Farmers Insurance Sues Body Shops in Coordinated Statewide Anti-Fraud Crackdown

LOS ANGELES - June 29, 2006: Farmers Insurance Exchange and Mid Century Insurance Company have sued two separate body shops and their owners, accusing them of taking part in a scheme designed to defraud Farmers and its policyholders. The civil complaints, which are similar to prior successful lawsuits against body shops who submitted false insurance claims, seek not only damages for the fraud committed, but seek injunctive relief, where the courts are asked to order a halt to these deceptive practices. The lawsuits are pending in Santa Clara and Los Angeles.

The lawsuits detail a systematic scheme where the body shops billed Farmers for services that were never performed. This includes billing for parts and labor that were never provided. Once Farmers suspected fraud, it immediately inspected the cars involved, confirmed that there were no safety issues and exposed physical evidence of fraud.

"We expect and assume honesty and integrity from those people who render services for our policyholders. When we develop concrete evidence that intentionally false claims have been filed, we take swift action against the unscrupulous individuals," said Doug Ashbridge, Director of Special Investigations. "Farmers is committed to fight fraud, no matter where it occurs and no matter what form it takes. Farmers continues to cooperate with law enforcement on these and other matters around the country, working to deter anyone from attempting to defraud Farmers and its policyholders. We are committed to stamp out fraud. We will assist law enforcement on criminal matters and file our own civil actions to deter anyone who is contemplating submitting fraudulent insurance claims. It is our commitment to our policyholders to take fraud out of their premium dollars."

In the Santa Clara action, Farmers noticed an unusual billing pattern, initiated an investigation and developed evidence against defendants Tommys Body Shop and its owner, Gia Van Tran. Farmers' Special Investigations Unit, which includes body shop experts, inspected all 12 vehicles, documenting fraud in each invoice. The expert inspections revealed substantial discrepancies between the invoices and the work actually performed. The invoices reflected billing for repairs that were not done, billing for replacements where the parts were not replaced, billing for part replacements that were only repaired and other similar billing issues. Farmers is seeking over $320,000 in statutory damages for the intentional actions of the defendants.

The Los Angeles action against Hollywood Auto Body Shop, Inc. and one of its officers, featured similar false claims. Farmers inspected eight vehicles, finding that 30% of each invoice involved billing for parts that were never placed on the vehicles and billing for services that were never rendered. Farmers is seeking over $190,000 in statutory damages for the intentional actions of the defendants.

Mr. Ashbridge went on to state: "Body shops cannot bill Farmers, accept money for the parts and services, fail to install the parts or render the services, and then simply pocket the money. It is wrong; it is fraud. Farmers has developed a statewide team that is designed to detect precisely this type of fraudulent activity. Our investigators' efforts and expertise exposed the fraud being perpetrated here and developed the physical evidence of fraud. Lawsuits such as this are part of a nationwide commitment to stem the tide of insurance fraud."

Farmers Group, Inc. - Q & A

Q. Why has Farmers chosen to pursue a civil lawsuit?

A. Farmers is doing its part to fight body shop and other forms of insurance fraud. A successful fight against fraud requires a multifaceted approach. The efforts of the Department of Insurance and the Local District Attorneys are necessary to fight fraud. Now insurance companies can join the fight, with laws that allow the carriers to recoup money, obtain other damages and get court orders preventing future fraud.

Q. Under what legal provisions are you filing this suit?

A. The lawsuits are filed under the California Insurance Fraud Prevention Act, Insurance Code section 1871.7, as well as Business and Professions Code section 17200 for unfair business practices. California has enacted a novel, anti-fraud law which was designed to help combat insurance fraud. The law allows for a penalty of $5,000 - $10,000 per false claim, three times the false claim for compensation, all attorney fees, expenses and costs, as well an injunction against further fraud.

Q. How did the insurance fraud schemes operate?

A. Both cases involve nearly identical schemes. These were complex and sophisticated schemes that involved billing for parts and labor that were never provided. Specifically, as explained in the civil complaints, the defendants billed for repair work that was not done at all; they billed to replace parts which they did not replace; they repaired parts and billed to replace those parts; and they billed for certain parts, but did not use them.

Q. How long had the Farmers investigation been going on?

A. Farmers first suspected that the defendants were attempting to submit false and fraudulent claims in the Santa Clara matter in February 2004 and in the Los Angeles action, since September, 2004. Farmers has a team which specializes in detecting insurance fraud and who began a detailed and comprehensive investigation, including a full inspection of the cars at issue here. The investigation revealed that the defendants were attempting to pass off false claims to Farmers. Farmers' investigation is continuing at this time. More claims may be added to the lawsuit and the claim for damages may grow further.

Q. Will these defendants be prosecuted as criminals?

A. Farmers has offered its full cooperation to the California Department of Insurance and the local District Attorneys who have the authority to make these decisions. Farmers has provided law enforcement with a statement of all of its material evidence.

Q. Is the Farmers investigation complete?

A. No. By its very nature, fraud is deceptive. Farmers has a statewide special investigative unit who focuses on individuals who are attempting to submit fraudulent claims. Farmers' investigators are continuing to monitor claims submitted by the defendants and continue their investigation into other questionable claims submitted by the defendants.

The Farmers Insurance Group(R) companies comprise the nation's third-largest personal lines property & casualty insurance group - helping to restore the lives of over 15 million customers when the unexpected happens. Headquartered in Los Angeles and doing business in 41 states, these companies provide homeowners, auto, business, life insurance, recreational products and financial services to more than 10 million households through 17,000 exclusive and independent agents and district managers. For an agent near you, call 1-800-FARMERS or visit www.farmers.com.