1 FOREIGN TRADE UNIVERSITY ECONOMICS AND INTERNATIONAL BUSINESS DEPARTMENT INSURANCE AND RISK MANAGEMENT LIFE INSURANCE FRAUD CASES IN US AND SOME RECOMMENDATIONS Nguyễn Phương Hoa 2012150034 V[.]
Life insurance
Life insurance is a contract between the policyholder and the insurance company, where the insurer commits to paying a designated sum of money in exchange for a premium This payout occurs upon the death of the insured individual or after a specified period, providing financial security for beneficiaries.
Life insurance is essential for beneficiaries' financial security, ensuring their survival and stability after the policyholder's death It provides crucial support for families facing ongoing expenses, such as remaining mortgage payments they cannot afford without the insured person Securing a life insurance policy can help protect your loved ones from financial hardship during difficult times.
Once you receive the insurance payout, your beneficiaries have the flexibility to use the funds for any purpose, such as covering everyday expenses, paying off a mortgage, or funding your child's education Having life insurance provides a crucial financial safety net that helps your family maintain their standard of living It ensures they can stay in their home and cover important expenses, safeguarding your financial plans and providing peace of mind.
Life insurance fraud
General insurance fraud costs Americans around $40 billion annually, highlighting its significant financial impact While sensationalized stories in movies and headlines often showcase fake deaths and murder schemes, these cases are actually rare More prevalent forms of life insurance fraud involve intentionally misrepresenting information on applications to secure lower premiums or unlawfully modifying someone else's policy without their consent.
Less serious cases of insurance fraud may result in higher policy premiums, policy denial, or coverage cancellation In more severe cases, life insurance fraud can be reported to a fraud bureau and prosecuted in court.
There are four common types of fraud in life insurance: application fraud, death fraud, forgery, and phony policy fraud a Application fraud
Application fraud occurs when individuals intentionally submit false information during the insurance application process to secure lower premiums, a practice also known as material misrepresentation or concealment This dishonest behavior compromises the integrity of the underwriting process and can lead to serious legal and financial consequences Understanding that providing inaccurate details to an insurance company is considered application fraud highlights the importance of honesty for fair policy issuance and claims processing.
If you get caught doing this your insurer will either increase your final premiums or they will deny your insurance application b Claims fraud
Claims fraud is more commonly known as death fraud which occurs when someone fakes their own death or the death of their loved one to collect a life insurance benefit
Obtaining life insurance for your spouse and then orchestrating their disappearance by falsely reporting them missing can lead to legal and ethical issues Generally, a person can be declared dead after being missing for a certain period, which varies based on the circumstances of their disappearance The time it takes to be legally declared dead can range from several years to longer, depending on jurisdiction and the specific situation Engaging in such actions can have serious legal consequences, including charges of insurance fraud and conspiracy.
Claims fraud involving counterfeit death certificates is a growing concern, as some individuals create or purchase fake documents to deceive insurance companies Policyholders' loved ones may leverage these fraudulent certificates to unlawfully collect insurance payouts Since forging death certificates requires specialized knowledge and effort, this method is considered more sophisticated and difficult to detect Criminal networks have even specialized in selling fake death certificates, making this form of fraud a significant challenge for insurers.
Insurance fraud also occurs when beneficiaries murder the policyholder to claim the death benefit In some cases, married couples purchase life insurance policies on each other with the malicious intent to commit homicide and collect the payout Such fraudulent acts undermine the integrity of the insurance system and highlight the importance of thorough investigations in suspicious claims Recognizing these fraudulent schemes is essential for maintaining trust and fairness within the industry.
6 husband takes life insurance policy for their wife, and then kills them and collects the money, or the other way around c Forgery
Life insurance fraud can occur when a family member or spouse illegally accesses a policy to change ownership or beneficiaries, despite only the policyowner having the legal right to modify policy details Unauthorized alterations often involve forging documents or faking identities, which constitute serious criminal offenses Engaging in such activities can lead to claim denials and prosecution for forgery-related insurance fraud.
Scammers often pose as legitimate insurance agents to deceive unsuspecting customers by selling fake policies and stealing their premiums They exploit the trust associated with well-known, reputable brands to appear credible, then request cash or direct payments for fake insurance policies.
Overview of life insurance market
The history and development of Life Insurance
3.1.1.1 The origin of Life Insurance in the world
The origins of life insurance date back to ancient Greece and Rome between 600 and 100 BCE, with Roman general Gaius Marius credited for pioneering the concept According to legend, soldiers formed "burial clubs" to cover funeral expenses when a comrade was killed in battle, serving as an early form of health and life insurance Initially used exclusively by soldiers, this practice gradually expanded throughout ancient Rome and gained acceptance among the general population, laying the foundation for modern life insurance.
