Faked Invoice Leads to Felony Charge, Restitution in Texas Hail Suit

By Denise Johnson | September 1, 2016

A hail damage lawsuit referred to the Texas Department of Insurance on suspicion of fraud resulted in an indictment and subsequent restitution.

In a recent Fraud File podcast interview, Steven Badger, a partner with Zelle LLP’s Dallas office, explained how a fraudulent invoice in the amount of $135,000 to complete the repair of a hail-damaged roof was discovered and how it led to the insured being indicted for insurance fraud.

Zelle’s client, Strata Underwriting Managers, received a claim for a hail-damaged roof on a hotel in Abilene, Texas. After investigation, the insurer agreed there was damage and issued an Actual Cash Value (ACV) payment to the insured, Amarprem, LLC d/b/a Whitten Inn Expo. The insurer requested confirmation from the insured when the roof was replaced in order to issue the final payment. The independent adjuster handling the claims received a contract in the amount of $135,000 for replacement of the roof. When the adjuster requested confirmation that the roof had indeed been replaced and the amount incurred, there was no response until Strata was served with a lawsuit for failure to pay the Replacement Value holdback.

The insured alleged that the insurer had not paid in full for the roof replacement. Zelle was hired to defend Strata in the lawsuit and began work by immediately sending out discovery requests to all parties involved. During this time, Zelle staff discovered that the roofing contract was a fake and the roofing contractor completed an affidavit to confirm same. The firm discovered that the insured had only paid a fraction of the amount stated on the fraudulent invoice. The insured’s attorneys were immediately notified and the matter was dismissed within the hour, according to Badger.

After receiving the go ahead from the insurer, Badger reported the matter to the Texas Department of Insurance (TDI). The agency proceeded to investigate the matter and the insured was indicted on a felony charge of insurance fraud. The insured agreed to pre-trial diversion to resolve the matter and as part of that agreement, he is required to reimburse Strata a lump sum of $32,153.66, the amount of attorneys’ fees incurred by the insurer in response to the fraudulent conduct.

This type of outright fraud is common in Texas hail damage claims, said Badger. He suggested adjusters stay on alert for potentially fraudulent conduct and take action when necessary.

When requests for Replacement Cost holdbacks are received, he said adjusters shouldn’t take the information at face value. Instead, adjusters need to ask four questions:

  1. Who actually put on the roof? Confirm payment is consistent with what the contractor was paid.
  2. What work did the roofing contractor actually do? Was the work completed consistent with what was represented as going to be done.
  3. What was the amount paid and the amount that was actually incurred?
  4. Is there proof of payment? This is necessary to confirm the amount claimed was actually incurred as the cost to replace the roof.

Read Steven Badger’s articles on the state of hail damage risk:

The Emerged Hail Risk: What the Hail is Still Going on and Getting Worse

The Emerged Hail Risk: The Balanced Solutions

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