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Insurance agency liable for fraudulent comp premium payments


A New York appellate court has found an insurance agency liable for $220,000 in fraudulent workers compensation premium payments a company paid at the instruction of one of its former agents.

In a decision published last week, the New York State Supreme Court Appellate Division’s 4th Judicial Department in Rochester said the Conshohocken, Pennsylvania-based Norman-Spencer McKernan Inc. agency was responsible for the premiums paid from December 2005 to December 2006 by a unit of Greensboro, North Carolina-based Regency Oaks Corp., a professional employer organization.

According to court documents, a former Norman-Spencer McKernan employee falsified a workers compensation insurance policy and a certificate of liability insurance purportedly issued by American International Group Inc. The agency was aware that the former employee, who was fired in June 2006 for a separate instance of embezzlement, had a private company, Professional Insurance Manager, that specialized in professional employer organizations.

The former employee directed Regency Oaks to send its premium payments to an account that was controlled by PIM. The scheme unraveled in the spring of 2006, when Regency Oaks received a notice from the New York State Workers’ Compensation Board issuing a penalty for failure to have proper workers compensation coverage in effect.

In a split 3-2 decision, the state Supreme Court upheld a lower court ruling in favor of Regency Oaks, noting that insurance agency specifically referred the company to the fraudulent agent.

“Here, plaintiff contacted defendant seeking workers compensation coverage, and defendant assigned its employee who specialized in plaintiff’s type of business to assist plaintiff,” the ruling states. “We therefore conclude that plaintiff established that it reasonably relied upon the authority of defendant’s employee to act for defendant.”