(September 2019) - In People ex rel. Allstate Ins. Co. v. Suh, 37 Cal. App. 5th 253 (2019), the California Court of Appeal affirmed the verdict in favor of Allstate Insurance Company, finding that the defendants Christine Suh and Christina Chang violated Penal Code section 550, committing insurance fraud by procuring policyholder benefits through sham law firms.
Christine Suh and her mother, Christina Chang, developed a scheme to fraudulently obtain insurance proceeds. The defendants operated eight sham law offices, paying individual attorneys $3,000 per month to use their names and state bar license numbers. The defendants procured Allstate insureds as their “clients,” filing 318 insurance claims on their behalf – without the knowledge or authorization of the attorneys whose names and bar numbers they were using – and diverting insurance proceeds they obtained for their own personal use. Allstate sued the defendants, alleging they had violated Penal Code section 550, which makes it unlawful to submit a false or fraudulent claim to an insurance company.
After the trial court denied Suh’s ex parte application to stay the litigation indefinitely due to the district attorney’s investigation of the insurance fraud scheme, the case went to trial. The jury returned a verdict in favor of Allstate, finding that Suh committed one or more violations of Penal Code section 550 in connection with 313 insurance claims, and that Chang committed one or more violations of Penal Code section 550 in connection with 241 insurance claims.
On appeal, the defendants argued that they did not violate Penal Code section 550 because there was no evidence the insurance claims they submitted were false or fraudulent in any regard other than the fact that they were submitted by sham law firms, i.e. there was no evidence the defendants had staged accidents or claimed injuries were inflated.
The appellate court rejected this argument, finding that submitting insurance claims through a sham law firm constitutes fraud, even if the facts of the submitted claim themselves are not fraudulent.
Unlawful conduct under section 550 does not require a misstatement of fact in the insurance claim. Section 550 requires only that a person knowingly (1) present a claim that is false or fraudulent in some respect, (2) present, prepare, or make a statement containing false or misleading information about a material fact, or (3) conceal an event that affects a person's right or entitlement to insurance benefits. An insurance claim is fraudulent under section 550 and section 1871.7, subdivision (b), when it is “characterized in any way by deceit.” (State ex rel. Wilson v. Superior Court, (2014) 227 Cal.App.4th 579, 601 [174 Cal. Rptr. 3d 317].) “California law uses the words ‘fraud’ and ‘deceit’ interchangeably,” and a “claim is ‘fraudulent’ [within the meaning of section 1871.7, subdivision (b)] if it is characterized by deceit, dishonesty, or trickery, perpetrated to gain some unfair or dishonest advantage. [Citation.] This broad definition … is consistent … with [section 1871.7,] subdivision (b)'s incorporation of the violations in … section 550, which encompass deceits shown by ‘false or fraudulent’ claims [citation], and statements that are ‘false or misleading.’” (Wilson, at p. 600.)
The Court of Appeal held that the defendants deceived Allstate into believing the attorneys whose names they were using actually and lawfully represented its insureds, and these misrepresentations were material as Allstate would not have released insurance benefits to the defendants had it known the truth. Accordingly, this deceitful scheme constituted insurance fraud within the meaning of Penal Code section 550.
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