The Name Game
WILLIAM D. MEADER
Just about anyone who has owned or operated a small business has purchased an insurance policy. State and local regulations mandate that a business owner obtain an insurance policy to receive a license from the appropriate regulatory agency before doing business. Contractors, cab drivers, commercial truck drivers and others search for low-cost insurance policies that satisfy the regulators' minimum requirements.
The business of insurance is highly regulated to protect the solvency of the insurer, the content of the policy and the handling of claims. In the United States, this regulation falls primarily to the individual states. Each establishes a department of insurance and hires an insurance regulator to license the insurance companies, agents and brokers that market insurance products in their state. The ultimate goal of the regulatory agency is to protect the consumer.
In the United States, an insurer that wants to sell in a specific state obtains a certificate of authority or license from the state agency. This lets the consumer know that the insurer has met the minimum capital and surplus funds to operate and pay claims. This also gives the state insurance department the authority to examine the books and records of the insurer to see that it remains solvent.
If an insurer licensed in another country can meet the regulatory requirements set by an insurance department in the United States, that company may be allowed to sell insurance to consumers in that state as a non-admitted company. The state's department of insurance reviews the company's financials and determines whether the foreign-based insurer meets the minimum level of capitalization and surplus required to do business. Non-admitted companies primarily market policies to businesses that cannot easily obtain insurance coverage from the admitted market.
Imagine that you are a truck driver, a plumber or the owner of a taxicab or roofing company, and you purchase a commercial liability policy for your business. The premiums are reasonable and the insurer is a well-known and admitted company. You have an accident and submit your claim. When you receive a letter from the insurer, you are surprised to learn that your claim has been denied. How could this happen? You paid your premiums. You call the 800 number on your policy to speak to the third-party administrator, World Market Limited. You leave several voice messages for Eric Bell, the managing director of World Market, but he does not return your call. In fact, no one from World Market will talk with you. You contact the insurer named on the declaration page of your policy, Goodtime Indemnity and Casualty, and learn that they have no record of issuing you a policy. You have a loss, no insurance, no one to pay your claim and the premiums you paid have disappeared.
This was the type of consumer complaint that insurance regulators in western states began receiving frequently one spring. As the number of complaints grew, regulators began to ask questions. Where did the consumers' premiums go, why were legitimate claims denied and who controlled the business that marketed and issued the so-called insurance policies? Who was Eric Bell?
Not Just Another Case
As a senior criminal investigator at a state's department of insurance with more than 15 years of experience, I had handled major cases before. This one was going to be different. An investigation was ongoing, but the investigator had just been promoted to a supervisory position, so he wasn't going to be much help. He moved out of his cubicle to an office, and I moved into the cubicle full of boxes of documents. There were so many boxes that the cleaning staff refused to enter because they were afraid the boxes would fall over; there were even more boxes scattered throughout the state in our nine regional offices. To top it off, my department's upper management wanted the case submitted to a prosecuting attorney immediately. In other words, I was told to write a report, get the case filed with a prosecutor and move on to the next investigation. At a time when state budgets were strained, management was not going to put many resources into this investigation. I was a team of one.
My first step was to begin a review of my colleague's work product. Dale Williams was a senior criminal investigator, and I was confident that I could review his work and write up a report quickly. As I started to go through the documents he had collected, I realized this was not going to be an easy task after all.
Dale had focused his investigation on insurance brokers who specialized in selling liability insurance to taxi drivers. To pick up fares in a city or county jurisdiction, a taxi driver has to have liability insurance (anyone who has ridden in a taxi knows that many drivers are an accident waiting to happen). The profit margin for taxi drivers is so small that they have to look for ways to cut costs, such as with cheap insurance. It was a win for the broker and a win for the driver.
When Dale started receiving complaints from cab drivers, his first step was to go to several train stations in the area and inspect the insurance cards of various taxi drivers. Under state law, a certificate of insurance had to show the insurer's name, policy number, effective dates of the policy and the broker's name who sold the policy. Dale quickly noticed a pattern in certificates he inspected: In place of a policy number was the acronym “TBD.” When Dale followed up with the insurance companies named on the certificates, representatives told him the company had not issued liability insurance to the drivers. In fact, none of the companies even sold liability insurance to taxi drivers. When Dale contacted the brokers who sold the policies and collected the premiums, they told him “TBD” stood for “to be determined”; they issued the certificates but were waiting for policy numbers to be assigned by the insurer.
The brokers told Dale that World Market Limited had marketed the taxi liability program to them and that Eric Bell was the manager for World Market. Dale learned that the claims for the taxi program were submitted to a company called United National Claims in Southern California.