7 organizations developed this idea to ultimately provide a financial safety net for the family members of those who fell in battle
3.1.1.2 The history and development of Life Insurance in the US
The Presbyterian Ministers Fund, established in Pennsylvania in 1759, was the first life insurance company in the United States, initially created to support Presbyterian widows and orphans By the early 1800s, successful life insurance firms had expanded beyond Pennsylvania to states like New York, Maryland, and Massachusetts In the 1830s, American life insurance companies issued policies worth approximately $600,000, and by 1850, this figure had skyrocketed to nearly $100 million, highlighting the rapid growth of the industry.
In 1840, New York passed legislation allowing women to independently purchase life insurance policies on their husbands, providing widows with significant creditor protection This groundbreaking legal change sparked rapid growth in the American life insurance industry as other states and insurers followed suit Over time, the market expanded to serve diverse groups of policyholders and insurers, contributing to the industry's impressive growth Currently, more than 340,000 people are employed in the American life insurance sector, which manages total assets approximately worth $7 trillion, highlighting its vital role in the U.S economy.
U.S life insurers saw their yearly direct life insurance premiums surpass $200 billion for the first time in history in 2021, according to an S&P Global Market Intelligence analysis of annual statutory statements
The total amount of group and individual direct life premiums increased by 9.9% annually to $204.7 billion in 2021 Individual life premiums increased 10.7% across the board to
$162.76 billion in 2020 from $147.01 billion in 2019
The regulatory statements are the sole source where premiums by policy type are available net of reinsurance The highest year-over-year gain in net premiums among the
In the latest industry report, eight main individual policy types were highlighted, with universal life premiums soaring approximately 60%, reflecting significant growth in the market Variable universal life policies also experienced a substantial increase, climbing to 23.8%, while index, whole life, and universal life with secondary guarantees all saw consistent double-digit growth, emphasizing their expanding popularity Conversely, term life insurance net premiums declined by 5.8%, indicating a shift in consumer preferences within the life insurance sector.
Group direct life premiums grew by 7.1% in 2021, reaching $41.94 billion
Overview of US Life insurance fraud
Insurance fraud, especially life insurance fraud, is among the most costly and damaging forms of fraud crimes in the United States and globally
Attendees of the 2016 RGA Fraud Conference highlight that insurance fraud, excluding health insurance, results in annual costs exceeding $40 billion This substantial financial impact translates to increased premiums for the average American household, estimated between $400 and $700 each year (Turner, 2021).
Life insurance fraud costs the industry between $10 billion and $20 billion annually, representing approximately 12-25% of the total insurance fraud losses in the United States This substantial financial impact underscores the importance of robust fraud detection and prevention measures within the life insurance sector Recognizing and combating life insurance fraud is crucial for maintaining industry integrity and protecting consumers.
The true cost of fraud is incalculable, extending beyond the direct expenses of paying false claims and establishing fraud prevention units Fraud also hampers innovation, causes financial loss for customers, and reduces convenience Moreover, previous estimates of insurance fraud costs, based on outdated methods from the early 1990s, failed to account for inflation and other contributing factors, underestimating the true economic impact (RGA Annual Fraud Conference, 2016).
The 2022 estimation of the cost of insurance fraud in the U.S increases to $308.6 billion, in which $74.7 billion is the cost of life insurance fraud (The Coalition Against Insurance
Fraud Report, 2022), accounting for approximately 25% of the total fraud cost
According to a report by RGA, approximately 1% to 3% of life insurance claims are either investigated for fraud or misrepresentation or are rejected outright The contestability period, which varies by state, plays a crucial role in determining the timeline during which claims can be challenged or scrutinized.
Two cases of liffe insurance fraud
Case 1
Two Elderly Women Arrested in Deadly Scam of Life Insurance
In 2008, Los Angeles seniors Helen Golay and Olga Rutterschmidt were convicted of double murder, receiving life sentences They manipulated homeless men, Paul Vados and Kenneth McDavid, by housing and caring for them before killing them in hit-and-run incidents The women fraudulently obtained over $2.2 million through multiple life insurance policies on each victim Their crimes involved covertly exploiting vulnerable individuals and insurance fraud, highlighting a disturbing case of elderly criminals committing deadly deception.
