When Can a State Prosecute a Multistate Insurance Fraud?

July 8, 2016 | Appeals

Recent examples of criminal insurance fraud in New York1 and elsewhere across the country2 highlight the continuing nature of the insurance fraud problem, despite significant efforts by local and state prosecutors and insurance companies themselves to combat it.

Increasing sophistication on the part of criminals, and increased resources available to them, is helping to make a growing number of insurance frauds more than a one-state problem. That is of concern because when a fraud involves multiple states, detection can be more difficult. It also can lead to jurisdictional questions over prosecution, with defendants arguing that a particular state does not have the authority to make them pay for their actions.

Recently, in Iowa v. Rimmer,3 the Iowa Supreme Court issued a decision resolving questions of first impression regarding the state’s territorial jurisdiction to prosecute multistate insurance fraud. In that case, telephone calls with an Iowa-based insurance agent were made, but the accident did not occur in Iowa. Defendants will bemoan the ruling, but prosecutors and courts in other states undoubtedly will rely on its analysis when considering whether they may prosecute a multistate criminal insurance fraud action in their own courts.

Background

According to Iowa prosecutors, Demetrius Rimmer (a resident of Wisconsin whose car was registered in Wisconsin) purchased an insurance policy for his Dodge Charger from Viking Insurance Company of Wisconsin. One night, the government contended, Rona Murphy and Melonicka Thomas (both residents of Illinois with cars registered in Illinois) and Rimmer staged a three-car accident at an intersection in Chicago. Rimmer claimed that he approached a stoplight too fast and that his Charger rear-ended Murphy’s Chevy Trailblazer, causing it to strike Thomas’s BMW X5 as she drove through the intersection. Rimmer and Murphy went to a Chicago police station to report the accident, but no officers responded at the scene.

Rimmer called the toll-free number on the back of his insurance card. The call was answered by an insurance company employee in Kentucky, and Rimmer admitted the accident was his fault. He was told that a regional claims representative would contact him.

Rimmer’s claim was assigned to the Davenport, Iowa, office of Sentry Insurance Company, the Wisconsin-based parent corporation of Viking Insurance. Sentry’s claim adjuster, Greg Perren, called each driver from his Davenport office. Perren interviewed each driver by phone to inquire how the accident had occurred and to obtain information about each vehicle and claimant. All three drivers claimed their vehicles had been damaged in the accident. Thomas also claimed that she had a whiplash injury. Perren requested inspections of each vehicle, and a Sentry adjuster from its Wisconsin office inspected and photographed each vehicle’s damage and estimated the repair costs. The adjuster inspected Murphy’s and Thomas’ vehicles in Illinois and Rimmer’s in Wisconsin.

As Perren questioned each driver by phone, he found that their stories diverged. For example, Thomas claimed that her BMW was hit while she was traveling eastbound through the intersection, but Rimmer and Murphy stated that Thomas’ BMW was traveling westbound. Murphy later changed her story to say she hit the BMW head-on. Murphy also claimed she had a passenger with her, but the other drivers said Murphy was alone.

Perren concluded that the photographs contradicted their statements. Ultimately, however, Perren authorized $500 to settle Thomas’ personal injury claim, and Viking Insurance’s Wisconsin bank mailed Thomas a check. Perren also authorized $6,805 for damage to Rimmer’s Charger and $325 for towing reimbursement; the same Wisconsin bank mailed checks to Rimmer at his Wisconsin address. Finally, Perren authorized $3,500 for Murphy’s vehicle damage.

Thereafter, the claim was randomly reviewed for fraud, and the reviewer referred the claim to Greg Wolf, who worked in Sentry’s Davenport office. Wolf reviewed the paper file and concluded that the case warranted further investigation. Wolf conducted recorded telephone interviews of each driver and ran searches on each vehicle’s history. He said that he discovered that the drivers had claimed the same damage with other insurance companies. He followed up by speaking to the other insurance company representatives and obtaining documentation regarding those claims.

