CDI Continues Probe of Alleged Taxicab Fraud

In the current commercial auto arena, one of the toughest risks to place is taxicabs. Given that, it is not surprising that certain entities might be attracted to the prospect of luring the gullible or less vigilant by offering policies which seem too good to be true—because they are.

According to Dave Fortman, a senior investigator with the criminal investigations branch of the California Department of Ins-urance, early this year, the CDI received information about a company that was selling taxicab policies using the names Nationwide Insurance Co. and Global Indemnity Insurance Co. In fact, neither the real Nationwide nor the real Global Indemnity were involved in these sales.

In December 2000, Nationwide Mutual Insurance Company had filed actions against 14 defendants, including Tri-Continental Exchange Ltd., Combined Services Ltd., and Nationwide Insurance Corporation (not affiliated with the plaintiff), which were described in court documents as corporations “organized under the laws of St. Vincent and the Grenadines.” The 11-count complaint sought, in part, “preliminary and permanent injunctive relief as well as damages for Defendants’ use of Plaintiff’s [Nationwide] name and marks on insurance and insurance-related products.” That same month, the U.S. District Court for the Central District of California issued a ruling stating that the defendants were “restrained and enjoined from using the [Nationwide] mark.”

Since the investigation was opened, Fortman said the CDI found that Tri-Continental Exchange, which also goes by numerous other names, has continued to sell policies in California and other states. In fact, Fortman said he had found cases dating back to 1995 in other states, which exhibit essentially the same problems as policies uncovered in California.

“They’re not admitted to transact insurance anywhere in the U.S. or Canada or any other place that we can determine,” Fortman said. Since he has been involved in the case, Fortman noted that the company had used seven different names in a five-month period.

In addition to being unable to find any licensure for the company, investigators also cannot verify any assets behind them.

Fortman added that other states have issued cease and desist orders to prohibit the company from selling insurance; yet, each time that happens, the company comes back with a new name, recruiting local insurance producers in California and in other states to sell insurance products for hard-to-place markets.

“Our investigation of the state producers is that they’re selling a non-admitted insurance product without authority,” Fortman said. He added that the company is not requiring loss runs, a full application or a lot of the standard things that any reputable producer would have to provide to a carrier company for similar types of coverage.

Are the producers aware of what they’re getting into? Fortman said that awareness ranges. As a typical example, he described a recent discussion he had in July with one producer, who told Fortman that in mid-June, the producer had been approached by the company to sell a certain product. The producer was told that for every policy referred to the company, he would receive a 17-percent commission. For that 17-percent commission, he would only be responsible for sending out a simple application.

“The company also then told him, ‘You know this isn’t really part of your real business. So you shouldn’t even keep the records in your office. You should keep them at your home or some other place,'” Fortman explained. “The guy sees 17-percent commission for faxing over an application to an offshore number. He sells a number of insurance policies to…about 10 taxicab companies in a week.” And the policies are all the latest version of the Tri-Continental “product.”

Fortman noted that there are actually two separate investigations going on with regard to allegations of the sale of fraudulent taxicab policies. Last February, several brokers in San Diego, Los Angeles and the Bay Area were examined with regard to a Tri-Continental connection. Those brokers were found to be selling the company’s insurance policy, knowing they were dealing with an offshore company.

In the Bay Area, two separate alleged scams are currently being investigated, including that involving Tri-Continental and one which was recently reported in the Contra Costa Times.

In the latter case, an insurance producer was investigated for allegedly selling policies for senior citizen transportation rather than the required taxicab insurance. Additionally, the producer had created a master policy for a company, and to that policy added approximately 27 more companies as add-ons instead of separate policies. None of those companies had actual taxicab insurance.

Fortman said that when the CDI went out and identified different victims of the alleged scam and started talking to them, the drivers scrambled to get new insurance and in some cases were, ironically, sold the Tri-Continental policy. According to the investigator, the driver/victims seemed completely unaware that what they were getting was not valid coverage.

“Even these owner/operator cabs, they go buy a policy, [and] what they get told is the policy traditionally is $500 or $1,000 less a year in premiums, so they jump on it,” Fortman said. “And the only thing they usually get [is] the certificate of insurance…or they may get something that looks like an insurance policy down the road.” Fortman noted that it is typical to see a lot of standard provisions put into the documents to make them seem like bona fide insurance policies. Moreover, unbeknownst to the owner, when reading the fine print on those documents, one will find references to a $20,000 self-insurance retention clause.

Fortman related an incident during which investigators did a search warrant on a claims center for Tri-Continental in California. It was found that of the claims files that were seized, better than 80 percent of the claims had been automatically rejected for some technicality.

Subsequent to the discovery of a number of bogus certificates, Fortman said investigators had invited different cities to send in their copies of the certificates from police departments that register the cabs. In two cities alone that had sent certificates, 90 percent of those certificates were found to be technically in error or totally invalid.

So far, Fortman indicated that no official charges have been filed against any parties allegedly participating in the schemes, as the investigation is ongoing.