Anatomy of an Insurance Scam: How a Lawyer Reportedly Defrauded Insurers

Files with dividers that read, Citizen’s Insurance and the Florida Bar detailed how an attorney did business over a period of several years. (Photo: Olivier Le Moal /

Before the Florida Bar filed an ethical complaint against Coral Gables attorney Scot Strems, he was already a household name in the insurance industry.

Accused by the Florida Bar of sitting “at the head of an extensive campaign of unprofessional, unethical and fraudulent behavior” statewide, Strems has new legal troubles: a lawsuit from Citizens Property Insurance accusing him of conspiring with third parties to the insurer out of millions. He is also facing an alleged class action from former clients.

Strems has repeatedly denied any wrongdoing and is believed to be innocent as the Florida Supreme Court has yet to rule.

But based on the bar’s claims, how did this alleged scam work and what red flags should insurers be on the lookout for?

Several insurers suspected

A manager of a special investigation unit, or SIU, for a major insurance company, who preferred to remain anonymous, said his team has known about Strems for about four years, and that every major insurance company has had its own investigation into him.

And that investigator said that in a twenty-year career, the Florida Bar’s complaint against Rennet was the toughest he’d seen.

The researcher said that a typical Strems case is usually based on water damage and often involves two types of claims: damage that appears exaggerated but is based on a real event, such as a hurricane, and damage that appears to be completely fabricated. He said the trend of late has been to file an influx of hurricane claims before the statute of limitations expires.

“What I’ve noticed with those kinds of claims is either the policyholders or the homeowners [who] are not conscious and innocent, for want of a better word, or they may be involved in the plan, ”said the SIU manager. “And this has not been proven, but you might get a bribe or guaranteed a large amount of money or whatever.”

While this is not exclusively the case, he said it often seems that homeowners in South Florida are sensible with the plan, while those in northern Florida cities, such as Jacksonville, are less so – often elderly or not fluent English.

In such schemes, the SIU manager said that public experts or contractors who work with a law firm in certain communities tend to go door-to-door and ask homeowners if they want a free inspection to see if they have any damage. could pose the damage. basis of a claim. If they are told they don’t have to do anything or spend money, that may seem like a good idea.

“The home owner thinks he has nothing to lose,” said the SIU manager. “But the person at the door has them sign a piece of paper, and that could be a bond that they hire the law firm to represent them – stuff like that.”

‘I have not hired anyone’

The SIU manager said he had noticed this happened in many cases of Strems because they spoke to some homeowners who sued his insurance company but said, ‘I have no idea what you’re talking about. I haven’t hired anyone. “

He said his company is therefore not interested in going after the policyholders, believing that the alleged scam is being caused by the law firm, public experts and outside companies.

It reportedly appears to be “a numbers game” with Strems, and that’s the way the SIU manager sees it.

“If you wait too long or deny anything, they’ll immediately file a complaint,” he said. ‘And they will file so much pack and in my opinion it was to throw so much stuff at the wall to see what sticks. … We would never consider throwing $ 500 to make it go away. We remain aggressive towards them. “

And they aren’t cheap claims, according to the source, which said most are in the five or six figure range. And there are often multiple lawsuits for the same loss, one from Strems and one from a third party.

“We even joked that everything comes in pairs,” said the SIU manager. “If you call them to look at your roof, you get a lawsuit for your roof and the counter is leaking.”

But where, he says, it backfired is that many Florida SIUs got wise to these alleged tactics and started defending the lawsuits and surfacing in mediations.

“They did not have the manpower to attend all the cases they filed,” said the SIU manager. They did not show up for hearings. They would constantly postpone exams under oath or mediation because frankly we called their bluff and they don’t have the staff to attend these things. “

The catalyst

Paul Handerhan is president of the Federal Association for Insurance Reform, a national trade association with a board of directors including representatives from insurance companies, public experts, contractors, rating agencies, and plaintiffs and attorneys.

He stressed that the allegations against Renner are unproven and declined to comment specifically, but noted that they fall under a series of “extremely disruptive” tactics with which he is familiar.

