Insurer is Obligated to Report Fraud to the IFB

A PROMISE TO NOT REPORT A CRIME IS UNENFORCEABLE

After he was convicted of workers’ compensation fraud, plaintiff Daniel Wilson filed a civil complaint alleging that representatives of his former employer, Southworth-Milton, Inc. (SMI), conspired to extort him while negotiating the settlement of his workers’ compensation claim. The defendants in the civil action included Attorney Teresa Brooks Benoit, who represented Wilson during settlement negotiations; SMI; SMI’s workers’ compensation claims coordinator, Camille Kantorski; SMI’s insurer, Sentry Insurance a Mutual Company (Sentry); one of Sentry’s attorneys, Thomas G. Bradley; Attorney Bradley’s law firm; and a Sentry claims adjuster, Jodie Driscoll. The case brought by the workers’ compensation criminal, Daniel Wilson, was dismissed and he appealed.

In Daniel Wilson v. Sentry Insurance A Mutual Company & others, No. 21-P-399, Appeals Court of Massachusetts (February 25, 2022) the Appeals Court refused to allow Wilson to profit from his crime.

FACTUAL BACKGROUND

Wilson was employed by SMI in August 2006, when he sustained a workplace injury for which SMI paid workers’ compensation benefits. Following the injury, Wilson earned income from self-employment which he did not report on financial statements he submitted to SMI and Sentry in connection with his workers’ compensation claim. While Kantorski, Driscoll, and Attorney Bradley had suspected since July 2007 that Wilson was working and not reporting his income, it was not until October 7, 2008, that Attorney Bradley obtained invoices which confirmed Wilson’s unreported income.

On October 8, 2008, Attorney Bradley and Kantorski met Attorney Benoit and Wilson at the Department of Industrial Accidents (DIA) to negotiate a lump sum settlement of Wilson’s workers’ compensation claim. Attorney Bradley confronted Attorney Benoit with the invoices that proved Wilson lied, told her that SMI had “no interest” in reporting Wilson to the insurance fraud bureau (IFB), and offered a lump sum of $1.00 to settle the case. Wilson rejected the offer, but after further negotiations agreed to a lump sum payment of $2,500.

SMI agreed to waive its right to recoup any overpayment or workers’ compensation benefits. In a side agreement not reflected on the settlement form submitted to the DIA, Kantorski also agreed that she would not report Wilson to the IFB and that SMI would pay Attorney Benoit a $5,000 fee. Wilson’s principal motivation in settling the workers’ compensation claim was avoiding a fraud investigation and a lawsuit seeking to recoup the overpayments. On October 17, 2008, a judge of the DIA approved the lump sum settlement.

After the settlement was approved, Kantorski consulted with another Sentry attorney, Leonard Nason, who told her that the agreement not to report Wilson’s fraudulent conduct was a violation of law. Based on that consultation, Kantorski reported Wilson’s false statements to the IFB.

Ultimately, after a jury trial in the Superior Court, Wilson was convicted on an indictment for workers’ compensation fraud. Wilson’s conviction was affirmed on appeal. See Commonwealth v. Wilson, 83 Mass.App.Ct. 1116 (2013).

DISCUSSION

The motion judge dismissed Wilson’s claims against the SMI defendants, reasoning that “[t]his dispute between employer and employee does not involve trade or commerce.”

Chapter 93A liability for unfair and deceptive business practices requires an arm’s-length commercial transaction between distinct business entities. The statute does not provide a remedy for disputes arising out of an employer-employee relationship, or for disputes that occur within a single company.

Here, the conduct alleged in the complaint, even if true, arose from Wilson’s employment with SMI and the administration of his workers’ compensation claim. Such allegations are fundamentally encompassed within the overarching workers’ compensation framework and fall outside the scope of the statute. Accordingly, there was no error in the dismissal of Wilson’s claim

Contrary to Wilson’s claim the crime-fraud exception applies where the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit what the client knew or reasonably should have known to be a crime or fraud. The party invoking the exception must prove by a preponderance of the evidence that it applies. This requires a showing that:

the client was engaged in or planning criminal or fraudulent activity when the privileged communications took place, and
the communications were intended by the client to facilitate or conceal the criminal or fraudulent activity.

According to Wilson, the SMI defendants used Attorney Bradley to convey a malicious threat to report Wilson for fraud, with the intent to extort a favorable lump sum settlement. In short, the motion judge did not abuse his discretion.

The general rule is that courts will not aid either party in the enforcement of an illegal contract. Here, the parties acknowledge that the agreement not to report Wilson’s workers’ compensation fraud was illegal. The doctrine of in pari delicto bars a plaintiff who has participated in wrongdoing from recovering damages for loss resulting from the wrongdoing.

It was undisputed that Wilson repeatedly committed perjury to obtain workers’ compensation payments. Wilson withheld that information from his attorney and allowed her to present a fraudulent earnings report to Attorney Bradley even though he knew that Sentry had invoices which contradicted the report. Wilson then settled his claim to avoid prosecution and an obligation to return the payments. On this record, no reasonable juror could conclude that, because they investigated Wilson’s criminal conduct and negotiated a favorable settlement, the SMI defendants were equally at fault, or in pari delicto. There was no error in the conclusion that the doctrine of in pari delicto barred recovery by Wilson.

Wilson’s claim against Attorney Bradley, his firm, and Sentry failed because the conduct of which Wilson complains – investigating reports that Wilson was working while collecting benefits, confronting Wilson at the settlement conference, paying Attorney Benoit’s fee, and threatening criminal prosecution – did not take place within the confines of a business-to-business transaction between Wilson and these defendants. Rather, Bradley and Sentry were standing in the shoes of the insured, placing their conduct well within the primary goal of the statute.

It was undisputed that Wilson fraudulently concealed his income so that he could receive workers’ compensation benefits, he cannot recover losses that flow from that wrongdoing.

Finally, even viewed in the light most favorable to Wilson, the defendants’ conduct in investigating and negotiating Wilson’s workers’ compensation claim was not so extreme and outrageous as to constitute the intentional infliction of emotional distress.

As a matter of law, Kantorski’s broken promise not to report Wilson did not give rise to a claim for intentional infliction of emotional distress, because for a defendant’s conduct to qualify as extreme and outrageous, the defendant must have acted without privilege.

As the workers’ compensation claims coordinator for her company, Kantorski was required to report Wilson’s fraud. The Massachusetts fraud statute mandates an insurer to file a report with the state when it has reason to believe that an insurance transaction may be fraudulent. Kantorski fulfilled the obligation imposed by law and had she not done so she would have been committing an offense.

It takes a great amount of gall to sue your lawyer, your insurer’s lawyer and your workers’ compensation insurer after being convicted of workers’ compensation fraud because of an illegal agreement not to report the criminal to the IFB. No court will support a case against a lawyer or an insurer who were charged with wrongfully refusing to commit a crime. Of course, no reasonable lawyer would make such a promise unless the lawyer had no knowledge of the insurance fraud law of the state which is almost universal in all states that make insurance fraud a crime.

arry 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.

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You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma; you can follow Mr. Zalma on Twitter at; you should see Barry Zalma’s videos on https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg/featured; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims–library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/