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Article Excerpt
I. INTRODUCTION
For the past three decades, most state legislatures (1) have enacted (2) criminal statutes specifically targeted at deterring insurance fraud. (3) Unlike most criminal statutes, these insurance fraud laws not only delineate the unlawful conduct sought to be deterred, but also generally restrict the scope of potential victims to insurance carriers. (4) The expressed intent of the new legislation was to provide a specific vehicle for the prosecution of those who attempted to or actually filed false, fraudulent, or exaggerated claims with their insurance companies. (5) In addition to deterring future offenders, legislators hoped that these statutes would result in a public benefit of smaller insurance premiums. (6)
Financial fraud prosecutions are complex and frequently expensive, with all jurisdictions dedicating substantial resources to combating white collar crime. Unlike most other criminal prosecutions, insurance fraud prosecutions are increasingly being brought by prosecutors funded separately from the state's general revenues. These prosecutors' salaries are either entirely or in large part paid by monies obtained by direct assessments on the insurance industry. (7) The adoption of this prosecution funding method allows insurance fraud prosecution programs to exhibit the most comprehensive presence of any private industry in the enforcement of relevant criminal laws. (8)
The enforcement of the criminal laws is a public trust. (9) It is generally accepted that criminal defendants are entitled to a certain amount of neutrality and disinterestedness on the part of the prosecutor, particularly as a part of defendant's right to a fair trial. (10) The prosecutor's office is seen as representing the people, and the office seeks justice within the confines of governmental impartiality. (11) As such, it is important to examine these new institutionalized structures and their entwinement with private interests as potential sources of risk to that notion of impartial justice. (12)
Moreover, the consequences of even a perception of improper influence on fraud prosecutions implicate other relevant policy considerations. The existence of statutory schemes which offer even the reasonable inference of injustice, such as perceptions of conflicts of interests, may themselves have undesirable consequences. (13) Attorneys have been criminally prosecuted under these systems for actions undertaken during civil cases adverse to insurance industry financial interests. (14) Such prosecutions, without sufficient prophylactic safeguards, may result in chilling the representation available to claimants and implicate issues of zealous advocacy. (15)
It is well understood that the threat of criminal prosecution is an effective restriction on the bounds of zealousness. As Professor John C. Coffee has recognized, between the alternatives of engaged advocacy or self-preservation from criminal prosecution, the rational lawyer would not likely risk his liberty in favor of his aspirational duty of zealousness. (16) Fear of a non-neutral or otherwise influenced prosecutor implicates issues beyond the prosecution of any specific criminal defendant. (17) Even the mere appearance of influence and the concomitant perceived increased risk of triggering an unjust prosecution have the capacity to affect the availability and efficacy of legitimate advocacy adversely. (18)
Those familiar with the relationship between tort law and insurance (19) have long understood the insurance industry's financial interest in the cost of tort recoveries (20) and the relationship of those costs to claimants' legal representation. Plaintiffs' lawyer advocacy is strongly correlated with an adverse effect on insurance industry financial interests. (21) If lawyers are deterred from representing clients against the insurance industry, the implications for the tort system and clients are extensive. Moreover, as some members of the trial bar have recognized, the actual motivation of a prosecution is irrelevant to that prosecution's ability to chill advocacy. (22) To a very great extent, so long as the plaintiffs' bar perceives such prosecution as arising from the improper influence of private interests on the actions of a prosecutor, fear of biased prosecution could reasonably be predicted to restrict and inhibit the trial bar's activities. (23) In this context it might truly be said that even the appearance of impropriety is likely sufficient to inhibit advocacy.
This Article will explore the structure of the insurance industry-prosecution alliance ("The Alliance") as it is expressed in various states. Part II will give careful attention to how these institutionalized arrangements increase the risk of improper private influence on public law enforcement decision-making. Part III will explore how the Alliance system may chill legitimate claims and particularly affect the functioning of tort plaintiffs' lawyers in an inappropriate manner. Part IV will explore the Alliance in terms of both a prosecutor's ethical duty of independence as well as a potential due process threat. The final section of the Article will suggest certain prophylactic reforms to attorney prosecutions for professional conduct, since it is unlikely that the Alliance will be dismantled in the near future. The Article concludes with one such suggested procedure.