Wolf recorded his phone calls with each driver, asking how the accident had occurred and requesting information about the damage to each vehicle. According to Wolf, the drivers’ answers were inconsistent, and each driver claimed not to know the other drivers. Wolf said that he never mentioned Iowa in any of these recorded phone calls. He gave Murphy a phone number with an Iowa area code (563), but there was no information that Murphy ever called that number or knew that that area code was for part of eastern Iowa.

Wolf said that his investigation uncovered that the same vehicular damages claimed in this accident also had been claimed in other accidents reported under policies with three other insurance companies: Farmers Insurance, Geico Insurance, and American Family Insurance. He estimated that the total amount paid for fraudulent claims exceeded $50,000.

Wolf reported the alleged insurance fraud to a detective at the Davenport Police Department. Rimmer, Thomas, and Murphy were arrested in their home states and extradited to Iowa. The county attorney filed a trial information charging each defendant with ongoing criminal conduct, theft in the second degree, conspiracy to commit a nonforcible felony, fraudulent practices in the second degree, and fraudulent submissions, all in violation of multiple sections of Iowa law.

The three defendants moved to dismiss for lack of jurisdiction. At a hearing, defense counsel emphasized that none of the defendants had ever been to Iowa before his or her extradition. Murphy’s counsel also noted that the State of Illinois had declined to charge the defendants.

The trial court granted the defendants’ motions to dismiss, ruling that the State of Iowa lacked territorial jurisdiction to prosecute them.

The Scott County Attorney, which was prosecuting the criminal case against the three defendants, appealed, and the Iowa Court of Appeals reversed. The case reached the Iowa Supreme Court.

Iowa Supreme Court Decision

The Iowa Supreme Court concluded that the phone calls between the defendants located in Wisconsin and Illinois and the insurance company’s investigators in Davenport had induced payments on false insurance claims—a detrimental effect in Iowa—that constituted an element of four out of the five crimes charged. It then held that the defendants’ challenges to territorial jurisdiction failed as to those four crimes and that they could be prosecuted on those charges—regardless of whether they had known that they were speaking with persons in Iowa and even though the actual payments had been made to them (non-Iowa residents) from the insurer’s Wisconsin bank account. The court affirmed the dismissal of the fifth charge, finding that prosecutors failed to show that any defendant had submitted a false written statement or certificate in Iowa.

In its decision, the court examined whether Iowa’s exercise of “territorial jurisdiction” over the defendants was unconstitutional, and decided that it was not.4

The court found that the defendants’ Sixth Amendment right to a jury trial where the crime occurred was not violated, ruling that prosecutors could show that the charged crimes had occurred in part in Iowa based on the defendants’ phone calls with the insurer’s Davenport employee which deceived him into authorizing payment of false insurance claims. The court added that it was “well-settled that when a crime is committed in multiple states, it can be prosecuted in each state under the Sixth Amendment.”5

Next, the court rejected the defendants’ argument that due process precluded their prosecution in Iowa because they “did not know or have reason to know [their] conduct was in any way affecting Iowa or implicating Iowa.” Specifically, they contended, they had not known that the insurer’s employees with whom they spoke were located in Davenport.

The court declared that the defendants’ “ignorance of that fact” did not excuse them from prosecution in Iowa. The defendants “knew or should have known they were committing a crime…in a state, although they may not have known which state,” the court observed. It then pointed out that due process for purposes of territorial jurisdiction generally was satisfied when defendants were on notice that they may be prosecuted “somewhere.” The defendants’ alleged conduct, the court found, was “clearly fraudulent conduct that the defendants knew or should have known was illegal in any state, and they knew or should have known they could be prosecuted in the state where the insurer’s employees whom they intentionally deceived were located.” Simply put, the court said, “persons engaged in multistate insurance fraud assume the risk of prosecution wherever those they deceive are located.”

The court concluded by ruling that Iowa’s exercise of territorial jurisdiction over the defendants complied with Iowa’s criminal jurisdiction statute.6 The court held that the defendants’ phone calls to a nonresident victim’s employee in Iowa that deceived him into authorizing payment of a false claim constituted conduct or a result that occurred in Iowa even if the victim’s payment was sent from another state.7 The defendants had “intended to induce the insurer’s employee to pay false claims,” which was a “detrimental effect” that occurred wherever that decision maker was located, the court said.

