Law enforcement in Miami-Dade County, Florida recently arrested nine individuals described by Florida Chief Financial Officer Jimmy Patronis as the “ringleaders of an elaborate fraud scheme” led by Barbara Maria Diaz de Villegas,[1] owner of the public adjusting company The Rubicon Group.[2]  The arrests were the result of a year-long investigation, known as “Operation Rubicon,” to investigate insurance fraud, and demonstrate that efforts are being made to curb insurance fraud in South Florida.  According to a February 2019 report from the Federal Trade Commission, Florida is ranked as the number one state for fraud and is home to 18 of the top 50 cities in the United States in terms of fraud reports.[3]

The alleged fraud scheme involved public adjusters, water mitigation and restoration companies, insurance agencies and agents, appraisers, and willing homeowners.  The Miami-Dade State Attorney’s Office is also considering arrests of homeowners who engaged in the alleged scheme.  The scheme allegedly involved the adjusters recruiting homeowners, and then having a plumber create damage at the property.[4] In conjunction with the plumber creating property damage, an insurance agent would allegedly increase the coverage on the property, or procure coverage if the homeowner was uninsured.

The type of alleged fraud uncovered by Operation Rubicon is difficult to uncover because, to a certain extent, the property actually sustains water damage. The policyholder can show a claim adjuster the broken pipe. The policyholder can offer photographs of their floor covered in water. A water remediation company will document and photograph all the unnecessary work it performs. On the surface, the insurance claim looks legitimate.  Despite these challenges, Operation Rubicon highlights that there are four Key Questions to consider under such circumstances:

1. Was the property damage caused by a localized event? A burst pipe is easy to fabricate and can justify significant damage. Look for burst pipes that are a part of water heaters or water filters. Claiming that a water filtration system failed is a much simpler explanation for damage than claiming that a pipe failed due to corrosion or freezing.
2. Do the damages sought return the policyholder to the status quo or result in a betterment? When pipes burst, floors get damaged. Is the result of this localized event replacement of flooring throughout an entire house? Damage that necessitates significant upgrades, instead of simple repairs, should warrant a closer look.
3. Did the policyholder change their coverage prior to the loss and, if so, what was the timing? New or increased coverage in the months leading up to a claim may raise suspicions about the fortuity of the loss. Consider changes in coverage limits, deductible, and coverage afforded under a policy, as well as decisions by a policyholder to obtain insurance coverage after being uninsured for an extended period.
4. What are the relationships between the key players? Ask how the policyholder found the public adjuster, vendors, or agent and whether those parties have any ongoing business relationships. Perhaps there is a central figure who introduced the policyholder to the other participants or who may be organizing all of the efforts. Once you find out how the policyholder was introduced the other participants, consider what would be reasonable under the circumstances and in the time line described.

In considering the above takeaways from Operation Rubicon, remember that no single factor is dispositive in a fraud inquiry, and that you should consider the totality of the circumstances. When one factor is present, dig deeper to find out whether the insurance claim is legitimate.

Operation Rubicon is only one of the recent efforts by Florida to cut back on practices that have caused insurance rates to skyrocket. Florida also recently passed legislation to cut back on abusive “assignment of benefits” claims.[5] Combined, these efforts are expected to help reduce fraud and lower insurance premiums for Florida policyholders.

[1] A/k/a Barbara Maria Gonzalez.

[2] Press Release, CFO Jimmy Patronis Announces 9 Arrests in Miami Following Joint Investigation Uncovering $600,000 in Fraud, Florida’s Chief Financial Officer (April 30, 2019).

[3] F.T.C., Consumer Sentinel Network, Data Book 2018, available at https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-2018/consumer_sentinel_network_data_book_2018_0.pdf.

[4] Raychel Lean, 9 Charged in ‘Elaborate’ $600k Florida Home Insurance Fraud, Daily Business Review (May 1, 2019).

[5] See, e.g., John David Dickenson & Chad A. Pasternack, Florida’s “Assignment of Benefits” Bill: A Guide Through the New Statutory Framework, http://propertyinsurancelawobserver.com/2019/04/26/floridas-assignment-of-benefits-bill-a-guide-through-the-new-statutory-framework/.