2 The parties of the case: a Plaintiff: Mutual Life Insurance Company of New York The Mutual Life Insurance Company of New York (also known as Mutual of New York or MONY) was the oldest continuous writer of insurance policies in the United States b The Defendants:
• First defendant: Olga Rutterschmidt, 73, is a Hungarian immigrant from Hollywood
• Second defendant: Helen Golay, 75, is a grandmother who owns a triplex in Santa Monica
Neither have criminal records, but now police suspect the women may have been directly involved with the men's deaths
3 The background information a Establishment of the case:
McDavid is identified as an investor, business associate, and real estate investor, with an annual income ranging from $100,000 to $150,000 and a net worth between $4 million and $53 million Prior to receiving a $500,000 insurance policy, women falsely claimed that McDavid had $700,000 in assets, earned $72,000 annually, and had previous year earnings of $65,000 Additionally, in one application for a $500,000 policy, Helen and Olga fraudulently alleged that McDavid had authored a $2 million movie titled Checking.
Out to demonstrate that he had an insurable interest and that they were investment partners
• Vados was found dead in an alley in Hollywood Then, last June, McDavid died under similar circumstances, and police got suspicious
• On November 8, 1999, police discovered a man named Paul Vados' dead body lying in the street After Vados's death, Rutterschmidt told the manager she would pick up Vados's belongings
• Kenneth McDavid was then discovered dead in a dark alleyway on June 22, 2005 His chest and skull were crushed, and he had grease stains on his clothes, leading authorities to suspect he, too, was lying down when he was hit by a car McDavid had nothing in his pockets but two photo IDs, indicating that someone wanted to inform us who he was Golay then went to the morgue and claimed to be McDavid's fiancee And later, Olga Rutterschmidt, claiming to be McDavid's cousin, arrives at the police station and requests a copy of the police report b The insurance policies
Both defendants had spent in total the insurance coverage of $879,500 on Paul and
$5,700,090 on Kenneth i Insurance on Vados’s life
Since 1997, at least six life and accidental death insurance policies were issued on behalf of Vados, with Golay and Rutterschmidt named as beneficiaries, totaling $589,125.75 in payouts Golay received $345,324.28, while Rutterschmidt received $243,801.47 Most premiums were paid by Golay, who was the sole beneficiary of two policies, whereas the other policy was split between Golay and Rutterschmidt, with both sharing the premiums In the insurance applications and benefit claims, Golay was portrayed as Vados' fiancée, and Rutterschmidt as his cousin Some insurance companies refused to work with them, while others approved substantial sums that became irrevocable, raising questions about the legitimacy of their claims.
Paul was often identified as Golay's husband or spouse, while Rutterschmidt was described as his sibling to establish insurable interest Some insurers declined coverage due to Golay’s poor medical history, whereas others accepted applications and offered policies with substantial coverage amounts When insurance companies delayed payment, Golay would actively communicate with them, sometimes threatening legal action to expedite claims processing.
Here is the list of insurance companies that worked with Rutterschmidt and Golay:
Rutterschmidt $50,000 Not given Not given Rutterschmidt and Golay ii Insurance on McDavid’s life
Between November 2002 and March 2003, the defendants collectively submitted 17 life insurance applications on McDavid, resulting in policies worth a total of $3,700,040 Benefit payments totaling $1,540,767.05 were issued to Golay, with additional payouts made to Rutterschmidt.
Golay paid the majority of premiums for eight life insurance policies, making her the sole owner She was the beneficiary of policies from Globe Life Insurance Company and Mutual of Omaha, with Rutterschmidt designated as the sole beneficiary The total value of the insurance policies amounted to $674,571.89.
Golay is identified as McDavid’s partner in the insurance applications, with Rutterschmidt also listed as a policyholder, highlighting their close association Due to the defendants’ preference to avoid in-person meetings, her application was primarily completed via mail, emphasizing a convenience-driven process Kenneth, mentioned multiple times across policies, is portrayed as Rutterschmidt’s cousin and Golay’s spouse, with a claimed annual income of $65,000 He is variously described as a real estate investor, screenwriter, and a man with a net worth of $1,250,000, suggesting inconsistent representations When the insurance claim was denied, Golay threatened legal action despite the insurer uncovering evidence of fraud, including stamped signatures and multiple policies related to McDavid, indicating potential deception.