The lack of a policy number and the fact that the insurance company never issued the policy was evidence that the insurance certificates were probably fraudulent. I knew I had a prosecutable case if I could determine that the brokers, Eric Bell or World Market knew the certificates were bogus. That was a big if. I still didn't know who Eric Bell was or where World Market was located. I could write up the case and submit it to a prosecutor, but without that information it would be rejected. I had more work to do. I went back to digging through the evidence in my cubicle.
In one of the boxes I found what I was looking for — a bio of Eric Bell — as part of his application for residency in a small Caribbean island. Bell had submitted the application so he could work for World Market, which was based on the island. According to Bell's bio, he was born in Massachusetts on February 22 and was 60 years old. He had lived in California, Nevada and Canada. He married Kathleen L. Rivera on July 11 in the State of Washington. Bell was hired to be the managing director of World Market, despite having no formal insurance experience. Prior to this, Bell worked as a paralegal. The personal statement also gave me Bell's Social Security, driver's license and passport numbers.
I pored over the documents and found a residency application for Rivera. She was born in Arizona on August 22 and was 55 years old. She had lived in Nevada and Canada and also had no insurance background but was hired by World Market. Eager to learn more about the couple, I ran their information through insurance licensing, motor vehicle licensing, criminal history and federal court records. The results from the Social Security Death Index stopped me in my tracks — both Bell and Rivera had been deceased for several years. Bell died in Nevada four years ago, and Rivera died in New Mexico two years ago. But that was impossible, as they were both alive and working at World Market. I could now add identity fraud to the list of charges.
Beware of Intentionally Complicated Structures
At a dead end with the identities of Bell and Rivera, I turned my attention to World Market. The company was a limited liability company that operated from the Caribbean and acted as a third-party administrator for a number of insurance companies. World Market used PO Boxes in two states to collect premiums, but policy documents were mailed from an island address. Claims were submitted to another PO Box or faxed to an 800 number and then forwarded to a claims adjuster in a western state.
World Market paid commissions to a network of insurance brokers across the United States (many of whom fell in my jurisdiction) to sell liability policies. The brokers sent liability policies. The brokers sent the insurance applications to a fax number in the islands, and then an agent at World Market would approve it and send it to an underwriter, again in my jurisdiction. To finalize the policy, the applicant sent a down payment premium and subsequent payments to a PO Box in another western state, where the box holder forwarded the funds to the islands. Someone at World Market had gone to a lot of trouble to create a convoluted system.
An insured with a claim submitted it to World Market, and it was forwarded to an adjuster in my state. After the claim investigation, the adjuster's report was sent to World Market, and the claim was usually denied. In one claim a helicopter had been damaged when it was towed across the airport parking lot; World Market denied the claim on the basis that the policy only insured the helicopter while it was parked and not moving or flying. Denials such as this forced claimants to hire an attorney to litigate the claim, delaying the process while World Market continued to collect premiums. Small claims were often paid to give the appearance that World Market was a legitimate insurer.
I conducted a search of state and national insurance licensing databases and failed to find evidence that World Market had a license to engage in the insurance business. The 25 different insurance company names that were on the policies issued by World Market were similar to the names of licensed U.S. companies. I knew from my experience that legitimate insurers collected their own premiums and underwrote and issued their own policies. They would not have used World Market in place of their own underwriting departments.
Repeat Offender
I expanded my research and found out that World Market and Bell were the defendants in a number of lawsuits alleging failure to pay covered claims. Two in particular caught my eye.
One lawsuit alleged that World Market used the name of an insurance company without authorization. World Market claimed that it had not used the insurer's name but had set up a company with a similar name. The lawsuit was settled when World Market agreed to not use the insurer's name or any similar name.
The second lawsuit alleged that Bell and World Market defrauded an insurance company by issuing policies in the company's name without authorization. The attorney for the insurer had tracked down Bell in another country and deposed him. Bell gave no information about his identity and declined to say where he lived. He said he traveled extensively and never stayed in the same place very long. He gave details about the operation of World Market that confirmed much of what I had already learned.
I found a total of ten states that filed actions against Bell and World Market and issued cease-and-desist orders. World Market's counsel responded that the company was licensed in the Caribbean and could sell insurance directly to anyone who wanted to purchase a policy. World Market denied any wrongdoing and did not stop the sale of insurance.
Piling Up Boxes
I traveled the state and interviewed policyholders and insurance brokers. The interviews confirmed the way World Market operated. The policyholders said they would not have purchased insurance from World Market if it had not been represented by top-rated U.S. companies.
