Criminal Law and Procedure

Fraud By Insurance Agent Requires Jail – Insurance Agent Used Diverted Premium to Fund Campaign for Congress

The Ninth Circuit Court of Appeal made clear that although Congressmen may write the law they are not above the law. Former Arizona Congressman Richard Renzi learned this lesson the hard way when he was convicted by a jury on charges of conspiracy, honest-services fraud, extortion, money laundering, making false statements to insurance regulators, and racketeering. In U.S. v. Renzi, — F.3d —-, 2014 U.S. App. LEXIS 19300 (C.A.9 (Ariz., Oct. 9, 2014)), [enhanced version available to lexis.com subscribers], the Ninth Circuit was asked to reverse his convictions that included conviction for blatant insurance fraud by using clients funds held in trust to fund Renzi’s successful campaign for Congress.

FACTUAL BACKGROUND

The evidence showed that Renzi, who owned and operated an insurance agency, misappropriated clients’ insurance premiums to fund his congressional campaign, and lied to insurance regulators and clients to cover his tracks. Finally, the evidence established that Renzi used his insurance business as an enterprise to conduct a pattern of racketeering activity by diverting clients’ insurance premiums for his personal use, facilitating an extortionate land transfer, and laundering its proceeds.

Renzi owned and operated Renzi & Company (R & C), an insurance agency specializing in obtaining insurance coverage for non-profit organizations and crisis pregnancy centers. R & C obtained group insurance coverage for its clients through brokers who worked on behalf of insurance carriers. R & C collected yearly premiums from its clients and, after keeping a small percentage as a profit, remitted those premiums to the broker. After taking their commission, the broker remitted the remainder of the premium to the insurer—either Safeco, United States Liability, or Royal Surplus.

On December 10, 2001, Renzi publicly announced his candidacy for a seat in the United States House of Representatives serving Arizona’s First Congressional District. The very next day, Renzi began diverting cash from R & C to fund his congressional campaign. Between December 2001 and March 2002, Renzi transferred over $400,000 from R & C to his “Rick Renzi for Congress” account. To avoid campaign disclosure regulations, Renzi claimed the money as a personal loan to the Renzi campaign. But most of the diverted funds were directly traceable to insurance premiums R & C had collected from clients.

R & C had collected insurance premiums from its clients but had funneled those premiums to Renzi’s congressional campaign. Because R & C no longer had the money, Renzi did not pay the broker to fund the insurance for his clients. Two months later, Safeco – showing amazing patience – warned R & C that it planned to cancel R & C’s policies for nonpayment.

A month later Safeco began sending cancellation notices to R & C’s clients. With cancellation notices in hand, worried clients began calling R & C. To respond to client concerns, Renzi dictated a letter sent to clients later that month. The letter stated that, because “spiritual counseling was no longer covered” under Safeco’s policy, R & C had “replaced” Safeco with “the Jimcor Insurance Company.” The letter promised that clients would experience “no lapse in coverage.” Attached to each letter was a new certificate of liability insurance ostensibly from “Jimcor Insurance Company.” The certificate listed a policy number, policy limits, and effective policy dates.

Jimcor was not an insurance company. The new certificates were entirely fabricated. Renzi caused at least 74 letters and phony insurance certificates to be delivered, but only to clients who had called R & C to voice concern.

On November 5, 2002, Renzi was elected to the United States House of Representatives. A few weeks later, Renzi received a $230,000 gift from his father. That same day, R & C paid the full amount due to North Island: $236,655.90. After receiving full payment, Safeco decided to retroactively reinstate all of R & C’s policies.

R & C began receiving inquiries from insurance regulations. Renzi caused R & C to falsely claim that the fake insurance policies were due to a clerical error. Testimony at trial established that there was no “inadvertent computer slip.” Rather, Renzi had instructed an employee to create the fake certificates, insert the false coverage information, and send the certificates to complaining clients.

After an extensive investigation, two federal grand juries returned indictments against Renzi. The second superseding indictment against Renzi and his codefendants was returned on September 22, 2009. In June 2013, following a 24–day jury trial with 45 witnesses, Renzi was convicted on 17 of 32 counts of public corruption, insurance fraud, and racketeering. Granting a substantial downward variance, the district court sentenced Renzi to only 36 months of imprisonment.

For over ten years, Renzi served as the owner and operator of R & C, an insurance agency that marketed and sold insurance policies, approved applicants for insurance, issued certificates of insurance, and collected premiums on behalf of insurance carriers. Now, Renzi contends that his insurance fraud conviction cannot stand because R & C was not “engaged in the business of insurance” as required by the statute. The statute defines the term “business of insurance” broadly to mean the writing of insurance or reinsuring of risks “by an insurer, including all acts necessary or incidental to such writing or reinsuring and the activities of persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such persons [.]” 18 U .S.C. § 1033(f)(1).

The evidence introduced at trial was sufficient for a rational juror to find that R & C was “engaged in the business of insurance” because Aly Gamble, R & C’s Senior Underwriter, testified that R & C was authorized to act on behalf of insurer Royal Surplus Lines Insurance Company. R & C conducted acts necessary or incidental to the writing of insurance or reinsuring of risks. R & C even went so far as to issue fake insurance certificates to clients, which listed Renzi as Jimcor Insurance Company’s “authorized representative.” And during the period of time when clients were not covered by any policy, R & C paid clients directly after purportedly adjusting any outstanding claims.

The Ninth Circuit concluded that if it looks like an insurance agency and acts like an insurance agency, it’s probably engaged in the business of insurance. A rational juror could have found that R & C, which went so far as to issue fraudulent insurance policies to dupe unwitting clients into believing they were fully insured, was engaged in the “business of insurance” as the term is broadly defined in § 1033(f)(1).

Had the letters been composed truthfully, they would have revealed that Renzi had redirected clients’ insurance premiums into his congressional campaign, and that clients’ insurance coverage with Safeco had lapsed for a few months based on nonpayment.

Renzi also challenged his conviction for engaging in a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c) (“RICO”), [enhanced version available to lexis.com subscribers].

The Constitution and our citizenry entrust Congressmen with immense power. Former Congressman Renzi abused the trust of this Nation, and for doing so, he was convicted by a jury of his peers. After careful consideration of the evidence and legal arguments, the Ninth Circuit affirmed the conviction and sentence imposed on Renzi.

ZALMA OPINION

Insurance is a business of the utmost good faith. Members of Congress must be honorable and serve their constituents not their personal gain. The jury found that Mr. Renzi used the business of insurance with utmost bad faith, stole funds entrusted to him by his clients to fund his run for Congress, lied to his clients when their policies were cancelled for non-payment of premium that had been stolen by Renzi, created false and fraudulent insurance policies to stop complaints from his customers, and then lied to the regulators investigating his acts. The insurance conduct proved against Mr. Renzi – ignoring the other charges for the purpose of this article – is the ultimate expression of bad faith. His punishment – only three years in prison – was merciful. His appeal was contumacious.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or zalma@zalma.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

For more information about LexisNexis products and solutions connect with us through our corporate site