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Guest Post: Insurance Fraud is No Laughing Matter

(This guest post was written by Kevin Wheeler, an associate attorney at Schlichter & Shonack, LLP.  Thanks to Steven Jones for sending in the question, and thanks to Kevin for a great guest post!)

INSURANCE FRAUD IS NO LAUGHING MATTER

Cameron Kaiser tries to play the Joker

I. Introduction 

In episode 41 of Batman the Animated Series, Cameron Kaiser, a casino mogul, opens up a brand new casino, “Joker’s Wild.” Gotham is shocked to see the casino is themed after one of Gotham’s most notorious villains. However, after some investigation by the world’s greatest detective, it is discovered that *spoiler alert* the Joker theme was part of an elaborate scheme to bait the Joker into destroying the hotel. Mr. Kaiser’s overspending on the casino had left him on the verge of bankruptcy, so he hatched this plot to collect the insurance money. Despite Mr. Kaiser doing everything he could to facilitate an attack on the casino, including assisting the Joker in escaping from Arkham Asylum and even letting the Joker deal in his casino, in the end, Batman is able to thwart Mr. Kaiser’s plans and lock the Joker back in Arkham to escape another day.

The topic of this article is whether Mr. Kaiser is liable for insurance fraud. This article will not focus on Mr. Kaiser’s ability to obtain insurance against an attack by the Joker, as that was discussed in a previous post. Instead the focus will be on the legal ramifications of intentionally baiting the Joker with the “Joker’s Wild” theme. As Mr. Kaiser would contend, “The joker is a classic symbol, long associated with cards and games, [he] can’t help it if there is a passing resemblance to some criminal fruit cake.”

Insurance fraud is an issue affecting everyone. At its core, the insurance business is simply the market of risk. Insurers take upon themselves the risks of their insureds, who in return pay the insurers insurance premiums. This system works because the insurers are able to assess the risks and distribute the costs evenly amongst all of their insureds. Fraudulent claims change the risk assessment for insurance companies. Insurance companies are forced to transfer the additional burden onto their insureds in the form of increased insurance premiums.

Each state has enacted its own statutory scheme to prevent and punish insurance fraud. Generally, when dealing with Gotham city this blog has applied New York law, I will continue in this tradition and use New York law in my analysis.

II. Insurance Fraud

New York Penal Law § 176.05 defines the commission of a fraudulent insurance act as taking place when a person “knowingly and with intent to defraud, presents, causes to be presented or prepares with knowledge or belief that it will be presented to or by an insurer, self-insurer or purported insurer or purported self-insurer, or any agent thereof, any written statement as part of… a claim for payment or other benefit pursuant to an insurance policy which he knows to: (i) contain materially false information concerning any fact material thereto; or (ii) conceal, for the purpose of misleading, information concerning any fact material thereto.” NY CLS Penal § 176.05.

On its own, the commission of a fraudulent insurance act constitutes insurance fraud in the fifth degree and is a misdemeanor. Insurance fraud rises to the level of a felony, when in addition to a fraudulent insurance act, the defendant also “wrongfully takes, obtains or withholds, or attempts to wrongfully take, obtain or withhold property,” the value of which determines the severity of the offense. NY CLS Penal §§ 176.05-176.30. Wrongfully taking insurance proceeds from the destruction of a $300 million casino would classify as insurance fraud in the first degree. NY CLS Penal § 176.30.

A. Knowingly and With Intent to Defraud

The first element of insurance fraud is that the fraud is committed knowingly and with the intent to defraud. “A person acts intentionally with respect to a result… when his conscious objective is to cause such result… A person acts knowingly with respect to conduct… when he is aware that his conduct is of such nature.” NY CLS Penal § 15.05. The question before us is whether Mr. Kaiser knew that his actions would result in a fraudulent act, and committed those actions with fraud as the intended result. Because direct evidence of a defendant’s mental state is rare, circumstantial evidence is sufficient.