Next, I secured search warrants for ten insurance offices throughout the state based on theft of premiums, material misrepresentations and aiding and abetting an unlicensed insurer to transact insurance. More boxes of evidence piled up in my cube.
I prepared an investigative summary report based on the evidence discovered so far and met with County District Attorney Larry Kubota, who told me his office did not have the resources to prosecute a case that crossed so many jurisdictions. Kubota told me to take it to the feds.
A week later I received a call from Special Agent Marge Ringer of the Federal Bureau of Investigation. Agent Ringer said she had been assigned to investigate the movement of a large amount of money from my state to the Caribbean and that she had received information that the money was from the sale of insurance. World Market was the recipient of the funds. I told Agent Ringer about my investigation and we agreed to meet at her office. I gave her a detailed summary of my findings and said the DA had declined to prosecute. Agent Ringer said she would assist me and arranged a meeting with Assistant United States Attorney (AUSA) Betty Rooney. Agent Ringer said, “You'll have 15 minutes to sell the case.” Then she said, “Get a passport; we're going to the islands.” I told her my department would never let me travel out of country, but I got a passport nevertheless.
Agent Ringer and I met with AUSA Rooney. I must have done a decent job selling the case, because after two hours of discussion, she agreed to prosecute Bell and World Market. Rooney asked Agents Chris Tiger and Jason Fitzhugh from the Criminal Division of the Internal Revenue Service (IRS) to help Ringer and me.
I brought my boxes of evidence to our new team headquarters near Rooney's office. The evidence was placed in a secure office with restricted access. We set up the room with computers, tables, chairs, a chalkboard and a copier; Agent Ringer named it the War Room. We began the laborious process of reviewing and organizing the evidence and maintaining chain-of-custody documents. We created a timeline of key events.
The IRS maintained a liaison agent in the Caribbean, and Agent Ringer contacted him for assistance. He was able to get help from the Financial Intelligence Unit (FIU) on the island. The liaison agent and the FIU investigators confirmed that World Market was on the island and sent us a physical description of the office.
Agent Ringer and I wrote a search warrant affidavit that detailed the fraud committed by Bell and Rivera and the misrepresentations made by the brokers who sold World Market policies. Agents Tiger and Fitzhugh added a description of the premium flow and how it reached World Market. Agent Rooney then reviewed the affidavit and forwarded it to the U.S. Attorney's Office and FBI Headquarters in Washington, DC. They sent it to the FIU investigators in the Caribbean, where a judge reviewed it and issued a warrant.
Agent Ringer and I made our travel plans but were held up at the last minute by a hurricane that tore across the island. Meanwhile the FIU investigators raided World Market, escorted the employees out of the office, secured the building and posted an armed guard.
Several days and 24 hours of travel later (not to mention the cajoling I had already done to get travel approval), we arrived on the island. We met with the local police and FIU agents, and they took us to World Market's headquarters. The office occupied three floors full of cubicles with desks, computers and files. It looked like a typical insurance company office. An IRS forensic computer expert collected the computer hard drives. We diagrammed the floors and listed the employees who occupied each cube. During the search we found files that showed Bell had formed more than 25 shell companies with names similar to top-rated U.S. insurers.
While on the island we interviewed some World Market employees to better understand how Bell and Rivera ran the operation. They said Bell traveled a lot and ran the company through phone calls and emails.
You Can't Plan for Everything
During our island search, Agent Ringer received information that Bell and Rivera were in Canada, so she quickly contacted the Canadian authorities and the couple was arrested. Bell maintained that the passport and identification found in his possession were his and that his true identity was Eric Bell. He was told he would remain in custody until he provided his true name. Rivera was more cooperative and explained that she was actually Pam Winkler, 55 years old and born in Florida. However, she refused to say how she obtained the deceased Rivera's identity. She was released to the United States and indicted on the fraudulent use of a passport and released on bail. She would not consent to an interview with me.
After a month in Canadian custody Bell finally gave in and identified himself as Jerome Flores, born in New Jersey. He was returned to the United States to be indicted and placed in custody without bail.
Next we began to research the background of Flores aka Bell. I discovered that he had assumed two other identities and had been married and divorced twice before meeting Winkler aka Rivera. I located and interviewed his ex-wives, who were stunned to hear he was still alive. In each case he had suddenly disappeared, leaving them with a string of debts and no money. I showed them each a current photo of Flores and they both identified him as their ex-husband.
AUSA Rooney prepared the federal indictments against World Market for selling thousands of worthless policies nationwide, amounting to lost premiums exceeding $23 million, in addition to several million dollars in unpaid claims. World Market's underwriter was indicted along with Flores and Winkler on charges that included conspiracy, wire fraud and money laundering.