Here is the list of insurance companies that worked with Rutterschmidt and Golay:
Rutterschmidt $1,000,000 Not given denied Rutterschmidt and Golay
Globe Life Golay $20,000 Not given denied Golay
Golay $100,000 Not given denied Golay
Golay $100,000 Not given denied Golay
Golay $150,000 Not given Not given Golay
Golay $150,000 Not given denied Golay
4 Case analysis: a How did the Insurance company find out about the fraud?
Following Kenneth's death, Mutual of New York (MONY) investigator Ed Webster launched a thorough investigation into the policies taken out on Kenneth, uncovering several anomalies Webster quickly identified inconsistencies in the information provided by the two women regarding their relationship with McDavid, prompting him to attempt to arrange a meeting with them As the key investigator, Ed Webster played a crucial role in bringing the case to light, leading to its resolution and making it a well-known story.
The tragic parallels between Paul Vados’s death in 1999 and McDavid's case highlight a disturbing pattern of insurance fraud involving two homeless men with substantial life insurance policies Both men were run over and killed in separate alleyway incidents, with the same women acting as beneficiaries, suggesting a coordinated scheme Investigations uncovered large quantities of zolpidem and hydrocodone at their homes, along with documents linking them to the crime, including stolen driver’s licenses and a note with a license plate associated with a 1999 Mercury Sable station wagon Searches of Rutterschmidt and Golay’s residences revealed forged checks for insurance premiums and rubber stamps of the victims’ signatures, indicating deliberate impersonation and fraudulent activities This case exemplifies insurance fraud principles violations, specifically misrepresentation and forgery, which undermine the integrity of insurance agreements and violate federal and state regulations.
Application fraud involves deliberately submitting false or misleading information to an insurance provider to obtain coverage unlawfully This form of insurance fraud, also known as substantial misrepresentation or concealment, can lead to serious legal consequences For instance, if the insurance company had known that the applicant was a homeless individual without property or financial resources, they would have declined to offer coverage Understanding application fraud is essential to prevent policy misrepresentation and protect the integrity of insurance agreements.
The actions of the two women violated many core principles in Insurance and Indemnity:
Insurable interest requires that the insured has a financial vulnerability if a covered loss occurs, ensuring a legitimate interest in the outcome In this case, Ogla and Helen lacked an insurable interest in Paul and McDavid because they had no close personal or financial connection with the men It is illegal for them to obtain insurance on these individuals since their relationship does not meet the criteria for insurable interest Ogla falsely claimed to be the fiancée or spouse of the men, while Helen pretended to be a close sibling, but such misrepresentations undermine the legality of the insurance policies.
In insurance contracts, both parties are required to act with utmost good faith, meaning honesty is paramount The ladies misled the insurance company by providing false representations about Paul and McDavid's current and projected wages, falsely claiming David's yearly earnings were $65,000 and that he had no additional insurance coverage Such fraudulent misrepresentations undermine the principle of utmost good faith, as the applicants intentionally concealed critical information If the insurance company had known the truth, they would not have issued the policy, highlighting the significance of honesty in insurance agreements The incentive behind such fraudulent actions often stems from the desire to secure coverage or benefits that would otherwise be denied if full disclosure were made.
Case 2
Queens Man and Woodside Woman Arrested in Conspiracy to Kill Guyana Immigrants for Insurance Money
James, 46, and Mallay, 61, were charged with orchestrating the poisoning and shooting deaths of four victims, two in a close-knit Guyanese community in Queens and two in Guyana since the early 1990s The defendants treated their victims “like meat”, Assistant U.S Attorney Robert Capers had told the jury during the trial “They put prices on their heads.”
Prosecutors had said that Mallay took out a US$400,000 insurance policy on his own brother-in-law before hiring a 'hit-man’ to gun down his relative in Queens in 1993 Mallay’s nephew, a witness for the government, testified that his uncle later said he was happy the victim was left “dying in the street like a dog.”
Among the murdered, according to prosecutors, was 42-year-old Basdeo Somaipersaud, who was found dead in 1998 Subsequent autopsy results showed that the man died from lethal doses of chlorpromazine injected into his system
In a significant criminal case, $300,000 was recovered following the death of Hardeo Sewnanan, nephew of Mallay, in Guyana Sewnanan was poisoned in June 1999, reportedly after consuming a mixture believed to contain alcohol and ammonia during a dinner with Mallay at a Berbice restaurant The incident also involved the deaths of two other victims, Vern 'Dilly' Peter, the husband of an accused co-conspirator, and Alfred Gobin, underscoring a disturbing pattern of criminal activity linked to this case.
