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Tuesday, 07 August 2007 15:31

Hollywood auto shop guilty of insurance fraud

In the first auto body shop fraud case tried under a 1993 state law, a Los Angeles jury issued an injunction against Hollywood Auto Collision, prohibiting the shop from submitting further false claims to Farmers Insurance Exchange. After a weeklong trial, the jury deliberated for less than five hours July 9 before awarding Farmers Insurance $163,387. Plaintiff's lawyers successfully proved the auto body shop violated the Insurance Frauds Prevention Act and part of the California Business and Professions Code.

The lawsuit against Hollywood Auto Collision and its former president, Jong S. Kim, also known as Sean Kim, is just the second case to go to trial and the first involving an auto shop under the 1993 insurance code, which allows agencies to sue individuals who knowingly take part in submitting a false or fraudulent claim.

Manning & Marder Kass, Ellrod, Ramirez attorney Dennis Kass represented Farmers Insurance in the suit. Farmers Insurance Exchange v. Hollywood Auto Collision Inc., BC347246 (L.A. Super. Ct., filed Feb. 10, 2006).

Los Angeles-based sole practitioner Kenneth KeeByung Yoo represented Hollywood Auto Collision.

Hollywood Auto Collision may file a motion for new trial, Yoo said.

"Our position is that this statute is not applicable to the conduct that is being alleged," he said.

Unlike other fraud claims filed under common law fraud or the Racketeering Influenced and Corrupt Organization Act (RICO), the California Insurance Code does not require the plaintiff to actually pay on the fraudulent claim before a lawsuit is filed.

"This statute was passed with one purpose in mind, to combat insurance fraud," Kass said. "So, there is a lower burden of proof and other issues that make it more feasible to use than statutes like RICO."

The statute provides a formula outlining the amount of damages that can be recovered from each fraudulent claim. Penalties of $5,000 to $10,000 per claim are set, plus three times the amount of each claim for compensation, in addition to attorney's fees.

In the suit, Farmers Insurance said Hollywood Auto Collision submitted eight false claims to the agency. In each instance, the body shop presented documentation for alleged repairs of vehicles covered under Farmers insureds' auto-insurance policy.

The auto body shop did not repair vehicles following the guidelines specified by Farmers Insurance's estimates, Yoo said. Hollywood Auto Collision did not file fraudulent claims, Yoo added.

But the jury disagreed, and awarded $6,000 each for eight fraudulent claims presented by Hollywood Auto Collision and $5,000 each for the four claims submitted by Kim.

Kass said Hollywood Auto Collision submitted an estimated 150 claims to Farmers Insurance, but the agency was unable to take a sampling from each vehicle and further investigate each individual claim.

Although Farmers Insurance only scrutinized a handful of claims filed by the body shop, Kass said the statute is a strong anti-fraud tool.

California passed the law in 1993 in response to an increasing number of fraudulent workers' compensation claims. Two years later, it was amended to allow an insurance agency to hold anyone responsible for attempting to defraud it.

After seeing an upsurge in the number of claims filed under the statute in the late 1990s, Kass said insurance companies are once again using the provision to combat fraud.

"I have represented 15 to 18 insurance companies doing these," Kass said.

The statute allows insurance agencies to sue on behalf of the government, helping augment law-enforcement efforts.

"Some of the judgment will likely go to California for fraud-fighting purposes," Kass said.

The lawsuit is filed under seal for 60 days, during which time the district attorney's office, attorney general and insurance commissioner receive a statement of all material evidence that can be used in criminal and civil investigations.

The Los Angeles County DA's office is not prosecuting Hollywood Auto Collision, which Kass said closed its doors after the suit was filed, and subsequently re-opened under a different name.

If Hollywood Auto Collision is not granted a new trial, they may appeal, Yoo said.

"We feel obligated to appeal to prevent insurance carriers from going after other shops using this particular statue," he added.

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