Thank you for reviewing company and industry highlights. If you would like additional information on the topics discussed, please feel free to contact us.

July 2006

State: California

Area of Interest: Insurance Commissioner John Garamendi Announces Arrests of Family Business Owners for Grand Theft, Workers' Compensation Fraud and Payroll Tax Evasion - State’s audit of contracting business shows underreporting of employees’ wages by $1.9 million; SCIF’s audit shows business owes $2.7 million in additional premiums.

The residents of Elverta, were arrested June 1 and each charged with one felony count of making a false or fraudulent statement for the purpose of reducing premium, rate, or cost of workers’ compensation insurance; one felony count of grand theft; one felony count of willful failure to supply true information with the intent to evade payroll tax; and one felony count of willful failure to collect, truthfully account for and pay payroll tax. Studer, a resident of Antelope, was arrested on one felony count of making a false or fraudulent statement for the purpose of reducing premium, rate or cost of workers’ compensation insurance; one felony count of grand theft; and one felony count of assisting in supplying a false or fraudulent report to the Employment Development Department (EDD).

All three suspects were booked into the Sacramento County Jail with bail set at $500,000 for all three suspects. If convicted, each could be fined up to $50,000 and/or receive five years in prison or double the value of the fraud, whichever is greater.

During investigator interviews with former and current employees, it was indicated that employees received two paychecks per pay period; one check from a payroll account with deductions, and one check from a general account without deductions. The check from the general account was allegedly for reimbursement for travel and meals. The total amount of the two checks equaled one week’s salary. It was also revealed during employee interviews that the hourly rate reflected on their paychecks was not the rate reported to SCIF. The rate reported to SCIF was higher, and therefore generated a lower monthly premium. It was found that most employees were being paid anywhere from $8 to $17 per hour. Investigators contend that North Pointe reported to SCIF that all employees earned more than $21 per hour.

Source: State of California

State: Florida

Area of Interested: CFO Gallagher Releases Annual Top 10 Fraud List

Tom Gallagher, Florida’s chief financial officer, released the Department of Financial Services’ annual Top 10 Fraud List summarizing 10 of the costliest or boldest securities, financial and insurance fraud scams investigated by the department’s Division of Insurance Fraud (DIF) and resulting in convictions in the fiscal year that began July 1, 2005, and ends June 30. These 10 cases represent nearly $15 million in fraud. The list is being released as part of Insurance Fraud Prevention Week in Florida, which continues through Saturday.

The top 10 fraud cases show fraud is not only costly but also dangerous. In one case six people died as a result of an Apalachicola doctor over-prescribing pain medications, and in another case post-hurricane construction workers were put to work without workers’ compensation coverage. In other cases, disabled and elderly citizens were exploited. The department offers up to $25,000 for information that directly leads to an arrest or conviction in a fraud scheme.

2005-2006 Department of Financial Services’ Top 10 Fraud List

First Do No Harm – Dr. Thomas Merrill of Magnolia Medical Clinic in Apalachicola was convicted in January of 98 felony counts stemming from his over-prescribing of controlled substances to patients, six of whom died of drug overdoses.

Classic Ponzi Scheme – Two Palm Beach County men were each sentenced to 25 years in prison after they pleaded guilty to what detectives called a classic Ponzi scheme. The men convinced investors to invest in American Real Estate Investors, Inc., a company that purported to invest in local real estate. Investors were promised a return of up to 9 percent. The investigation found that the men never invested the money as promised and instead diverted $1.2 million for their own use.

Preying on the Elderly – A former insurance agent who organized an elaborate bait-and-switch scheme that systematically defrauded more than 1,200 South Florida seniors will spend 30 months in prison. His scheme targeted senior citizens between the ages of 75 and 94 to switch their health insurance to lower-cost policies, overbilled them and then applied the money to additional life insurance policies without the victims' knowledge.

Empty Promises – Two men who sold empty promises and bogus health insurance plans to tens of thousands of people in Florida and 43 other states can be assured themselves of one thing – they will spend time in prison.

A Friend Indeed – An individual is facing six to eight years in prison -- plenty of time to think about how he bilked a friend and several others out of more than $1 million. The investigation began in early 2005 when the department received an allegation that he sold fictitious annuities, valued at $50,000, to a friend.

Sing it from the Rooftop – A Louisiana roofing contractor who came to Florida to profit from hurricane-damaged homes in Central Florida didn’t do himself or his workers any favors. He was arrested for presenting false certificates of liability insurance (third-degree felony) and working without workers' compensation insurance (second-degree felony) and was ordered to participate in the Pre-Trial Diversion Program and pay a $10,000 fine and investigative costs.

Trust Fund Tackle – Her boss trusted her with his mail, phone calls and business accounts, but clearly shouldn’t have.

A ‘Churning’ Sensation – Tampa Insurance Agent “churned” up a big mess for himself. Churning is the industry term for an agent selling or creating a new policy only to earn the commission. The agent churned up thousands of dollars in fraudulent commissions for himself by pilfering money from existing customers’ policy premiums and falsifying life insurance applications for nearly 60 customers in Pinellas and Hillsborough counties.

A Cash Infusion – An individual was approaching patients at St. Anthony’s Out-Patient Clinic and offering $100 a week and grocery coupons to seek HIV-infusion treatment at North Tampa Medical Center. A Detective went to the clinic and was approached by the individual, who offered the detective $100 a week and a $50 Kash and Karry credit card if he agreed to get the treatments.

