Insurance Fraud “Chutzpah” – No Mercy for Insurance Criminal

Insurance Fraud “Chutzpah” – No Mercy for Insurance Criminal

This case concerns the criminal conduct of the owner of an insurance business, formerly known as Associates Insurance Agency, Inc., owned and operated by the Defendant-Appellant, Tina Woods Butler, in Dyersburg, Tennessee. On February 13, 2012, the Dyer County Grand Jury returned a seventeen-count indictment against Butler covering a period of time between February 9, 2009 and July 16, 2010. Butler subsequently entered pleas of nolo contendere to six counts of theft of property valued at $1,000 or more, Class D felonies, and to ten counts of theft of property valued over $500, Class E felonies. The matter proceeded to a hearing on October 30, 2012, for the trial court to consider judicial diversion or, if denied, to determine the length and manner of service of the sentences. In State v. Butler, W2012-02532-CCA-R3-CD (Tenn.Crim.App. 11/19/2013) [enhanced version available to lexis.com subscribers], the Tennessee Criminal Appellate court resolved the complaint of Butler that she should not have been sentenced to prison.

FACTS

Robert Heisse of the Tennessee Department of Commerce and Insurance testified that he had been an insurance fraud investigator in the Insurance Division for the past six years. After interviewing some of the victims in the most recent cases, Investigator Heisse noticed a common theme where the victims who purchased insurance policies would receive a cancellation notice only to be contacted by Butler who told the client that it was a paperwork error and that she would handle the issue. In the course of his investigation, Investigator Heisse determined that the issue had not been taken care of, and these individuals continued to pay premiums to Butler though their insurance was cancelled. In some cases, Butler provided the victims with a certificate of insurance, though these forms were from her business, and not from the insurance company itself. Investigator Heisse stated that Butler agreed to have her insurance license revoked in the course of the investigation and a consent order of revocation was entered in April 2009.

After Investigator Heisse’s testimony, the trial court stated it had already noted that Butler committed many of the charged offenses after her insurance license had been revoked. Without objection, the trial court entered into evidence the consent order in the matter of Tennessee Insurance Division vs. Tina Woods Butler. The order, dated April 16, 2009, reflects in its findings of fact that, as early as 2001, complaints were filed against Butler for failure to forward her clients’ advanced premiums to their insurance companies. She agreed to a revocation of her insurance license to avoid further administrative action.

Since 2009, Butler had operated an insurance and tax preparation business. Previously, at the plea hearing, she had entered pleas of nolo contendere to the commingling and spending of her clients’ money that had been intended for insurance premiums. She admitted responsibility and had paid restitution to the individuals who requested it. Butler said she was no longer participating in any insurance-related activities and that she was solely involved in the business of tax preparation.

Butler, in a series of sad comments to gain mercy from the court for her criminal activity, said her husband did not work and that he had last worked nine years ago. She was the only source of income in their household and the sole support for their son in high school and for their daughter in college. Her daughter was on an academic scholarship to Rhodes, but it still cost approximately $3,500 for the first year. Butler recognized that it was inappropriate of her to fail to forward the money of some of her clients to the insurance companies. In two or three cases, she paid several thousand dollars out of pocket when her uninsured clients had accidents.

If granted diversion, Butler said she would not be seen in the criminal courts again. She denied having any criminal record and agreed to follow the conditions of her probationary period. Butler said she was in good mental and physical health. She said she was remorseful for what happened and that the situation had caused her stress and humiliation.

After the close of proof and arguments, the trial court denied Butler’s request for judicial diversion. Butler timely filed a notice of appeal.

ANALYSIS

Whether to grant or deny a request for judicial diversion lies within the trial court’s sound discretion. A trial court must consider the following factors in deciding whether a qualified defendant should be granted judicial diversion:

(1) the defendant’s amenability to correction;
(2) the circumstances of the offense;
(3) the defendant’s criminal record;
(4) the defendant’s social history;
(5) the defendant’s physical and mental health;
(6) the deterrence value to the defendant and others; and
(7) whether judicial diversion will serve the interests of the public as well as the defendant.

Because the record reflected that the trial court considered the appropriate factors and properly denied the request for judicial diversion, the appellate court concluded that Butler’s claim is without merit. Butler additionally argued that at the sentencing hearing, the trial court prematurely denied judicial diversion before presentation of the defense’s proof. The record shows that the court nevertheless heard the proof and considered the applicable factors. It first evaluated Butler’s amenability to correction and found that she could be rehabilitated. The trial court acknowledged that Butler did not have any criminal record, which weighed favorably for diversion. It also found nothing wrong with Butler’s social history or physical or mental health. In denying the request for judicial diversion, however, the trial court stated, “because there were many offenses, … what we’re dealing with is a situation where you’re actually stealing money from people, and it’s not a one-time situation. It’s not like a shoplifting [case] where you go in and steal some money or even though it might be more than that. You have, over the years, over and over and over again taken money that was not your money.”

The record reflects that Butler reported having received her Tennessee insurance agent license in 1990 or 1991 and that she had been self-employed since 1999. As early as 2001, complaints were levied against Butler such that she consented to have her insurance license revoked in April 2009.

The indictment returned against Butler charged sixteen counts of theft covering a period of time between February 9, 2009 and July 16, 2010; she pleaded nolo contendere to all sixteen counts of theft. The record also reflects that at least one of the victims was involved in a lawsuit and experienced negative consequences as a result of being uninsured. In denying judicial diversion, the trial court found particularly troubling, and the appellate court agreed, that there were multiple offenses committed over time, even when Butler lacked the authority to sell insurance.

The commission of an offense in separate actions over a period of time indicates a sustained intent to violate the law weighing heavily against the granting of judicial diversion. The abuse of a position of trust also weighs against the grant of diversion.

Because the trial court found that Butler had, over the years, over and over and over again taken money that was not hers during a period of time where she didn’t even have the authority to sell insurance. The trial court properly determined that the circumstances of the offense and the need for deterrence necessarily outweighed the other factors considered by the court. The sentence was appropriate and Butler should spend time in jail.

ZALMA OPINION

Insurance fraud is a crime. Ms. Butler was a serial insurance fraud perpetrator. She placed her customers at risk of losses without insurance. She tried to be an insurance company without sufficient assets or controls. She stole money from her customers and the insurers she represented. She was, in common language, a thief. She came up with multiple excuses for her crimes, none of which actually excused criminal conduct. Then, when sentenced for her multiple criminal acts she asked to be let free so she could rehabilitate herself and work preparing taxes for unsuspecting individuals who did not know of her criminal conduct.

“Chutzpah” is a Yiddish word that has no English equivalent. It is more than unmitigated gall. It is often defined with the example of a man convicted of murdering his parents who asks for leniency because he is an orphan. Ms. Butler had chutzpah. She was a serial insurance fraud perpetrator and thief who used a position of trust to steal from those customers who trusted her. She is the worst kind of criminal, one who believes she is doing nothing wrong because she needed the money to pay for her daughter’s college.

    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.

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