Here, there is likely enough circumstantial evidence to show Mr. Kaiser acted with the requisite culpable mental state. The Joker and his crimes are well known to the citizens of Gotham city. Knowing of Joker’s tendencies toward destruction, Mr. Kaiser aided the Joker in his escape from Arkham Asylum on the same day the Joker’s Wild casino was unveiled. Mr. Kaiser clearly knew that the Joker would seek to destroy the casino and that thereby Mr. Kaiser could collect the insurance money. Similarly, this evidence shows that Mr. Kaiser’s acted with intent to defraud. There is no other reason Mr. Kaiser would help the Joker escape and even allow the Joker to act as a dealer in the casino.

Mr. Kaiser’s aid to the Joker is not the only evidence of his culpable mental state. We also discover through Batman’s sleuthing that the original theme for the casino was a medieval theme. As Mr. Kaiser is sure to argue, the joker is a perfectly reasonable theme for a casino, so the change in theme was innocent. The theme change, however, was recent enough to the opening that instead of a complete remodel, they simply placed joker wallpaper on top of knight wallpaper. This shows that it was not planned to be the theme of the casino, which puts into question his motive behind the switch. Combine that with the history of the Joker in Gotham city and his intentions become more clear.

There is also evidence of financial motivation to commit fraud. Mr. Kaiser basically bankrupted himself on this casino. He would not likely be able to make back the money he spent on the casino, no matter the theme. Choosing the Joker’s Wild theme in Gotham, however, would also likely be seen as a poor business decision. At the unveiling, the citizens of Gotham are disgusted by the choice of theme. Given the traumatic experiences most of them have likely had with the Joker, it would be foreseeable that this particular theme would cause potential patrons to avoid the casino.

These circumstantial facts taken together likely show that Mr. Kaiser knew that choosing the Joker’s Wild theme as well as breaking the Joker out on the same day as the unveiling would likely result in the destruction of the casino. Despite the known result, Mr. Kaiser still themed his casino after the Joker and broke the Joker out of the asylum which, combined with Mr. Kaiser’s financial state, shows an intent to defraud.

B. Prepares a Statement Concealing a Material Fact

The next element of the crime of insurance fraud is preparing a statement concealing a material fact. Here, Mr. Kaiser has obviously not presented or even prepared any sort of written statement, as he was foiled by the caped crusader before his scheme could be accomplished. Mr. Kaiser is not off the hook, however.

The absence of a written statement will not preclude a prosecution for attempted insurance fraud. In People v. Vastano (App.Div. 1986) 117 A.D.2d 637, 637 [498 N.Y.S.2d 87, 87], the court found sufficient proof of attempted insurance fraud even though no claim had been submitted. In that case the defendant plotted out a crime of insurance fraud in which he arranged to have the car of one of his coconspirators disposed of; so they could split the insurance money. The coconspirator, however, never reported the car stolen to the insurance company. The court held that “The necessary overt act for an attempt need not be the final one towards the completion of the offense. Whenever the acts of a person have gone to the extent of placing it in his power to commit the offense unless interrupted and nothing but such interruption prevents his present commission of the offense, at least then he is guilty of an attempt to commit the offense.” People v. Vastano, 117 A.D.2d at 637.

Here, Mr. Kaiser has acted to the extent that he would “commit the offense unless interrupted and nothing but such interruption prevents his present commission of the offense.” Batman was the interruption that both prevented the destruction of the hotel and the insurance fraud. Similar to the Vastano case, Mr. Kaiser had almost completed his portion of the fraud. Without Batman’s “interruption” the Joker would have destroyed the casino, and Mr. Kaiser could have collected the insurance money.

III. What If Mr. Kaiser Had Not Helped the Joker?

If we change the episode slightly, this time removing Batman’s interruption and Mr. Kaiser’s aid to the Joker. What would be the result if Mr. Kaiser, had simply realized he had spent far too much on the Casino, and simply changed the theme to Joker’s Wild knowing the Joker would destroy it. Here, the facts are a little closer as Mr. Kaiser is no longer an accomplice to the arson of the casino. However, he is still would likely be guilty of insurance fraud if he seeks to collect the insurance money on the destroyed casino.

