Insurer Must Always Demand Restitution of All Expenses Incurred to Avoid an Insurance Fraud

Convicted of Insurance Fraud - Must Make Restitution to Insurer Plus Attorneys Fees

PUTTING GOODS IN STORAGE A STUPID WAY TO COMMIT INSURANCE FRAUD & RESULTED IN CONVICTION

After a jury convicted Patrick Elliot Lee (Lee) of eight counts of insurance fraud under Penal Code section 550, subdivisions (a)(1) and (b)(1), the trial court ordered him to pay restitution to the insurers he defrauded.

In The People v. Patrick Elliot Lee, A158225, A159872, California Court of Appeals, First District, Second Division (June 24, 2022) the convicted insurance felon tried multiple arguments to avoid jail and restitution.

BACKGROUND

On February 10, 2015, San Pablo Police Officer Matthew Brown responded to the scene of a reported burglary, where Lee's wife told him she had returned home to find all the Lees' property missing. Lee subsequently filed a theft claim under his renter's insurance policy with Homesite Insurance (Homesite), telling the insurer that the allegedly stolen property exceeded $50,000 in value and that Lee had hired an attorney to assist him with the claim.

Advised by Brown of his suspicion California Department of Insurance Detective Herndon discovered that Lee had communicated with Officer Brown by e-mail from a Gmail account. When Lee rented a storage unit eight days before the reported burglary, he used the Gmail address. After he moved property out of that storage unit, he rented a second unit near his new home in Menlo Park, again using the Gmail address.

Detective Herndon's investigation also uncovered a car insurance claim Lee had made on October 9, 2014, under his policy with Progressive Insurance (Progressive). On June 16, 2015, Herndon sought a search warrant for Lee's Gmail "address for the date range November 12, 2014 through June 16, 2015" (the Gmail warrant) covering the two claims.

A Contra Costa County superior court judge signed the Gmail warrant on June 16, 2015.  Items discovered by the warrant matched photographs of the items Lee had reported stolen in his Homesite insurance claim.

TRIAL AND VERDICT

In their case-in-chief, the People examined Loan Craig, the Progressive claim representative who processed Lee's October 9, 2014 claim regarding the scratch damage to his Porsche. Craig testified that Lee's insurance policy entitled him to a rental car benefit while his Porsche was being repaired. Upon hearing from Lee that he was taking the Porsche to be repaired in Colorado, Craig authorized a $720 payment to provide Lee with a rental car for 18 days. When Craig was asked to view photographs of the Porsche taken after Lee's rental car had been returned, she testified that they depicted the same scratch damage that Lee supposedly had repaired.

The People cross-examined Lee about his finances. A commercial pilot, Lee moved from Colorado to California in 2014 to work for Air Methods, who led Lee to believe he would earn more money in California than he ultimately did. The prosecutor showed Lee a November 12, 2014, e-mail in which Lee complained about his compensation to management at Air Methods. Having referred to the e-mail, Lee testified that at the time he sent the e-mail, he had made $37,000 year-to-date, an income he described as "pretty pitiful." In argument, the prosecutor recounted Lee's financial problems, telling the jury that "money was tight," so the Lees "invented an insurance claim."

The jury found both Lee and his wife guilty as charged.

THE RESTITUTION ORDER

On December 20, 2019, the trial court ordered Lee to pay restitution to his victims. In addition to the money Lee owed Progressive, Lee was ordered to pay Homesite $18,000 for the economic loss caused by Lee's fraudulent theft claim, as well as $64,280.03 in attorney fees. The trial court rejected Lee's argument that the terms of his earlier, March 2018 settlement with Homesite precluded the court from ordering Lee to pay attorney fees.

DISCUSSION
The Search Warrant Affidavit Satisfied the "Probable Cause" Requirement.

The Fourth Amendment to the United States Constitution provides that "no Warrants shall issue, but upon probable cause, supported by Oath or affirmation." Probable cause was established in abundance by an affidavit sworn by Detective Herndon, a California Department of Insurance detective, certified public accountant and certified fraud examiner. In the affidavit, Herndon describes the origins and course of his investigation into the theft claim made by Lee against his renter's insurance policy with Homesite. Herndon then recounts the facts underlying his suspicion that the theft claim was fraudulent.

The affidavit provided more than a substantial basis for concluding a fair probability existed that a search would uncover wrongdoing. The court concluded that it was entirely reasonable to infer from the facts Detective Herndon relayed that Lee moved his property into storage, filed a theft claim with Homesite, and then removed the property from storage once Homesite had settled the claim and Lee believed the danger of any investigation had passed. In short, the affidavit establishes probable cause to believe that Lee committed insurance fraud.

Sufficient Evidence Supports Counts 8 and 9.

A jury found beyond a reasonable doubt that Lee defrauded Progressive by availing himself of a rental car under false pretenses. The People's evidence was sufficient to show that Lee violated Penal Code Section 550. The jury resolved that conflict in favor of the People's evidence and that resolution will not be disturbed on appeal.

There Was No Abuse of Discretion in the Trial Court's Order for Restitution.

As part of the restitution order entered after Lee's conviction, he was ordered to repay Homesite the $18,000 it had paid him to settle the fraudulent theft claim against Lee's renter's insurance policy. In addition, Lee was ordered to pay Homesite $64,280.03 in attorney fees.

In May 2015, Homesite settled Lee's theft claim for $18,000. Nearly three years later in March 2018, Lee agreed to pay Homesite $18,000 to settle any civil lawsuits related to the theft claim, with "each side to bear its own attorneys' fees and costs." According to Lee, the trial court should have "held [Homesite] to the terms" of that settlement agreement and declined to order restitution for attorney fees.

At the time the restitution order was entered on December 20, 2019, Lee had still not paid Homesite the $18,000 he owed under the March 2018 settlement agreement. And a restitution order is" 'enforceable as a civil judgment.'" (People v. Guardado (1995) 40 Cal.App.4th 757, 762.)

Thus, by aiding the prosecution of Lee's criminal case, Homesite's attorneys helped to secure a conviction and in turn, a restitution order having the same effect as a civil judgment. By virtue of those efforts, Homesite's attorneys put Homesite in a better position to collect the $18,000 it was already owed. For that reason, their fees were "reasonable . . . costs of collection" under section 1202.4, subdivision (f)(3)(H).

Judgment affirmed.

ZALMA OPINION

Insurance fraud is a serious felony in California and the statute allows the insurer defrauded to seek restitution from the criminal. In this case, failure to pay the ordered restitution can either void a probation or add to the sentence. Every insurer who, as the victim of a crime of insurance fraud, should demand restitution including restitution of the attorneys fees incurred to defeat the fraudulent claim.

(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 zalma@zalma.com.

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