North Carolina Workers' Compensation Lawyer Blog

A former North Carolina Workers' Compensation insurance agent, Terri Lynn Spence, has been sentenced to four years of supervised probation and a full year of house arrest (under electronic surveillance) for multiple counts of embezzlement, according to North Carolina officials.

North Carolina Insurance Commissioner, Wayne Goodwin, publicized Ms. Spence's sentencing at a news conference. The 34-year-old Emerald Isle resident was ordered to pay more than $46,000 in court fees and restitution to victims of her scheme. All told, 16 different insurance companies and 43 individuals were financially impacted.

Ms. Spence "obtained property by false pretences," according to investigators at the Department of Insurance, who contacted police officers in La Grange to bust the embezzler back in June 2008. Most of the policies embezzled were North Carolina Workers' Compensation policies (along with some homeowners' policies). State officials do not believe that Ms. Spence worked in conjunction with any other entity or syndicate. But her arrest, trial, and sentencing likely have not gone unnoticed by others who would seek to embezzle or otherwise defraud the North Carolina Workers' Compensation system.

If you or a family member has had trouble collecting your North Carolina Workers' Compensation benefits, or if you are having any issues filing paperwork, dealing with your employer, managing negotiations with your insurance company, or talking to your physician or rehabilitation specialist about billing, go over your concerns with a qualified North Carolina Workers' Compensation attorney.

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Terri Lynn Spence

Wayne Goodwin

Here is a brief primer on North Carolina workers’ compensation fraud -- including relevant laws passed by the North Carolina General Assembly as well as information, implications, and a toll-free hotline for fraud investigation.

Laws
In 1994, the state assembly passed the Workers’ Compensation Reform Act, which included statute 97-88.2 (outlining punishments for misrepresentation in a North Carolina workers’ compensation filing) as well as statute 97-88.3 (outlining punishments for healthcare providers who fail to follow the law.)

The following year, the state assembly changed statute 97-88.2 and empowered the North Carolina Industrial Commission (NCIC) to look into fraud violations of the 1994 WCRA.

In 1997, the North Carolina Assembly passed House Bill 618, which further amended two key statutes - 97-88.2 and 97-94 -- to spell out increased penalties for fraud and misrepresentation under the Workers’ Compensation Act.

Today, the NCIC operates a hotline at (888) 891-4895 from Monday through Friday during normal business hours.

Who can be accused of conducting fraud? Parties including but not limited to:
• employees/claimants
• employers/managers
• corporate officers
• administrators of third party services
• insurance adjusters/agents
• lawyers
• providers of healthcare services
• rehabilitation providers

Individuals who commit North Carolina workers’ compensation fraud imperil the whole system. Fraud drains millions of dollars that would otherwise go to claimants with legitimate problems. That being said, not all cases are cut and dried. Some individuals may accidentally commit North Carolina workers’ compensation fraud simply because they fail to fill out paperwork properly or fail to follow bureaucratic protocol. It’s not that they try to cheat the system, in other words; it’s that they do not understand how to operate within it effectively.

This isn’t to say that there are not some bad eggs out there who intentionally game the system. However, if you or a family member has been accused of this crime -- or if you're in need of other kinds of assistance filing or moving forward with your North Carolina workers’ compensation claim -- it may behoove you to connect with a knowledgeable attorney right away to discuss your concerns in confidence. A free consultation with a reputable attorney can put you on a strategic path to maximize your benefits and minimize your hassle.

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NC Workers’ Compensation Reform Act

More about Workers Comp Fraud in NC

The Hartford Courant reports that a man named Steven Zaczynski has been charged with fraud and other counts in conjunction with a complex workers’ compensation scheme in CT. Although North Carolina workers’ compensation experts have yet to weigh in on the matter, the attention grabbing nature of this case may impact how authorities investigate and deal with similar North Carolina workers’ compensation fraud matters.

According to The Courant, Zaczynski had been working for the Department of Corrections at the Carl Robinson Correctional Institution, when he filed for workers’ comp benefits, citing an on-the-job injury. But according to an investigation ordered by Attorney General Richard Blumenthal, Zaczynski just took the money and continued to work full time for his own business, New England Pallet of Enfield. (Zaczynski allegedly stole $12,656 in benefits.)

But the case gets weirder and more complicated. Apparently, Zaczynski also fleeced customers of New England Pallet -- he took money for pre-orders but never delivered products -- AND he failed to provide workers’ comp coverage for his employees.

Given the nuances and layers of this case, it may be a while (if ever) before a similar North Carolina workers’ compensation case goes to trial. But the situation illustrates how fraud, insurance scams, larceny, and other labor rights violations can coincide. This is important because injury claimants who have been unfairly denied workers’ comp by their employers or insurance companies need to be aware -- not just of their own situations -- but also of the extended situations that may be preoccupying their employers/insurers.

Correction Officer Charged With Workers' Compensation Fraud, Hartford Courant, Oct 7, 2009

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Carl Robinson Correctional Institution

Since the early 1900s, North Carolina workers’ compensation benefits have provided injured workers with money for missed wages, medical bills and retraining. Unfortunately, abuses of the workers’ comp system have reached epidemic proportions, according to the National Insurance Crime Bureau, which surveyed the industry and found that this crime costs America around five billion dollars a year.

Workers who feign injury to collect benefits pass the costs of these payouts onto insurance companies, employers, and the federal government, resulting in higher premiums for everyone and stealing focus from legitimate workers’ comp claims. Insurance company advocacy groups and federal and state regulators claim that perpetrators of North Carolina workers’ compensation fraud do systemic harm, in other words.