“The essence of insurance fraud is the filing of a false written statement as part of a claim for insurance.” People v Alfaro, 108 A.D.2d 517, 520, affd. 66 N.Y.2d 985; see also People v. Michael (App.Div. 1994) 210 A.D.2d 874 [620 N.Y.S.2d 637], holding that although the defendant was found not guilty of arson, it did not mean that she could not be convicted of third degree insurance fraud where proof was overwhelming that defendant was aware that fire was intentionally set to collect on insurance policy.)

Even if Mr. Kaiser had simply changed the theme of the casino in order to entice the Joker to destroy it, he would have to either a) misrepresent or conceal his change of theme, or b) report the change of theme to the insurance company.

If Mr. Kaiser elected to simply misrepresent or conceal the change of theme, then he would be committing “the essence of insurance fraud” by filing a false written statement as part of a claim. Even if his policy would have covered the loss of the casino had he been truthful, he would still be guilty of insurance fraud. In People v. Stevens, the defendant falsely reported to her insurer that her truck had been stolen, when in fact it had been driven into a pond. The court in that case held that “The commission of the crime of insurance fraud is not dependent upon whether the insured is ultimately entitled to be paid under the policy; it is committed when the insured knowingly files false information with the carrier in an attempt to collect under the policy.” So any material misrepresentation or concealment to an insurance company constitutes insurance fraud.

So what if Mr. Kaiser was truly innocent, and had changed the theme of the casino, not to bait the Joker, but because he truly believed that “The joker is a classic symbol, long associated with cards and games.” New York and other states require that all insurers must obtain an anti-arson application for all property insurance policies covering peril of fire or explosion. NY CLS Ins § 3403. An anti-arson application is an application for insurance or renewal of insurance, that includes certain questions that the applicant must answer in addition to the basic information normally supplied to an insurer. NY CLS Ins § 3403(a). This information includes financial and background information about the property and the applicant. NY CLS Ins § 3403(c).

The improvements entailed with the change of theme of the casino would also need to be insured. Therefore, Mr. Kaiser would have had to complete an anti-arson application for the improvements. During the application process, the property would need to be appraised and inspected. During these inspections, the insurance company would likely find out the nature of the improvements. If Mr. Kaiser were honest in this anti-arson application concerning his financial condition and the financial condition of the property, and the insurance company still chose to insure him, then a court would likely find that the insurance company accepted the risk of the Joker destroying the casino and Mr. Kaiser could collect. All that being said, an insurance company is not likely to insure a Joker’s Wild casino in Gotham.

 

Jim Gordon and the Felony Murder Rule

Today’s post was inspired by a question from Christopher about the first episode of the new season of Gotham.  His question presents an interesting twist on felony murder.  Spoilers below:

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Mailbag Update!

I promise I’m not dead!  I started a new job at the Washington University in St. Louis Center for Empirical Research in the Law a few weeks ago, and it has kept me very busy.  I hope to find a spare few hours to write up a proper post soon.  Topics that people have asked about include:

  • New developments in She-Hulk, particularly with regard to ethical issues surrounding the legal practice of “Matt Rocks”
  • All kinds of questions about Multiple Man in general
  • A follow-up to She-Hulk #1: would Walters have been liable for breaking the firm’s table during her resignation?
  • A fascinating question about the legal liability faced by Dennis Nedry in Jurassic Park: by shutting down the park’s systems, would he have been guilty of murder, manslaughter, or something else?  (assuming US law applied on Isla Nublar)
  • The accuracy of a certain ethical disciplinary action taken against Laurel Lance on Arrow (vague in case it’s a spoiler; I haven’t been following Arrow very closely lately)
  • Thor: God of Thunder #21: Roxxon sues Thor and announces its intention to seek restraining orders against him worldwide in response to the alleged destruction of various Roxxon facilities by Thor
  • From video games: just how legal is anything Lara Croft does?
  • And much more!

