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State: Calif.
Work Comp Fraud; Stop the Hypocrisy: [2006-11-18]
By David J. DePaolo

It seems that fraud and workers' compensation just belong together. The sad part is that those who commit the most heinous criminal acts and cause the greatest civil damage always seem to be just out of reach of the "long arm of the law." What's worse, is that we as an industry not only seem ambivalent towards this criminal behavior, some even seem to condone it!

Just last week it was revealed that State Fund board Chairwoman Jeannie Cain told the Los Angeles Times that SCIF directors, Frank DelRe and Kent Dagg, stepped down following questions about whether their membership on the board was appropriate while the two operated businesses that collected millions of dollars in fees from the fund.

This news, by the way, is nothing new -- our own Jim Sams uncovered that story years ago, but after the director of that inquiry (John Dunlap) resigned Sams didn't think newcomers would have the chutzpah to actually do it again or that our esteemed Governor Schwarzenegger would overlook obvious conflicts of interest in making appointments.

It seems that Sams was wrong. The pervasive greed of those feeding off of the workers' compensation gravy train is so endemic that there is no sanctity, no island of honesty, not one bit of redemption that any amount of reform or public humiliation can rectify.

The brokerage community has been successful for many years in steering the fraud debate towards the most minuscule part of fraud: injured workers; a segment of the fraud population that is so small that insurance companies comically seek big attention for thwarting a criminal act that typically does not amount to more than $10,000 in damage.

Where is the outcry, however, when brokers suck $4 billion out of a system on clever reinsurance chicanery (see our various stories and articles on Unicover) so they can make a half-billion dollars in fees? Why isn't the Employer's Fraud Task Force and other self-appointed overseers of malicious intent and do-gooders directing their energies towards identification of the white collar criminals guilty of bid rigging? Where are our district attorneys, whose offices are flush with workers' compensation fraud fighting money, when clear evidence of outright insurance company misreporting of work comp premium occurs? Is Eliot Spitzer, formerly New York's Attorney General and now that state's governor, the only politician who seems to be bothered by large scale white collar crime?


I am sick and tired of the self-congratulatory insurance company press releases boasting about small time fraud busts (SCIF is ironically guilty of this media puffery). I am sick and tired of employers blaming injured workers for their sky-rocketing insurance premiums when typically the blame more often than not should be directed at recalcitrant brokers milking a commission schedule because of under-regulation. I'm sick and tired of lawmakers putting the blame on physicians, the vast majority of whom are just trying to do their job in the practice of medicine when they appoint criminals to public oversight positions. I'm sick and tired of a paralyzed legislature and executive branch who would prefer to stick their heads in the sand while a major economic force in this state is allowed to be controlled and perverted to serve the interests of big East Coast financial conglomerates.

But mostly I'm sick and tired of us in the industry putting up with this crap. The news of this scandal, and follow up stories, barely registered in the top 30% of all news published on WorkCompCentral for the month. In fact, some comments made about the story were indicative not only of apathy, but virtual acceptance! As if it was OK to rip off the system if you have a white collar on! I am ashamed of our industry. I am ashamed that we view this behavior with ambivalence. I am ashamed that we tolerate such wrongful behavior.

To make matters worse, the laws we have in place and which would seem to give our law enforcement agencies the ability to seek redress seem simply to be another excuse to grab money!

For instance, in 2004 the California State Auditor issued a scathing report stating that the $30 million collected from employers each year to fight fraud is wasted and that the Department of Insurance is doing a terrible job of combating fraud. And the recent SCIF debacle is a glaring example of the hypocrisy that predominates the enforcement of our workers' compensation fraud laws and the perversity of a system that is apparently without a moral rudder.

It seems to me that Misters DelRe and Dagg are likely in violation of Labor Code Section 3820. That section applies across the board to any person or entity who:
(b)(1)Willfully misrepresent any fact in order to obtain workers' compensation insurance at less than the proper rate.
(5) Knowingly assist, abet, solicit, or conspire with any person who engages in an unlawful act under this section.

Will anyone prosecute this duo for their self interested manipulations? Probably not. Does anyone care? From what I'm reading so far, probably not...

The Schwarzenegger Administration has bled all they could out of injured workers and doctors. This same administration put DelRei and Dagg in a position of abuse.

The outrage of the community should be heard all the way to Attorney General elect Jerry Brown's office, calling for a high level investigation, criminal prosecution, and civil penalties against some of the biggest fraud in the history of California workers' compensation.

If we're going to "fix" workers' compensation, fix it all the way around. Stop the hypocrisy.

David J. DePaolo is the president and CEO of WorkCompCentral.


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