A year after his arrest Flores remained in custody awaiting trial. He became ill and was transferred to a county hospital ward. Just weeks before he was scheduled to enter a guilty plea, he suffered a major heart attack and died. Our case died the same day. Flores was the key participant in the fraud, so when he died, the other defendants petitioned the court to dismiss their indictments. The court agreed and all charges were dropped.
After the indictments were dismissed, World Market filed for bankruptcy in the United States and the Caribbean. I maintained control of the evidence in the event it would be useful for the bankruptcy trustee. Three years later I received a call from AUSA Martin Beck in Alabama. He asked if I still had the evidence from the World Market case and, when I said yes, if we could meet so he could review my files. He was investigating a case involving a liability policy issued by Pam Winkler — going by the name of Angela Bixler — using the World Market office as a front for her insurance scam. She had issued a policy to a tour operator, and shortly afterward the operator had a tragic accident in which several elderly people were killed. When the tour operator submitted a claim to World Market, he was told that he did not have a policy. With the help of my evidence, Beck was able to indict the broker, along with others working for the company, on conspiracy, wire fraud and money laundering charges. I testified at a bail hearing for Pam Winkler and was finally able to present the evidence in court. The suspects in Beck's case later pleaded guilty.
Lessons Learned
The key to a successful prosecution is to focus on the legal elements of the crime from the beginning and to gather evidence that can prove these elements. When Bell intentionally formed 25 offshore companies with names strikingly similar to the names of top-rated U.S. insurers, he knew his customers would be deceived into believing that their policies were underwritten by a legitimate company. It mattered to consumers because they knew that the well-known company would pay for a loss. Bell knew that these were not real insurers when he set them up and that any representation made that they were was untrue. Without these material misrepresentations, there would not have been sufficient evidence to prove a criminal fraud.
During the course of the investigation I had to look at any civil and regulatory licensing issues with the brokers who sold the World Market policies. In a discussion with AUSA Rooney, we decided to focus on the criminal activities of Bell and World Market and not prosecute brokers for regulatory violations. Their cooperation and testimony against Bell was more important than proceeding with action against them.
When conducting an investigation that spans several states and even international boundaries, investigators should maintain a narrow focus. With hundreds of policies sold and thousands of claims unpaid, we focused on victims with large claim losses in the states where Rooney had jurisdiction.
When I began the investigation I knew that one person or a single agency could not address the case properly. A team approach was the only way to prepare a successful prosecution, and by joining forces with state, federal and international investigators, we were able to obtain the evidence needed for the indictments.
Evidence management was crucial, and we diligently documented the sources of everything. We kept chain-of-custody records and monitored the transfer of evidence from the Caribbean police to federal agents and into the United States. Any breakdown in the chain would have provided the defense with a way to attack the evidence at trial. The cost of transferring evidence was also a factor, and we had to gather funds from the agencies before moving anything.
Although my case was dismissed after Bell died, the evidence was used in a subsequent prosecution that brought Pam Winkler and four other perpetrators to justice. They were convicted in federal court, sentenced to lengthy jail terms and ordered to pay restitution. More important, consumers nationwide are no longer being victimized by this fraud scheme.
Recommendations to Prevent Future Occurrences
Educating the consumer is a key step in preventing insurance frauds of this type. Consumers need to read their insurance policy before they incur a loss. State regulators should encourage policyholders to be proactive when purchasing insurance and verify that their agent or broker is licensed. They should contact the state departments of insurance and determine if the insurer is authorized to do business in the state.
Law enforcement should develop close working relationships with regulatory agencies and insurers. When these relationships are in place, investigators can share red flags about fraud scams and work as teams to shut down the fraud while it is in the early developing stages.
The prosecutor must be brought in during the early stages of the investigation to give guidance regarding the evidence needed for prosecution. In addition, the investigator should educate the prosecutor about the insurance industry and regulations. For example, Title 18 United States Code §. 1033 prohibits people convicted of a felony that involved dishonesty or a breach of trust from being engaged in insurance unless they have obtained a waiver from a state insurance commissioner. This is an excellent tool to keep repeat offenders out of the insurance business, but, even though it was enacted in 1994, it is not fully utilized by prosecutors.
About the Author
William D. Meader, an Associate CFE, was a detective for the California Department of Insurance Fraud Division and a criminal investigator for the department's Investigation Division. During a 20-year career he investigated premium fraud, broker-agent fraud, company fraud and claimant fraud. He is recently retired and lives in northeastern Indiana. His email is [email protected].