cost of defense and indemnity.” Faced with the deadline and the threat of litigation in bad faith, Evanston agreed to fund the $ 260,000 settlement, while reserving the right to seek full compensation from Aminokit.

In a declaratory relief action brought before the payment, Evanston had requested a declaration that no defense or damages were due under Aminokit’s insurance for the Lassley case and claimed unjust enrichment and demanded reimbursement of legal costs and settlement payment in the Lassleyit case from Dr. Aminok. Lee and Sisco, as the claims and damages were not covered or can not be covered under Colorado law and public order.

The last two claims allege that Aminokit and Sisco had made fraudulent misrepresentations and withholdings in Aminokit’s insurance application and claimed damages for this fraud, including the settlement payment.

Aminokit’s lawyers withdrew and Aminokit failed to get a new assistant. The insurer, in due course, received a payment remark against Aminokit and the district court handed down a judgment holding Aminokit liable to compensate Evanston for the settlement payment as damages for both fraud and unfair profit of $ 427,280.30 ($ 286,407.36 for the settlement payment $ 467, 467, 36 USD for the settlement payment0, 467 USD). and $ 77,568.87 for pre-assessment interest).

When a defendant questions a default judgment, he acknowledges the well – founded facts of the complaint and loses his ability to dispute those facts. But even in bankruptcy, a defendant is not prohibited from questioning the legal adequacy.

Under Colorado law, the fraudulent party can recover damages that are a natural and immediate consequence of the fraud. The damages must stem from the plaintiff’s trust in the fraud. In order to claim damages from alleged fraudulent statements, the plaintiff must establish harmful reliance on the statements.

Evidence showed that Evanston would not have issued the policy if Aminokit had disclosed or communicated the true facts of its activities. Aminokit argued that because Evanston knew of the fraud when it settled, it could not have relied on the fraud when it agreed to finance the deal. In general, a fraudulent party can not claim damages for the period after the victim discovered the fraud, as he no longer has any basis for relying on erroneous representations. However, if the fraudulent party discovers the fraud after significant performance or where it would be financially unreasonable to terminate the relationship, he can confirm or continue the agreement and then sue for his entire damages.

The Tenth Circuit concluded that it would have been “economically unreasonable” for Evanston to refuse to pay the settlement as this would have designated Evanston for a bad faith lawsuit and its insured by a judgment greater than the settlement amount in the case. went to trial.

An insurer owes its insured an obligation of good faith and fair handling. Violation of this obligation may result in a “bad faith” claim against the insurer, assessed according to a standard of reasonableness. In this case, Evanston was rightly concerned about a potential lawsuit from Aminokit in view of the threats made by its lawyer after Evanston initially refused to pay the settlement. After learning of the fraud, Evanston was not in a position to abandon his defense without risking significant liability, or at least incurring significant legal costs from defending a trial in bad faith. In the light of these considerations, the Tenth Circuit concluded that the settlement payment was a natural and immediate consequence of Aminokit’s fraud.

Colorado has adopted a general policy against insurance fraud. Allowing insured persons to receive the benefit of the insurance cover, even when they have obtained it in a fraudulent manner, would promote – not discourage – insurance fraud. It would signal to potential fraudsters that if they can convince their insurance company to settle through the threat of litigation in bad faith, they will benefit from their fraud. Such an outcome would not be in line with Colorado’s general policy. Therefore, the Tenth Circuit concluded that Evanston could reclaim the settlement payment made on behalf of Aminokit as fraudulent damages.

Insurance fraud should never be allowed to profit from the fraud. As the insurance was subject to termination or annulment as a result of a manifest and acknowledged fraud, the insured had no right to defense or indemnity. However, since the fraud was not discovered until after the insurer agreed to defend subject to rights, it had no good way of escaping the obligation without being sued in bad faith claiming both contract and damages. The insured’s threat forced the insurer to finance the settlement and claim compensation.

The Tenth Circuit upheld the right to a refund and hopefully the defendants have sufficient funds to pay the sentence. Since Aminokit did not respond to the insurance company’s action and allowed a third-party judgment to be issued, the chances of obtaining the judgment are small.

If the insurer is unable to recover the judgment, the fraud was successful.

Damages in bad faith often prevent insurers from allowing themselves to become willing victims of fraud because of the threat of damages. In cases where the victim receives a verdict against the fraudsters is dissuasive, it is only useful if the fraudsters have some assets that the insurer can collect. It is best to ignore the threat and take your chances if the insurer has sufficient evidence to establish that it has been defrauded.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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