Handerhan says that understanding why this model is being used requires looking back a few years – specifically, to Hurricane Andrew in 1992.

Before that, most of the insurance market share was with national carriers. But when the Category 5 storm caused massive, widespread losses and threatened a major interest rate shock for policyholders, the situation changed.

The state negotiated with reinsurers and eventually created the Florida Hurricane Catastrophe Fund as “a barrier or speed bump to slow those rate hikes that came out of the private reinsurance market” and require insurers to buy a certain amount from the state.

Florida also blocked national companies from raising tariffs to the level they wanted, so they gradually began to reduce their presence, separating work in the Sunshine State from their national operations to reduce the risks.

Handerhan said this left many policies with nowhere to go, so most ended up with the state’s residual insurance program, now known as Citizens Property Insurance Corp. But that meant more risk exposure, so the state stimulated the private market by lowering the capital requirements for starting an insurance company.

But when a flurry of hurricanes in 2004 unexpectedly hit Florida within weeks of each other, many of those domestic companies became insolvent and sought help, such as moving to percentage-based deductibles rather than specific amounts.

“After all these storms, you find out that there are a lot of third parties,” Handerhan said. “These are contractors, loss consultants, people who had now made a lot of money from this first storm of storms who say, ‘This is a great way to make a living.’ “

They began to use benefit-allocation agreements, Handerhan said, which allowed them to be in the policyholder’s shoes and sue on their behalf after offering to make free repairs.

“The problem with that is, and maybe it’s because of ignorance or maybe it’s clever, but they don’t tell the homeowner, ‘Listen, if you make more than three insurance claims within a certain period of time, you become uninsurable,’ Handerhan said. you have these contractors feeding on these policyholders to handle these claims, and I understand that we are in a capitalist society, people want to make money, but it was very disruptive to the insurance market and negatively impacted policyholders. “

That also attracted attorneys focusing on AOB cases, which, Handerhan said, exacerbated the problem.

“It’s so easy to find only a minimal amount of damage on any roof in South Florida,” Handerhan said. “They said every damage was hurricane damage, and there’s no way to disprove it.”

That ultimately resulted in a law restricting the use of AOBs, which Handerhan says has reduced related litigation.

But he says he suspects it inadvertently triggered a different kind of process model.

‘I can’t prove this, but anecdotally I think it happened that these contractors didn’t go out of business. What they’ve done now is they just changed their pitch and their business model, ”said Handerhan. ‘They go to the homeowner and say,’ I can get you a new roof, but I have to introduce you to my favorite attorney. And instead of me taking a lawsuit, he’ll file a lawsuit on your behalf, and when he gets the money, he’ll give it to me and I’m going to fix up your roof. ‘”

Only a small group of contractors, damage consultants and lawyers do this, Handerhan has experienced, but it is a problem that he believes must be solved with legislation.

“These contractors and claims counselors who are not licensed insurance professionals should not adhere to policyholders by telling them they can help them with their insurance claims,” ​​Handerhan said. “Everyone in the insurance industry, from the agent to the insurance company expert to the public expert, to the insurance company and the customer service representative, they all need a license because insurance is complex and a little thing you do on something responds differently. “

Since the bar filed its complaint against Strems, the number of claims from his firm has fallen, the SIU manager said.

“Instead of 50 a week, we get 20 a week, things like that. But it is amazing that the company is still active, ”said the SIU manager. “If I was a young lawyer getting my degree and trying hard to work in South Florida and this is happening at the firm, I would be out of there.”

Some Strems employees resigned after his suspension, while others continued to run the company, which changed its name to The Property Advocates on July 1. LinkedIn message, who says it is looking for a full-time attorney.

According to SunBiz, Hunter Patterson is president of The Property Advocates, while Cecile Mendizabal is director, Christopher Narchet treasurer and Orlando Romero secretary. They did not respond to a request for comment.

More ethical matters could come as the SIU manager said Strems isn’t the only company to appear to have used this tactic.

He says a handful of Florida companies appear to be following a similar model. “I’m guessing and I hope they’ll keep an eye on the news about the Strems operation and maybe they will be deterred from continuing to do so.”

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