II. THE ALLIANCE IN ACTION
The prosecution of criminal offenses requires substantial public funding, and municipalities are often reluctant to provide sufficient tax-funded revenues. (24) Historically, police departments and prosecutorial agencies have not received adequate tax funding to combat the volume of crime that exists in their areas of jurisdiction. (25) Despite a general understanding that insurance fraud is pervasive and costly, (26) insurance fraud cases would likely be an under-prosecuted crime without alternative funding programs. (27)
Insurance fraud is inarguably extremely costly. The losses to insurance companies from insurance fraud have been estimated at $120 billion per year. (28) The industry estimates that these fraud losses cost the average American family $300 annually in higher insurance premiums. (29) Hence, industry financing of insurance fraud bureaus is seen as a mutually beneficial investment. For example, the "Mission Statement" of the New Mexico Insurance Fraud Bureau remarks on the willingness of the insurance industry to fund their program, finding the industry "very willing to finance the bureaus, because of the potential return on investment: for every dollar an insurance company spends in support of a bureau, it retains ten dollars that would otherwise be lost to insurance fraud." (30)
A. THE ALLIANCE'S FORMS AND FUNDING
Currently, there are three basic models by which the insurance industry and government coordinate and integrate the investigation and prosecution of insurance fraud. The first model, unique to Massachusetts, creates a quasi-governmental agency, (31) a majority of whose directors are appointed by insurance industry associations. (32) Massachusetts's model is also unique in that the two trade industry groups assessed have only a voluntary membership which may choose to contribute additional monies beyond the minimum legislatively assessed upon them. (33) The second model, followed by a majority of states, creates a specialized insurance fraud bureau within the state's Department of Insurance, the Attorney General's Office, or some other governmental agency. (34) The final model, which exists in eight states, consists of a less formalized interaction of the parties due to the nonexistence of a formal insurance fraud bureau. In these jurisdictions, insurance companies or trade organizations provide private investigators to work in tandem with public officials.
1. The Massachusetts Model
The Massachusetts legislature statutorily created an entity called the Insurance Fraud Bureau of Massachusetts ("IFB"). (35) The IFB is considered by courts to be a "quasi-governmental" agency. (36) It employs approximately thirty full-time investigators. (37)
The IFB is not a pure governmental agency, in the sense that the majority of its Board of Directors are not public officials (38) and it is funded by a special assessment rather than general revenues. (39) IFB funds derive from the assessment on two insurance company trade associations in which membership is voluntary. These two associations each provide five of the IFB Board's directors, for a total often of the fifteen members of the Board, with the remaining five being public officials. The IFB's purpose is to investigate allegations of insurance fraud referred to it and, when appropriate, refer these allegations to various prosecutorial offices for further action.
The method through which the IFB receives its cases is also noteworthy. The vast majority of its cases are acquired by direct referral from insurance companies who are statutorily obligated to advise the IFB of their suspicions whenever they "have reason to believe" that an insurance transaction may be fraudulent. (40) Once the IFB receives a referral from either an insurance company or from a call placed to its public "hotline," it proceeds to investigate the cases under its statutory authority. Case files are created and reviewed, and when the IFB's executive director "is satisfied that a material fraud, deceit, or intentional misrepresentation has been committed in an insurance transaction, he must refer the matter to the attorney general, the appropriate district attorney or the United States attorney." (41) The Massachusetts IFB is unquestionably busy. In 2005, for example, it oversaw 3829 cases of suspected insurance fraud, (42) approximately 85% of which emanated directly from insurance companies. (43) Of the cases referred, prosecuting authorities subsequently were given 146 cases of suspected insurance fraud. (44)
In Massachusetts, like other states, the funds acquired by the assessment are not limited to the support of the IFB investigative agency; the statute additionally authorizes and requires that a certain portion of the industry assessment be available to the Massachusetts Attorney General's Office. (45) According to the implementing legislation, if the Massachusetts Attorney General avails himself of these funds, he must use them on matters referred to his office by the IFB, and he must designate a total of at least thirteen assistant attorneys general to work full-time on these matters. (46) Moreover, the IFB has offered various types of "in-kind support" to these Fraud Division prosecutors (47):
[W]hile the legislative scheme does not explicitly provide for the transfer of resources, monetary or otherwise, between the IFB and the Fraud Division, the IFB has nevertheless provided in-kind support to the Fraud Division by assisting with the investigation of cases assigned for prosecution. This assistance has consisted of obtaining documents, interviewing witnesses, serving subpoenas, providing charts and photographs, and arranging for handwriting and accident reconstruction experts. On occasion, IFB investigators have provided airline tickets or other travel reimbursement for out-of-state witnesses, and the IFB has given the Fraud Division computer software (the "Excel" spreadsheet program) to assist it in tracking cases. As specifically relates to this case, the IFB has reimbursed an assistant attorney general for his purchase of a "Seagate" hard drive, has provided blank computer back-up tapes and an extension cord to assist the Fraud Division in its investigation and search of the computer system at the defendant's law firm, and has paid the bill of the computer expert who assisted in setting up the Ellis & Ellis computer system in preparation for the Commonwealth's search. (48)
