Profits Are Where You Make Them
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Posted on April 29, 2022 by Barry Zalma
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On his 50th birthday Louie concluded he was a failure. For thirty years he sold insurance to the public. For a $40 commission Louie would often spend hours explaining a tenants’ homeowners policy to a client. The next year, because another broker promised to save the client $5 in premiums, they did not renew and he received no commission.
Louie had always been a dedicated and faithful insurance broker. He put his clients’ interest above his own. If he could save them money (even if it would cost him a commission) he placed them with the least expensive insurer. In return he saw nothing but derision and disloyalty.
Louie decided to change his life now that he was middle-aged and a member of the AARP. Considering his small earnings, retirement at age sixty-five seemed almost impossible. He needed a means to make sufficient money in a short time to retire. His knowledge of insurance and his salesman’s understanding of the greed of his customers brought him a solution.
EMPLOY IV YOU was born.
Louie went to each of his commercial insurance clients with his plan. He explained that if they allowed him to become the employer of their employees, the cost savings in benefit plans would offset his fee. The business’ overall employee cost, he explained, would be less. He would charge each customer 3% of the gross salary of each employee and the actual cost of their benefits. For the 3% fee, he would file all employment forms and issue W-4 and W-2 forms; collect from his customers all employment taxes and pass them to the government; fill out all the forms and give each employee a “cafeteria” plan of benefits. The employees would be happy and the employers would be happy. The employer would have absolute control over the employees and Louie would merely be their titular employer.
Although the idea sounded too good to be true, 80% of his customers decided to take Louie up on the proposition.
EMPLOY IV YOU then applied for, and obtained, a workers’ compensation insurance policy for all of its employees. Louie, being a frugal man, advised the workers’ compensation insurer that he had 400 employees all working in a clerical capacity (the lowest workers’ compensation rate available).
Other than paying the premium that he obtained in advance from each of his clients, Louie’s only other expense was issuing pay checks. A payroll service charged him only $300 a month to issue all the checks and prepair the reports for him. He paid a bookkeeper only $8 an hour to take care of all the other bookkeeping requirements of his business. EMPLOY IV YOU made more profits in the first two months of business than Louie had made in any one of the last five years.
By the time Louie was fifty-five, he had invested his profits into a portfolio of stocks, bonds and mutual fund shares conservatively valued at $3,000,000. The earning from the portfolio would support Louie in comfort through his retirement.
EMPLOY IV YOU’s workers’ compensation insurer, on receiving Louie’s reports of earnings, reduced his premium each year. Louie used the “audits” to increase his profits for five years in a row.
On the fifth anniversary of the business, Louie’s 55th birthday, he decided he had made enough money and offered the business for sale to a legitimate employee leasing business. Louie took the $2,000,000 he received from the purchase, added to it the cash from the sale of his stock portfolio and moved it to Kingston, Jamaica.
He purchased a villa overlooking the sea and is living out his retirement happily.
ZALMA OPINION
Insurance fraud is an equal opportunity crime. It is committed by every race, religion, national origin, gender, sexual preference or occupation, even an insurance agent. It is a crime regardless of who commits the crime or how successful the criminal. A lack of investigation and unwarranted trust allowed Louie to successfully defraud multiple insures and those for whom he sold his services. When something, like Louie’s deal, seems to be too good to be true, it is.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an 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 an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].
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Concealing a Weapon Used in a Murder is an Intentional & Criminal Act
Post 5002
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In Howard I. Rosenberg; Kimberly L. Rosenberg v. Chubb Indemnity Insurance Company Howard I. Rosenberg; Kimberly L. Rosenberg; Kimberly L. Rosenberg; Howard I. Rosenberg v. Hudson Insurance Company, No. 22-3275, United States Court of Appeals, Third Circuit (February 11, 2025) the Third Circuit resolved whether the insurers owed a defense for murder and acts performed to hide the fact of a murder and the murder weapon.
FACTUAL BACKGROUND
Adam Rosenberg and Christian Moore-Rouse befriended one another while they were students at the Community College of Allegheny County. On December 21, 2019, however, while at his parents’ house, Adam shot twenty-two-year-old Christian in the back of the head with a nine-millimeter Ruger SR9C handgun. Adam then dragged...