I hope to address these soon.  In the mean time, if any readers who happen to be legal professionals or enterprising law students would like to take a crack at these, I would be happy to publish guest posts.  Bonus points if someone wants to write about the Jurassic Park question and compare US and Costa Rican criminal law.

Law and the Multiverse Retcon #8: Orphan Black…Again

This is the eighth post in the Law and the Multiverse Retcons series, in which I discuss changes in the law (or corrections in my analysis) that affect older posts.  Or older retcon posts, since not longer after I wrote this Orphan Black Retcon I saw Season 2 Episode 5, which further complicated matters.  Soon after that I received an email asking about it, and I knew I would have to write the first Retcon Retcon.  Spoilers ahead!

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Law and the Multiverse Retcon #7: Book Edition

This is the seventh post in the Law and the Multiverse Retcons series, in which I discuss changes in the law (or corrections in my analysis) that affect older posts.  Or in this case the book The Law of Superheroes as well as some older posts about drafting superheroes.

The impetus for this Retcon came from a letter (that’s right, a real, physical letter!) I received from a doctor in Tennessee.  She wrote:

You doubt that there could be a superhero draft, because of the intrinsic unfairness.  However, there was a specific doctors’ draft during World War II, Vietnam, etc., which could serve as a model for [conscripting] mutants and resident aliens.

Physicians could be and were drafted despite being middle-aged, 4F (the thought being that if you could get to your office, you could serve), or having already served.

Although I attended medical school soon after the institution of the volunteer army, this was still a source of fearful discussion amongst my male classmates and professors.

The doctor draft was indeed a real thing, and it extended well into peace time.  It was expressly held constitutional by the Fifth Circuit in Bertelsen v. Cooney, 213 F.2d 275 (5th Cir. 1954):

Neither is appellant entitled to any relief under the Fifth Amendment because, unlike the Fourteenth Amendment, the Fifth contains no equal protection clause. In order to invoke the Fifth Amendment to secure relief against inequality, appellant must show that the inequality practiced against him has been so flagrant as to amount to a denial of due process, and this he has not done.

The Act extends to all doctors and dentists under the age of 50, and to ‘allied specialist categories’, which by the express terms of the Act includes, but is not limited to, veterinarians, optometrists, pharmacists and osteopaths, imposing upon them all alike the obligation of military service when called by the President under the terms of the Act. In our opinion such a classification satisfies the requirements of the Fifth Amendment.

Bertelsen, 213 F.2d at 277.  The court also denied relief under the Thirteenth Amendment prohibition on involuntary servitude, as is typical in draft cases.

However, it is arguable that a draft of superpowered individuals could be such a flagrant inequality as to violate Fifth Amendment due process.  This would be especially likely if Congress picked specific superpowered individuals rather than superpowered individuals as a class.

In fairness to us, however, I don’t think we actually concluded that a superhero draft would be unlikely to pass constitutional muster.  To quote from The Law of Superheroes:

… Congress has a lot of authority here. It certainly has the ability to authorize and fund a superhuman branch of the military.

But does it have the ability to force superhumans to register and work for the government? Maybe. Conscription is not directly addressed by the Constitution, but it has long been held that conscription is part of Congress’s power to raise armies, and the Supreme Court tends to make unusually strong statements of congressional power when faced with this particular issue.

But directly targeting specific individuals raises due process implications far beyond the skewed drafts of the nineteenth and early twentieth centuries. The draft is a pretty huge imposition upon civil rights, and while it is an imposition Congress is permitted to make, the Supreme Court might balk at permitting Congress to go so far as to shed even the pretense of fairness.

In the case of superheroes, however, it may well be that the courts would permit such an action, as the draft power is pretty sweeping, and the courts have not really displayed any willingness to limit that power before. If Congress thinks it needs the assistance of a uniquely capable citizen to fight a war, the courts would most likely not object.

