Texas Fraud Prosecutions Privately Funded by Insurance Company
by Matt Clarke
Texas lawmakers recently took action to address the relationship between the Texas Mutual Insurance Company (TMIC) and the Travis County District Attorney’s Office, after finding the connection between the pair was too close for comfort.
Since 2001, TMIC had paid the DA’s office around $4.7 million to prosecute insurance fraud cases investigated and presented to prosecutors by TMIC employees. The company made case referrals to the DA’s office, paid the costs for the fraud unit and provided investigators.
That arrangement had originally been mandated by the Texas legislature, at a time when TMIC (which was created by state lawmakers in response to an insurance market crisis) was subject to strict state controls. Since that time TMIC has been fully privatized and its reins drastically loosened – though its relationship with prosecutors remained in place.
Some critics have argued that allowing an insurance company to pay for a fraud unit with statewide jurisdiction, which only prosecutes fraud cases involving that company, represents a conflict of interest.
“This arrangement makes me uncomfortable,” said Travis County Judge Sarah Eckhardt, who consulted with county attorneys about the appropriateness and legality of the arrangement and placed it on the Travis County Commissioners Court’s agenda for discussion.
According to county records, the one-year contract between the DA’s office and TMIC renews automatically each year unless terminated. Under the contract, TMIC pays the Travis County DA around $440,000 a year.
TMIC defended its contractual relationship, claiming it somehow ensures prosecutorial independence.
Assistant District Attorney Greg Cox, who oversees the division that includes the privately-funded fraud unit, said the funding was needed because the Texas Department of Insurance has not done an adequate job of policing insurance fraud.
“If we didn’t have this agreement, crime would go unprosecuted,” he noted. “I think this is something that was born out of necessity. You can’t let crime go unpunished despite what the legislature thinks.”
State Senator Kirk Watson questioned why the state wasn’t funding the insurance fraud investigations, and was allowing a private company to in effect usurp prosecutorial duties.
“This is problematic in that it creates at least an appearance that a governmental entity is prosecuting people at the behest of what is in essence a client,” Watson stated. “There needs to be an in-depth analysis of why it’s even needed.”
But there is more than an appearance of the DA’s office prosecuting defendants on behalf of TMIC, according to those who have been targeted by such prosecutions.
Roy Kyees injured his back while working in the oil fields. He followed the advice of his doctors and filed for workers’ compensation, then eventually took a lower-paying, less-physically demanding job and informed TMIC that he had done so. Soon afterwards he was arrested and jailed for felony insurance fraud when TMIC referred criminal charges against him, claiming he had never notified them that he was re-employed.
Kyees lost his concealed-carry license and suffered humiliation and stigmatization due to the arrest. He had to post bond and check in with the bondsman weekly for over a year. His attorney was finally able to provide the DA with a copy of Kyees’ letter notifying TMIC of his re-employment, and the case was eventually dismissed.
Kyees then sued the insurance company for malicious prosecution. That case settled for just under $10,000.
But that couldn’t happen today, because a February 2015 ruling by the Texas Supreme Court prohibits workers from suing workers’ compensation carriers for malicious prosecution. Workers are now limited to filing a complaint with the Texas Division of Workers’ Compensation, and they are not eligible to receive monetary damages even if that agency substantiates their complaint and fines the insurer.
“Why is a district attorney getting paid by the private insurance company?” Kyees asked. “They just take whatever Texas Mutual hands them, bits and pieces of any basic case, and they can word it, say it however they want to make people look guilty.”
TMIC has also been accused of using the threat of criminal prosecution to help it collect debts it couldn’t obtain in civil court or through an approved dispute-resolution process.
“It doesn’t pass the stink test,” said attorney Betty Blackwell, who represented a Southeast Texas trucking company that was prosecuted by the Travis County DA’s privately-funded fraud unit. “It smells bad that a particular corporation can have a special arrangement with the DA’s office. Instead of seeking a civil arrangement, they get the DA to get their money for them.”