Renewal Notices Sent Electronically Are Legal, Approved by the State and Effective
Post 5000
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Washington state law allows insurers to deliver insurance notices and documents electronically if the party has affirmatively consented to that method of delivery and has not withdrawn the consent. The Plaintiffs argued that the terms and conditions statement was not “conspicuous” because it was hidden behind a hyperlink included in a single line of small text. The court found that the statement was sufficiently conspicuous as it was bolded and set off from the surrounding text in bright blue text.
In James Hughes et al. v. American Strategic Insurance Corp et al., No. 3:24-cv-05114-DGE, United States District Court (February 14, 2025) the USDC resolved the dispute.
The court’s reasoning focused on two main points:
1 whether the ...
Rescission in Michigan Requires Preprocurement Fraud
Post 4999
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Lie About Where Vehicle Was Garaged After Policy Inception Not Basis for Rescission
This appeal turns on whether fraud occurred in relation to an April 26, 2018 renewal contract for a policy of insurance under the no-fault act issued by plaintiff, Encompass Indemnity Company (“Encompass”).
In Samuel Tourkow, by David Tourkow v. Michael Thomas Fox, and Sweet Insurance Agency, formerly known as Verbiest Insurance Agency, Inc., Third-Party Defendant-Appellee. Encompass Indemnity Company, et al, Nos. 367494, 367512, Court of Appeals of Michigan (February 12, 2025) resolved the claims.
The plaintiff, Encompass Indemnity Company, issued a no-fault insurance policy to Jon and Joyce Fox, with Michael Fox added as an additional insured. The dispute centers on whether fraud occurred in...
Insurance Fraud Leads to Violent Crime
Post 4990
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CRIMINAL CONDUCT NEVER GETS BETTER
In The People v. Dennis Lee Givens, B330497, California Court of Appeals, Second District, Eighth Division (February 3, 2025) Givens appealed to reverse his conviction for human trafficking and sought an order for a new trial.
FACTS
In September 2020, Givens matched with J.C. on the dating app “Tagged.” J.C., who was 20 years old at the time, had known Givens since childhood because their mothers were best friends. After matching, J.C. and Givens saw each other daily, and J.C. began working as a prostitute under Givens’s direction.
Givens set quotas for J.C., took her earnings, and threatened her when she failed to meet his demands. In February 2022, J.C. confided in her mother who then contacted the Los Angeles Police Department. The police ...
Police Officer’s Involvement in Insurance Fraud Results in Jail
Post 4989
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Von Harris was convicted of bribery, forgery, and insurance fraud. He appealed his conviction and sentence. His appeal was denied, and the Court of Appeals upheld the conviction.
In State Of Ohio v. Von Harris, 2025-Ohio-279, No. 113618, Court of Appeals of Ohio, Eighth District (January 30, 2025) the Court of Appeals affirmed the conviction.
FACTUAL BACKGROUND
On January 23, 2024, the trial court sentenced Harris. The trial court sentenced Harris to six months in the county jail on Count 15; 12 months in prison on Counts 6, 8, 11, and 13; and 24 months in prison on Counts 5 and 10, with all counts running concurrent to one another for a total of 24 months in prison. The jury found Harris guilty based on his involvement in facilitating payments to an East Cleveland ...
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To Dispute an Arbitration Finding Party Must File Dispute Within 20 Days
Post 4988
EXCUSABLE NEGLECT SUFFICIENT TO DISPUTE ARBITRATION LATE
In Howard Roy Housen and Valerie Housen v. Universal Property & Casualty Insurance Company, No. 4D2023-2720, Florida Court of Appeals, Fourth District (January 22, 2025) the Housens appealed a final judgment in their breach of contract action.
FACTS
The Housens filed an insurance claim with Universal, which was denied, leading them to file a breach of contract action. The parties agreed to non-binding arbitration which resulted in an award not
favorable to the Housens. However, the Housens failed to file a notice of rejection of the arbitration decision within the required 20 days. Instead, they filed a motion for a new trial 29 days after the arbitrator’s decision, citing a clerical error for the delay.
The circuit court ...