Double Rip-Off – A dozen individuals have pleaded guilty to purchasing the identities of unsuspecting customers at a Miami auto dealership and using the information to create driver licenses for imposters to present at area clinics for treatment of alleged injuries from auto crashes. The crashes occurred on paper only and the ringleader was paid cash by several personal injury clinics for “patients.”

Source: State of Florida

State: New York

Area of Interest: U.S. Labor Department Secures Back Wages for Two Fired Rochester, N.Y., Workers

Two employees of Cannon Industries Inc. in Rochester, fired nearly three years ago for reporting health and safety concerns, will be paid $35,000 in back wages as the result of a consent judgment secured by the U.S. Department of Labor.

The employees were fired in August 2003, after they informed the company and the U.S. Department of Labor's Occupational Safety and Health Administration (OSHA) of their concerns about the safety of certain machines and chemicals used in the workplace. The workers filed a complaint with OSHA alleging their terminations violated whistleblower provisions of the Occupational Safety and Health Act. OSHA's investigation upheld the complaint and the agency attempted to secure from the company reinstatement of the workers and back wages.

Additionally, the judgment prohibits officials of Cannon Industries from discriminating against workers who report safety and health complaints, requires company officials to post a workplace notice informing employees of the consent judgment and orders company officials to remove any references to discharge or suspension from the personnel files of the two workers who were fired.

Section 11(c) of the Occupational Safety and Health Act protects workers' right to file a complaint with OSHA or bring safety and health issues to the attention of their employer.

Source: Occupational Safety and Health Administration

State: Connecticut

Area of Interest: Smith's Aerospace Components Fined $167,500 Following Partial Amputation Accident

A partial hand amputation at a Manchester, Conn., airplane parts manufacturing plant has resulted in fines totaling $167,500 from the U.S. Labor Department's Occupational Safety and Health Administration (OSHA).

Smith's Aerospace Components Inc. was cited for seven alleged repeat and five alleged serious violations of safety standards following an inspection by OSHA's Hartford area office that began Feb. 21, when a worker lost a thumb and part of a finger in an unguarded hydraulic press. The inspection found several instances where this press and other machines either lacked guarding to prevent employee contact with moving parts or guarding mechanisms had been bypassed, rendering them ineffective.

The alleged repeat violations included failure to provide adequate fall protection, failure to correct defective lifting slings, unguarded grinders and failure to inspect mechanical power presses. The Manchester plant was cited by OSHA for similar hazards in 2004 and 2005. A repeat citation is issued when an employer has previously been cited for a similar hazard and that citation has become final.

Source: Occupational Safety and Health Administration

State: Ohio

Area of Interest: Insurance Department Announces Ohio Medical Malpractice Rate Decrease of 1.5 Percent Market continuing to stabilize

Department of Insurance Director Ann Womer Benjamin announced that three of the five largest medical malpractice insurers in Ohio have decreased rates by an average of 1.5 percent in 2006.

Curative action taken by the Ohio Department of Insurance and Ohio Legislature that have stabilized rates:

Tort-reform: Medical malpractice non-economic damages were capped in 2003 by tort reform legislation. The measure was taken to control costs, since premiums are driven primarily by claims costs and lawsuit defense and settlement costs.

Data collection: The Department for the first time is collecting medical liability data as required by a new law. The data, which includes insurers’ costs of defending medical liability claims, and paying judgments and settlements, will allow for more precise monitoring of the market and more informed policy decisions.

Rate review: A new rule proposed by the Department and recently enacted requires medical liability insurers to justify their rates to the Department every year, even if they plan no changes to them.

Ohio Medical Malpractice Insurance Commission: The Commission – chaired by Director Womer Benjamin – issued its final report in April 2005 to Governor Taft, the Ohio Legislature and other interested stakeholders. The report suggested the creation of a “patient safety center” to help prevent medical errors, a pilot medical malpractice docket for lawsuits, and alternative dispute resolution mechanisms, among other measures.

Source: State of Ohio

Area of Interest: OSHA Moves to Prevent and Reduce Injuries, Illnesses and Deaths in New England's Cut Stone Products Industries

The U.S. Labor Department's Occupational Safety and Health Administration (OSHA) has launched a new outreach and enforcement effort aimed at preventing and reducing injuries, illnesses and fatalities among workers in New England's cut stone products industries.

The new regional emphasis program will focus on workplaces that cut, shape, finish, handle or distribute granite, marble and other natural or engineered stone or stone products. The industry, primarily made up of smaller employers, has grown rapidly in the past few years, prompted by an increased demand for countertops and other stone products. At the same time, fatality and injury rates among its workers have increased. In New England, six workers in the industry have died since August 2004, five of them crushed by stone slabs.

Hazards to which industry workers can be exposed are crushing by improperly stored or handled stone slabs; silicosis and other lung diseases from exposure to airborne concentrations of silica caused by grinding and cutting; amputation hazards from unguarded machinery; musculoskeletal injuries from using pneumatic tools; and hearing loss from noise overexposures.

Source: Occupational Safety and Health Administration

"Enjoy the little things, for one day you may look back and realize they were the big things."
- Robert Brault