TMIC and prosecutors were also accused of not having written procedural safeguards nor being aware of the terms of their contract – including a requirement that prosecutions focus on major fraud.
“Special emphasis will be given to major fraud, i.e., large premium and health care fraud cases,” the contract states.
Yet a 2006 TMIC report estimated that 88% of the company’s insurance fraud cases involved individual workers’ claims that often included less than $5,000 in restitution.
“I’m not aware of that provision in the contract,” said Tim Riley, TMIC’s chief of fraud investigations. “We’re reporting 100% appropriate emphasis in every area.” In other words, the company simply prosecuted every case.
“Is that within the agreement? I’ve never seen it,” added Assistant District Attorney Donna Crosby, supervisor of the TMIC-funded fraud unit. “That’s not how I focus on it. I just do everything they bring over here that’s a case.”
No wonder the arrangement has been questioned. By the company’s own admission, TMIC investigates a case and passes it on to the fraud unit it funds at the DA’s office, which rubber stamps the criminal prosecution.
“I think it is a conflict of interest,” said state Rep. Eddie Rodriguez. “You cannot have the very people that are investigating some of these fraud cases being reimbursed by an insurance company. That’s an innate conflict of interest.”
“He who pays the fiddler sets the tune,” remarked Syracuse University law professor Aviva Abramovsky, who formerly chaired the Association of American Law School’s insurance law section. “What makes it problematic, particularly in an insurance case like this, is it’s only for this company. They’re the only ones who get private justice. And that’s unfair.”
Following news reports on the relationship between TMIC and the Travis County District Attorney’s Office by the Texas Tribune and Austin American-Statesman, interim reforms were instituted. In December 2015, prosecutors announced they had implemented a new agreement with TMIC that would allow for some degree of oversight in the company-financed fraud unit, as well as limitations to address appearances of conflicts of interest.
The new contract, which went into effect in early 2016 and expires in September 2017, provides that TMIC will continue to fund the fraud unit but will lose its exclusive access to the DA’s office. Thus, while TMIC will keep footing the bill for the unit, other insurers will have their fraud cases investigated, too.
Further, under the new agreement, TMIC lost the ability to submit its investigations directly to prosecutors. Rather, like all other Texas insurance companies, it must hand its complaints over to investigators at the Texas Department of Insurance (TDI), which will decide whether a case warrants prosecution; if so, TDI forwards the case to prosecutors.
Either the Travis County District Attorney’s Office or TMIC may cancel the contract and their relationship with 20 days’ advance notice. In March 2016, the Texas House Committee on Insurance held hearings to find a more permanent solution to TMIC’s arrangement with the DA’s office.
The conclusion of those hearings, according to the Tribune, was that additional funding would be required from the state to cover prosecutorial and investigative costs that had been paid by TMIC. When the full state legislature reconvened this year, it decided to provide that funding. In June 2017, the Tribune reported that lawmakers had appropriated $675,000 to fund the insurance fraud unit in Travis County for two years, which will allow the state to “pursue workers’ compensation fraud cases without relying on an unusual and much-criticized funding deal between [TMIC] and the Travis County district attorney’s office.”
In short, the private financing of the fraud unit was replaced with public funding.
“We’ve come up with a way to properly address fraud, and we’ve come up with a way where it doesn’t look like pay to play, and done it in a transparent way that is consistent with the way fraud prosecutions beyond just workers’ comp happen in the rest of the state,” said Senator Watson. “I consider it a big win.”
That legislative solution, however, calls into question the propriety of the relationship between TMIC and prosecutors during the 15 years the company funded the DA’s fraud unit; after all, if that arrangement wasn’t broken then why did it need to be fixed? And if it was in fact broken, what does that say about the thousands of defendants who were prosecuted on TMIC’s behalf under the company’s questionable relationship with the DA’s office?
Sources: www.texastribune.org, Austin American-Statesman
As a digital subscriber to Prison Legal News, you can access full text and downloads for this and other premium content.
Already a subscriber? Login