No doubt many people do take advantage of the system by intentionally misreporting or mischaracterizing aspects of their conditions, and so forth. At the same time, however, the insurance companies cannot fairly claim to be pure victims of this fraud. Companies are generally free to hike up rates. And by investigating -- and in some cases harassing -- legitimate North Carolina workers’ compensation policy claimants, insurers often exacerbate the stresses on these individuals, thus indirectly causing more health problems for them and thus straining healthcare resources further and hurting the economy.

It’s also debatable whether at least some of the fraud that’s been going on constitutes a "gray market" as opposed to a "black market." Consider: many injured workers don’t get a fair shake when it comes to their benefits. Some then rebel against a system that they perceive to be (and objectively may be) biased against them by committing fraud. Thus some attempts to siphon money from insurance companies could theoretically be justified. (That said, the law is the law.)

The deeper issue that needs to be addressed may be more global in nature. In other words, perhaps neither the perpetrators of fraud, nor the insurance companies are at the root of this epidemic. Maybe the problem is that American workers do not get adequate safety training. Alternately, maybe some massive as-of-yet-fully-acknowledged problem (such as poor workstation ergonomics) is injuring a vast number of workers and thus draining the resources of insurance companies (who in turn must bully policyholders to survive financially; and in turn policyholders must
perpetrate small scale fraud to be able to pay their bills.)

The Cost of Fraud, NYSIF

The Myth of Workers Compensation Fraud, PBS, May 29, 2000

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National Insurance Crime Bureau

According to an El Paso, Texas news report from June 30, 2009, an El Paso man has been convicted and sentenced for trying to scam the US Postal Service via a fraudulent workers' compensation scheme.

Attorneys, workers, employers, insurers and others interested in North Carolina workers' compensation issues have closely followed the case of former postal worker, José Barraza, who accepted over $54,000 in workers' comp payments before getting busted for his activities. After being clued into the possibility that Barraza had faked an injury to his arm, investigators videotaped him throwing a football, taking out trash, and otherwise using what turned out to be his perfectly healthy arm.

Although Barraza was arrested in Texas, his sentencing would likely have been similar had he been convicted of a North Carolina workers' compensation scam. The US District Judge overseeing the case sentenced Barraza to pay back the $54,000+ he took from the US Postal Service and Department of Labor as well as a pay an assessment of $1,400. In addition, Barraza must serve out a 10 month prison sentence for committing fraud. Barraza was convicted by a jury of all 14 counts against him. But it is unknown at this time whether/how he will appeal the ruling. Following his jail sentence, Barraza will have to serve 3 years of supervised release.

Claims Journal.com, Former U.S. Postal Service Employee Sentenced for Work Comp Fraud, August 28, 2009

KVIA, Man sentenced for workers compensation fraud, August 26, 2009

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Workers' Comp Fraud

El Paso, TX

On August 20, the California Department of Insurance (CDI) reported that a Southern California resident named Joseph Baiden (56) had been arrested in conjunction with a massive workers' compensation scam. Baiden, who surrendered to LA Superior Court, had an arrest warrant out on him stemming from allegations that he had deliberately underreported his workers' compensation payroll numbers to reduce his insurance premiums. Over an eight year period, from 2001 to 2007, he allegedly cost his insurer, State Fund, around $1.4 million. North Carolina workers' compensation insurers have taken notice of the case, and no doubt the outcome will dramatically influence local NC policies, procedures and safeguards.

The size and scope of the charges against Baiden have attracted attention from local and national media. The CA state insurance commissioner, Steve Poizner, broke the story personally. If the defendant is convicted of fraud, he could face up to 40 years in jail in addition to fines of well over $3.2 million. The California Department of Insurance has frozen Baiden’s bank accounts and seized five of his Southern California properties, including an exclusive estate in the posh Diamond Bar neighborhood.

One of the reasons why the CDI has come down so hard on the accused is that workers' compensation fraud – whether it occur in North Carolina or elsewhere – pads costs across the employment spectrum. When insurers can’t collect premiums, they either raise rates or reduce service, thus creating a cascade of bad effects for employers and employees alike.

AP, Calif. man accused of cheating workers comp fund, August 21, 2009

Pasadena Star News, Diamond bar man suspected of fraud, properties seized, August 19, 2009

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Steve Poizner

California Department of Insurance

In October, 2006, employers who had bought into a self-insured North Carolina workers' compensation group fund got some terrible news. The Phoenix Fund's reinsurance broker, a man named Thomas Raitz, had been engaging in complicated illegal shenanigans to steal from the fund via a money laundering and mail-fraud operation. Investigators from North Carolina’s Department of Insurance concluded that Raitz’s scheme impacted more than $20 million worth of the fund’s money.

Although Raitz was convicted in 2007 after pleading guilty and was subsequently sentenced to nearly 6 years in jail, members of the Phoenix Fund have yet to collect money and damages. Finally, in 2008, Raitz was ordered by the court to pay $19 million to reimburse the Phoenix Fund. To date, Raitz has paid out $18 million, of which $11.5 million has gone to meet the obligations of the fund itself and has not gone to remunerate individual employers. Only $6.5 million collected will be distributed among the injured parties. That said, the North Carolina Insurance Commissioner, Wayne Goodwin, released a statement that sounded a note of optimism for these employers, assuring the victims that they would “get back every available penny” owed to them.

Triangle Business Journal, North Caroilna employers to get $6.5M from Phoenix Fund, August 10, 2009

Workforce Management, Workers’ Compensation Fund Members Hit by Fraud Get Distributions, August 14, 2009

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North Carolina Insurance Commission

North Carolina’s Department of Insurance