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Department of Insurance Takes Tough Stand Against Fraud Director Covington Releases Top10 Fraud List at Insurance Fraud

Declaring that insurance fraud is the cause of significantly higher insurance premiums for the average Ohio family, Ohio Department of Insurance Director Lee Covington condemned the fraudulent behavior by insurance consumers and rogue agents during his remarks at the 2002 Insurance Fraud Seminar today.

“Insurance fraud costs American families nearly $1,000 per year,” said Covington. “It is tax imposed on each American by criminals. We must do everything in our power to prevent and combat insurance fraud.

“Insurance fraud is not a ‘victimless crime,’ Covington added. “We all pay for it in higher insurance premiums and higher costs for goods and services. The Department of Insurance is committed to the fight against insurance fraud and we will continue our work with insurance professionals and law enforcement officials to aggressively pursue and prosecute these criminals.”

At the Department of Insurance, the Fraud and Enforcement Division is responsible for investigating insurance crimes.

Fraud Cases: The Division works to detect, prevent, investigate and assist in the prosecution of consumer/medical provider insurance fraud. The division investigates complaints of persons suspected of fraudulently attempting to obtain insurance or to receive a benefit from an insurance company. It initiates criminal proceedings with the appropriate county, state or federal enforcement agency, also working closely with investigators employed by insurance companies and various federal state and local law enforcement agencies.

Enforcement Cases: The Division also investigates allegations of misconduct by agents and conducts background investigations on applicants for agent licenses. The Ohio Revised Code sets minimum standards of agent conduct for the protection of insurance consumers, and violations may result in the suspension or revocation of an agent’s license, fines or other sanctions on the licensee. Allegations of criminal conduct are referred to local law enforcement for criminal prosecution.

The Department’s top ten insurance fraud cases from 2001 are listed below:

1. AGENT COVICTED OF ANNUITY FRAUD BY THEFT

An investigation of Beverly, Ohio agent Harry D. Houser by the Department, the Beverly Police Department and the Washington County Sheriff’s Office indicated that he was stealing money from his insurance clients. Between October 23, 1998 and September 19, 2000, he collected about $350,000 for annuities from various clients but failed to remit the money to the insurance company. According to Department investigators, Houser allegedly collected annuity premiums from six couples and one individual but failed to obtain any of the annuities from American Life, the insurer. In several cases, Houser is accused of issuing fictitious annuity certificates to his victims and in four others, he is accused of issuing fictitious annuity statements and making monthly interest payments himself in order to cover his crime. Houser’s license was revoked and he was convicted under the state’s RICO statute, a second-degree felony, and sentenced to five years in prison.

2. TITLE AGENT EMBEZZLES $2.5 MILLION

Gloria Long, the owner of Midwest Title Company in Powell, Ohio, embezzled $2.5 million from the title company. Acting on a tip, department investigators discovered that Long was accepting money for title insurance but not remitting the money to the insurance company. Her insurance license was revoked and criminal charges are pending.

3. CINCINNATI AGENT RIPS-OFF CONSUMERS IN LIFE INSURANCE SCAM

George Fiorini, a Cincinnati insurance agent, used his insurance license to sell life policies that his consumers did not need. Beginning in December of 1997 and continuing through December of 1998, Fiorini required six individuals to purchase life insurance polices from himself in order to participate in an investment opportunity called “I.G.W. Trust” also referred to as “10 Percent Income Plus Plan. Between December of 1997 and June of 2001, Fiorini collected approximately $315,000 from four individuals with the intended purpose of investing in his I.G.W. Trust. Most of the $315,000 remains unaccounted for. Fiorini admitted to the Ohio Department of Commerce, Division of Securities that the I.G.W. Trust does not exist. The Federal Bureau of Investigation and the Internal Revenue Service assisted the Department of Insurance in its investigation. Fiorini’s insurance license was revoked and a criminal investigation continues.