So although the doctor draft and the associated cases are a notable gap in our research, I don’t think our correspondent disagrees with us as much as it might appear.  Nonetheless, I felt the letter was thoughtful and deserved the full Retcon treatment.

Orphan Black

A few readers asked about the TV series Orphan Black a while back.  Now that the show is in its second season (and I finally got around to watching the first one and have caught up with the second one), I thought I’d address the central legal questions raised by the show.  Moderate spoilers below if you haven’t seen past the first episode or so, followed by big spoilers if you haven’t seen the season one finale.

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As a Matter of Law, the Opera is Haunted

Today’s post was inspired by this question from Sara, who writes:

In the Andrew Lloyd Webber Musical The Phantom of the Opera, it is made clear that the new owners of the Opera Company and building were unaware of a chandelier-dropping, money-demanding, havoc-wreaking, stage hand-killing “opera ghost” they were to encounter squatting in their basement when they purchased the building and the company.

Would this end up being a case of “buyer beware”, where they now have to deal with this murderous costumed freak on their own, or would there be a chance of them getting their money back, since no contract they signed would have mentioned a ghost?

I would have liked to save this question for Halloween, but it’s too good a question to wait six months.  I know next to nothing about French law, so I’m going to approach it from a US perspective.  Good thing, too, because it turn out that there’s a famous New York case almost exactly on point: Stambovsky v. Ackley, 169 A.D.2d 254 (1991).  The full text of the case is worth reading if only because it is full of terrible ghost puns.

In Stambovsky a resident of New York City bought a house in the village of Nyack, a small suburb of New York.  Unfortunately for the buyer the house had a long and storied history in the community of being haunted, which the out-of-town buyer did not discover until after the purchase.  Whether the buyer was superstitious or merely concerned with the diminished resale value of a haunted house, he sought to rescind the contract on the theory that the seller should have disclosed the house’s haunted status.

Ordinarily a court might balk at having to determine whether a house is haunted, but in this case the seller had previously made a point of claiming in both the national and local press that the house was indeed haunted.  As a result the court held that the seller was legally prevented (“estopped”) from claiming otherwise and thus “as a matter of law, the house is haunted.”

Having thus established that the house was haunted, the court held that the case called for an exception to the general rule of caveat emptor (“buyer beware”):

Where, as here, the seller not only takes unfair advantage of the buyer’s ignorance but has created and perpetuated a condition about which he is unlikely to even inquire, enforcement of the contract (in whole or in part) is offensive to the court’s sense of equity. Application of the remedy of rescission, within the bounds of the narrow exception to the doctrine of caveat emptor set forth herein, is entirely appropriate to relieve the unwitting purchaser from the consequences of a most unnatural bargain.

In light of all this, what do we make of the case of the Opera Populaire?  The buyers were evidently ignorant of the haunting, whereas the sellers were aware, and we may assume that even in the 1880s one would be unlikely to inquire as to the haunted status of a property.  So far, so good.

(NB: Since at least some members of the opera company know that the Phantom is a flesh-and-blood squatter rather than a ghost, it may be that the question is whether a seller has a duty to disclose knowledge of a dangerous squatter on the premises.  Inasmuch as this is a rare thing (especially for an otherwise legitimately occupied and used building) that would be very difficult for a prospective buyer to ascertain on their own (not even the seller knew where the Phantom’s lair was) it seems that a seller would have the same duty to disclose a real Phantom as a spectral one.)

However, a key difference from Stambovsky is that the sellers did not create the condition.  It’s not as though the former owners invited the Phantom to take up residence or popularized the story of the building being haunted (as far as I know).  It could be argued that they perpetuated it by not taking adequate steps to rid the building of the Phantom, but on balance I’m not sure that’s enough.  In Stambovsky the seller “deliberately fostered the public belief that her home was possessed,” whereas at least originally the story of the Phantom was mostly a matter of whispered rumors.  The Stambovsky court repeatedly emphasized the seller’s prior actions, which are mostly lacking in this case.

