Allegations of fraud surround a California roofing company. Most of the time tort reformists allege fraud on the part of employees who file workers compensation claims. The lawyers working in this area know that employees are not the source of waste or fraud that costs some state workers’ compensation programs. Iowa is certainly not one of the states with a great deal of waste. Our state program has some of the lowest rates and best claim histories for any state. The Iowa Insurance Division regularly investigates fraud and has an Insurance Fraud Bureau that attempts a one-sided and misguided focus against employees without focusing on the larger problem, employer or business fraud that manipulates payroll and claims to avoid premium payments.  It’s easy to talk about fraud with some fictitious worker filing a false workers’ compensation claim, but in Iowa actually finding those cases has not proven to be true.

This time it’s California, a state that has had reforms aimed at reducing costs. The state of California is making various allegations; see below. What’s interesting is that the alleged fraud and bad business practices have nothing to do with employees filing for workers’ compensation benefits. Instead it’s the employer who is the focus of this investigation.

Investigators said Petronella and Kile told insurers their payroll was $2.9 million from 2000 to 2009, the period under scrutiny. But their actual payroll totaled $29 million. According to the district attorney, the $38 million fraud allegation consists of $29 million in unpaid premiums plus penalties and assessments for inaccurate reporting.

The bias of tort reform groups can be seen not so much by what those groups report on but on what they don’t report. In this instance this story isn’t found on any of the major tort reform sites.

Tort reforms previously passed in California have had mixed results. There was a temporary decrease in insurance rates but coverage for high risk laborers is beginning to increase. This type of case shown by the roofers may be one reason for that increase.

From 1998 to 2003, average premiums for all jobs tripled to $6.45 per $100 in payroll, according to the Workers Compensation Insurance Ratings Bureau. Following reforms passed in 2004 under Gov. Arnold Schwarzenegger, average rates dipped to $2.25 per $100 in payroll by the end of last year.

But those rates are poised to rise again. The Workers Compensation Insurance Ratings Bureau proposed a 24 percent increase beginning in July,

Rates for construction workers, such as roofers, are more than 10 times the state average, because of numerous on-the-job accidents. The State Compensation Insurance Fund, a quasi-public company that is California's largest workers' comp insurer, currently charges $47.80 per $100 in payroll to cover roofers. In 2003, the rate was $99.68 per $100 in payroll.

The allegations appear to go beyond simple insurance claim practices. The allegations would appear to attack the business practices having to do with income and expense handling.

Prosecutors said Petronella and Kile used their companies as personal piggy banks to support their lavish lifestyle. The indictment says Petronella and Kile owe the state more than $1.1 million in back taxes for under-reporting their personal incomes from 2005 to 2007.

Between 2005 and 2007, they said, the couple reported $290,000 income on their tax returns while spending $2.1 million for personal items – designer shoes, clothing and jewels – on a company credit card.

"Their company American Express Black card, which by law should only be used for legitimate business purpose, became a passport to personal excess," Rackauckas said, "almost $440,000 on jewelry alone from 2005 to 2008, more than $425,000 spent on shopping sprees at luxury stores in 2008."

As always allegations of fraud and crime are simply that, allegations. All must be proven before guilt can be assumed.

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