• MetLife – an insurance company among the largest global providers of insurance, annuities, and employee benefit programs, with 90 million customers in over 60 countries b Defendants:
• First defendant: Richard James, 46, a Guyanese immigrant in Richmond Hill, Queens, New York as well as a well-known insurance agent in the Queens Guyanese community
• Second defendant: Betty Mallay, 61, a Woodside woman
The following is a brief summary: a The murder of Vernon Peter
In 1991, Mallay, a postal carrier for the United States Postal Service, was convicted of theft from the postal service and sentenced to 15 months in prison During his incarceration, his mother died of a heart attack, which Mallay attributed to problems caused by Vernon Peter ("Dilly"), whom he believed aided in his investigation Mallay then contacted his sister Betty Peter, Dilly's wife, warning her to stay informed about the insurance policies on Dilly's life, as he planned to seek revenge.
Following Mallay's release from prison in 1993, he had a conversation with Baskinand Motillal, his nephew Mallay gave Motillal what Motillal believed was an invitation for him to kill Dilly
Motillal declined the initial offer but later introduced Mallay to Davindras Dass ("Dass"), who was then offered $10,000 for committing a hit Dass agreed to the plan but requested money to purchase a gun, which Mallay provided with an initial $500 Dass recruited his friends—Camuldeen Allie ("Allie"), "Barry," and "Fingers"—to assist with the crime, assigning Dass as the triggerman, with Allie and Barry serving as lookouts and Fingers handling the getaway car When Dass delayed execution, Allie volunteered to be the shooter instead, highlighting the involvement of multiple individuals in the criminal plan.
On the morning of July 28, 1993, Das, Allie, Barry and Fingers drove to Dilly's home, using Allie's car Dilly came out of his home and Allie came behind him and shot him several times in the head The four then fled in Allie's car It was reported that someone saw the license plate of the get-away car Allie decided that he would burn this car and then tell the police that it was stolen In the process of burning the get-away vehicle, Allie suffered burns to his face and hands
Allie insisted that Dass needed to receive his share of the "hit money" immediately, as delaying could link him to the arson and potentially implicate him in the murder Later, Dass met with Mallay to discuss the situation and address the urgent payment.
Mallay handed Dass $7,000 in cash and praised his work, saying, "You see how Dilly lay down like a dog in the street? You did a good job, and I have something else planned for you later."
The Court highlights inconsistent testimony regarding the murder offer for Dilly, with Allie claiming $7,000 and Motillal stating it was $10,000, consisting of a $3,000 upfront payment and $7,000 paid after the murder However, this discrepancy does not impact the current motions.
Peter received $400,000 in insurance proceeds after her husband's death and used the funds to purchase a house in her daughter Anjanee Motillal's name She also loaned at least $60,000 to Mallay Anjanee maintained a bank account in her brother Balram Motillal's name, who was illiterate, and managed rent collection, check cashing, and loans—including those involving Mallay—through this account The case involves the murder of Alfred Gobin.
In September 1993, three months after Dilly's death, Richard James and Ronald Mallay met at Gulabie Gobin’s home, Mallay's long-term mistress At that time, James was an insurance agent for Metropolitan Life ("MetLife") They persuaded Gulabie to acquire insurance policies on her father, Alfred Gobin, resulting in two policies—initially listing his ten children as beneficiaries, but later changing to name Balram Motillal, Mallay's nephew, who held the family bank account, as the beneficiary.
On January 6, 1996, Alfred Gobin was tragically murdered in Guyana, marking a significant and somber event Despite Gulabie and her siblings never making any payments on their father's insurance policies, they still received at least $200,000 as beneficiaries Following this, Gulabie loaned nearly $60,000 to James and Mallay, highlighting financial transactions connected to the case The murder of Basdeo Somaipersaud remains a notable part of this complex narrative.
After the murder of Dilly, James prompted his friend Satyanand Arjun ("Arjun") to participate in suspicious investment opportunities involving life insurance policies Arjun was associated with Basdeo Somaipersaud ("Somaipersaud"), a heavy drinker who frequently spent time on the streets and lived with Arjun James encouraged Arjun to purchase a policy, suggesting it as part of these questionable financial schemes.
In October 1994, James secretly purchased a $100,000 insurance policy on Somaipersaud, with his sister, Virma Kassim, designated as the beneficiary The policy was designed to pay out in case of accidental death, highlighting a notable event in Somaipersaud’s life that impacts his personal and financial history.
$100,000 would be paid to the beneficiary
In the fall of 1997, Mallay approached Kenrick Hassan ("Kenrick ''), a member of Mallay's extended family, and offered him $10,000 to kill Somaipersaud Kenrick declined the offer