Thus, the outcome in this case would probably turn on the extent to which the seller had traded on the opera house’s haunted state, but there would at least be an argument for the buyers undoing the sale.  The exception to caveat emptor created in Stambovsky might not reach quite that far, however.

Ultimate Spider-Man #117

The question behind today’s post comes from Levi.  Trigger warning: this post deals extensively and frankly with the subject of suicide.

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Captain America and Taxes

Today’s post is a quick one in response to this question from ldycemn:

Since cap was frozen…should he have to pay a fine for not filling?

This seems like an appropriate question for this time of year, and luckily it has a pretty simple answer: no.  Not everyone has to file a tax return, particularly those with incomes below a certain threshold.  The filing requirements change with some frequency, but as far as I can tell there has always been a threshold.  Since Steve Rogers wasn’t earning any money after he was frozen (since he was presumed dead), he wouldn’t have to file.  If he received backpay after being thawed out then he would have to pay taxes on that backpay, but that would be based on the tax laws when he was thawed, not the years during which he was frozen.

The Flash and Property Rights

More mailbag questions today, this one inspired by this scene in The Flash Vol. 3, #2.  Charles asks:

Now, what the Flash does here is pretty freaking cool, but as you can see in my tags… what happens afterwards? Who owns that building? Do the tenants have to pay rent? Is there going to have to be a contract worked out between the landowners and the Flash? Even if it passes code, will it still be approved for someone to live in because the Flash, from all appearances, isn’t a certified home builder?

There are a lot of questions here, but let’s start at the beginning.

I. Who Owns the Building?  And What About Rent?

Regardless of the prior ownership situation, it’s clear that The Flash is offering the building as a gift.  Acceptance of that gift won’t require a contract (indeed gratuitous transfers are a classic example of a situation in which a contract does not exist).  Whether the owner will accept that gift is the real question.

If the owner of the prior building is the same as the owner of the land it sat on, then they’re unlikely to turn down a nice new building (assuming we can handwave any building code issues).  But if the landowner is not the same as the building owner, then the landowner might have welcomed the opportunity to terminate their agreement with the building owner, perhaps to consolidate lots, rezone the property, redevelop, or simply to sell or lease to someone else.  They might not be so keen on the new building.

It is also possible that the building and land were owned by the tenants themselves, which would probably simplify matters.

In any event, the tenants would almost certainly have to continue to pay rent.  They might not have to renegotiate their leases.  Apartment lease agreements commonly refer to a unit at an address, not to a specific building.  They also typically have clauses dealing with the destruction of the building, but from what I’ve seen of lease agreements it’s entirely possible that the tenants would have a right to continue to lease a unit in the new building (assuming the building owner accepted the gift, etc).

II. Building Code and Permit Issues

Now we start getting into the real problems.  In addition to The Flash (presumably) not being a licensed contractor, he certainly didn’t pull the required permits for rebuilding.  There may not be much legal leeway for the building to be approved without those licenses and permits.  And there are good reasons for this: we’re given to understand that The Flash did a good job of rebuilding, but what if he missed something?  It might not be so easy for the injured party to haul him into court.

And moreover, although the tenants ask “where are we going to live now?”, unless there’s a housing shortage the answer is “another apartment, since you can terminate the lease for the now non-existent one.”  To the extent that their property was destroyed, well, that’s what renter’s insurance is for.  Now, they may not have had insurance, and finding and moving into a new place is costly.  But it seems to me that The Flash could have more easily (and legally) used his powers to quickly make a bunch of money and then just given that to the tenants.  That might be more realistic, but it wouldn’t be very fun.

III. Conclusion

More questions remain: where did he get the building materials?  How did he pay for them?  If he could buy a building’s worth of materials, why not just give the tenants the money?  But the bottom line seems to be that even if he could convince the landowner to accept the gift of the building and the city to approve its construction, it probably wasn’t the best way to handle the situation.  It did make for an awesome comic book scene, though.