4. BANK EMPLOYEE MISAPPROPRIATED $128,000 OF LIFE INSURANCE CASH VALUE

While employed at a bank, Linda J. DePaolo, Avon, misappropriated approximately $128,000 of the cash value of a life insurance policy from a client. On three occasions DePaolo withdrew funds from the client’s life insurance account by forging the client’s signature. She later claimed that the money was a gift. The Department investigation revealed that the money was not a gift. Her insurance license was revoked and a criminal investigation continues.

5. DEPARTMENT REVOCATES LICENSES OF FATHER-DAUGHTER TEAM

The Baron Agency, Toledo, is owned and operated by father and daughter, James M. and Abigail S. Bower. Both Bowers were accused of six counts of misappropriating or converting to their own use money belonging to policyholders. Between May 7, 1999 and September 29, 1999, the duo collected $9,100 in premiums from three couples, one individual and one business, but failed to remit the payments to an insurance company. Department investigators, with the assistance of the Lucas County Police, seized materials and computers from the agents’ office. The Department issued a Cease & Desist Order for both Bowers. There were multiple charges of misappropriation of premiums and deceptive practices on accord binders issued by both Bowers. Their agent licenses were revoked and a criminal investigation continues.

6. VEHICLE-RELATED FRAUD TOTALED $500,000

Henry Guy Jones, of Columbus and Atlanta, recorded the license plate numbers and locations of U-Haul trucks. He would later use the information to file false accident reports claiming personal injury and damage to computer equipment he claimed was in the vehicle at the time of the accident. He used the same computer serial number in 20 false reports. Jones would also acquire vehicle identification numbers from vehicles in Georgia and subsequently obtain abandoned vehicle titles for those identification numbers in Ohio. He would then insure this vehicle and later report the vehicle stolen to collect the insurance money. Department investigators determined that the fraud totaled $500,000. Jones was sentenced to four years in prison and ordered to pay restitution of $150,000.

7. BUSINESSMEN CAUGHT STAGING ACCIDENT AND MAKING FALSE CLAIM FOR $42,584

Neil Fleisher, an employee, and Bobby Carter, owner of a lighting business in Cincinnati, reported to the business’ insurance company a loss of $42,584 when several ceiling grids collapsed in the showroom causing damage to several lighting fixtures. After receiving a tip, the Department investigator revealed that Fleisher and Carter cut the cables supporting the grids for the purpose of collecting insurance money to repair old damage. Both plead guilty in Hamilton County Court to one count of theft and two counts of insurance fraud and were sentenced to two years of community service and ordered to pay full restitution.

8. FALL HAPPENED ON SKI SLOPES – NOT AT HOME

Kathy Stelluto of Austintown, Ohio, notified her home’s insurance company that she slipped and fell at her home injuring her right knee and that surgery would be needed to repair the knee. A department investigation revealed that Stelluto injured her knee while skiing in Colorado. She pleaded guilty to one count of insurance fraud in Mahoning County Court and was placed on one-year probation and ordered to pay $29,000 in restitution.

9. INSURED PURCHASED POLICY AFTER BURGLARY

Keisha Miller made a false claim to her insurance company in the amount of $10,000 for items taken from her residence in a burglary. A Department investigator discovered that Miller purchased her policy after the burglary had occurred. Miller pleaded guilty to one count of insurance fraud and two counts of theft in Franklin County Court. She was sentenced to six months in jail, fined $1,000, and ordered to pay $2,000 in restitution.

10. NATIONAL VIATICAL ASSOCIATION PRESIDENT COMMITTED $4 MILLION VIATICAL FRAUD

Cincinnati resident Deborah Rhoades, president of the National Viatical Association, conspired with others to defraud life insurance companies throughout the United States of $4,470,000 by submitting fraudulent life insurance polices. Rhoades recruited terminally ill individuals who, with her assistance, would purchase a life insurance policy by lying about their medical condition, a practice known as “cleansheeting.” Rhoades then brokered these fraudulent policies to viatical companies who sold them to unsuspecting investors. The Ohio Department of Insurance, participated in this national investigation along with several federal agencies. Rhoades pleaded guilty. The ongoing investigation has uncovered additional fraud exceeding more than $100,000,000.

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