Conclusion

The Iowa Supreme Court’s decision leaves no room for doubt as to that state’s right to prosecute the multistate insurance fraud allegedly committed by the three defendants. The court’s reasoning and analysis should provide a road map for prosecutors in other states to assert the same jurisdictional bases to prosecute multistate insurance fraud. For example, if a New York-based health care provider commits insurance fraud by transferring patients to a medical facility in New Jersey where costs are lower than in New York and improperly receives higher benefits from a New York automobile policy, it would seem that both New York and New Jersey would have criminal jurisdiction to prosecute the crime. In the end, defendants must know that if they commit insurance fraud, there is a jurisdiction—or multiple jurisdictions—that will seek to punish them.

ENDNOTES:

  1. See, e.g., “Mikhail Zemlyansky Sentenced To 15 Years For Racketeering, Securities Fraud, Mail Fraud, Wire Fraud, And Money Laundering,” Press Release (Jan. 28, 2016), available at https://www.justice.gov/usao-sdny/pr/mikhail-zemlyansky-sentenced-15-years-racketeering-securities-fraud-mail-fraud-wire (“Racketeering Conviction Included Largest No Fault Insurance Fraud Scheme Ever Charged”).
  2. See, e.g., Emily Patrick, “Jail time for Asheville man who intentionally caused wrecks,” Citizen-Times (June 17, 2016).
  3. Iowa v. Rimmer, No. 13-1397 (Iowa March 25, 2016).
  4. Territorial jurisdiction is based on each state’s police power. The U.S. Supreme Court has said that states have a “historic right and obligation…to maintain peace and order within their” territorial borders. Heath v. Alabama, 474 U.S. 82 (1985) (quoting Bartkus v. Illinois, 359 U.S. 121 (1959)).
  5. The Iowa Supreme Court pointed out that territorial jurisdiction is not co-extensive with personal jurisdiction in civil cases, which is limited by the Due Process Clause of the Fourteenth Amendment and its requirement of “minimum contacts” with the forum state. Personal jurisdiction in criminal cases, the court noted, requires the physical presence of the defendant and can be accomplished through the defendant’s arrest and extradition to the forum.
  6. New York’s rules regarding the state’s jurisdiction over crimes is set forth in Section 20.20 and 20.30 of the New York Criminal Procedure Law.
  7. Other states similarly have upheld criminal territorial jurisdiction based on an out-of-state defendant’s telephonic communications with a victim or accomplice in the forum. See, e.g., Powell v. State, 246 S.W.3d 891 (Ark. Ct.App. 2007) (concluding “the State can show that the conduct or result that is an element of the offense occurred within Arkansas” when the defendant in Georgia by phone and email “actively deceived [the Arkansas victim] into sending him money”); Black v. State, 819 So. 2d 208 (Fla. Dist. Ct.App. 2002) (affirming territorial jurisdiction to prosecute felony securities fraud based on defendant’s phone calls and faxes into Florida from another jurisdiction); State v. Meyers, 825 P.2d 1062 (Haw. 1992) (“We hold that for purposes of establishing criminal jurisdiction, a telephone call constitutes conduct in the jurisdiction in which the call is received.”); State v. Woolverton, 159 P.3d 985 (Kan. 2007) (“Although [the defendant] spoke the threat [into his phone] in Missouri, [the victim] perceived the threat at her home in…Kansas. Thus, an act comprising a[n]…element of criminal threat was committed in Kansas.”); Commonwealth v. Vergilio, 103 A.3d 831 (Pa. Super. Ct. 2014) (holding criminal jurisdiction existed based on out-of-state defendant’s threatening phone calls to in-state victim); Hopkinson v. State, 632 P.2d 79 (Wyo. 1981) (holding Wyoming had jurisdiction to prosecute an accessory to murder based on his phone calls from California to accomplices in Wyoming “just as surely as though the [defendant] was standing on Wyoming soil when he communicated his requests…[because t]he telephone transmitted his presence into this jurisdiction where he could manipulate and play his local pawns”).

Reprinted with permission from the July 1, 2016 issue of the New York Law Journal.

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