Though the IFB may refer their cases to any prosecutor's office, including the United States Attorney or local District Attorney, they refer the vast majority of their cases to the Attorney General's funded prosecutors. In an amicus curiae brief submitted by the American Civil Liberties Union critiquing the Massachusetts IFB financial structure, the ACLU particularly pointed to the availability of restitution only in cases handled by the Attorney General in administrative hearings as an "incentive," which could partially explain the higher referral rate to the Attorney General's office. (49)
In any such novel funding scheme for a prosecutorial office, questions of propriety will inevitably arise. Arguably, a minimum annual assessment or any legislatively mandated scheme lessens the pressure on investigators or prosecutors to become partisans of their funding industry by infusing public authority into the funding program. (50) Clearly, the interests of an IFB office investigator or funded prosecutor are different from those of a purely private investigator or purely private prosecutor. However, a conclusion that public authorization reduces the amount of private influence in criminal prosecution vis-a-vis a purely private investigation or prosecution varies significantly from a determination that such system allows for no influence or no improper influence. Moreover, to determine the potential for prosecutorial bias, an analysis of the influence such funding has on IFB investigators, as well as prosecutors, must be included in any legitimate inquiry into the risks such system poses to prosecutorial neutrality and, importantly, the public perception of that risk. (51)
The Alliance funding system in Massachusetts has undergone one significant challenge to date. In Commonwealth v. Ellis, (52) the Massachusetts system was challenged by attorney-defendants accused of insurance fraud. Objecting to the funding relationship between the insurance companies, the IFB, and the prosecution, the defendants filed a motion to dismiss the insurance fraud indictments, disqualify prosecuting counsel, or both. (53) In their motion, the defendants contended that the assistant attorneys general prosecuting their state criminal cases were impermissibly biased due to the novel statutory scheme (54) funding the IFB and the Insurance Fraud Division. (55)
After a nonevidentiary hearing, the motion to dismiss was denied by the trial court, (56) and the denial was later affirmed by the Massachusetts Supreme Judicial Court. (57) The latter court concluded that the prosecution had not deprived the defendants of any constitutional right, although a majority of the Court expressed concern that the close relationship between the IFB and the Insurance Fraud Division might be "difficult to justify on policy grounds." (58)
Subsequently, the attorney-defendants filed a pretrial habeas corpus petition in the United States District Court for the District of Massachusetts. (59) The Federal District Court was markedly unsettled by the unusual relationship between the state and the insurance companies, as it ordered the Commonwealth of Massachusetts to respond to the defendant's discovery requests and scheduled an evidentiary hearing to take place one month before the state court trial was scheduled to commence. (60) As a result, the Commonwealth filed two successive petitions for extraordinary relief with the First Circuit Court of Appeals, seeking to reverse the district court's order and quash depositions of four IFB Board members. (61) The Commonwealth maintained that the pretrial habeas proceedings in federal court unduly interfered with the ongoing criminal proceeding in the state trial court. While the First Circuit abstained in favor of the pending state prosecution, (62) it took the extraordinary step of issuing a writ of advisory mandamus, (63) instructing the district court to dismiss the defendant's habeas petition without prejudice. (64)
Although the First Circuit denied a full discovery process allowing clarification of the IFB's relationship to the Massachusetts Attorney General's Office, this case reveals how this arrangement will engender concern throughout the country. As the First Circuit itself noted, even the concept of granting federal habeas relief for a "disinterested prosecutor" claim was an issue of first impression. (65) Inevitably, as each state expands its relationship with private industries as part of their ongoing prosecutorial process, these arrangements will come under varying forms of constitutional scrutiny.
2. The Majority Model
Most states do not follow the Massachusetts model of having a special private or minimally "quasi-public" insurance fraud bureau. Instead, the majority of states place their insurance fraud unit within existing governmental departments, (66) frequently either as a division of the state's regulatory Department of Insurance or within the Attorney General's Office.
Currently, there are forty-seven "majority model" fraud bureaus in thirty-nine states. (67) In these jurisdictions, just as in Massachusetts, the insurance companies refer suspected cases of insurance fraud to state insurance fraud bureaus, which in turn investigate the cases and refer a percentage to state prosecutorial authorities. Since these fraud bureaus typically function under the auspices of some state agency, they are often imbued with law enforcement powers and their agents may execute search warrants (68) and carry weapons. (69) In 2003, over 125,000 cases were referred by insurers to these various state bureaus for the investigation of potential insurance fraud. (70)
The large number of referrals is not surprising given most states have a legislatively mandated referral process. In New York, for example, just as in Massachusetts, insurance companies are required by law to submit any suspected cases of insurance fraud to the Bureau. (71) Moreover, New York law requires insurance companies that conduct business in the state to maintain Special Investigation Units internally for the purpose of investigating suspected fraudulent activity. (72) Thus, in 2006, the New York Insurance Fraud Bureau received 22,884 reports of suspected insurance fraud, of which 22,158 originated from insurance companies. In turn, the Bureau referred 274 cases to prosecutors. (73)
In these majority model jurisdictions, funding of these units by legislatively mandated assessment is common, with varying percentages of the assessed funds allocated to investigators and prosecutors according to the relevant state's statutory code. Some states, like New York, do not have insurance fraud-specific assessment legislation; rather assessments are a source of funding for the entire Department of Insurance, including its regulators. (74) Other states, like Pennsylvania, have their insurance fraud division prosecutors funded entirely by the assessment, with no money coming from the general funds. (75)
Arguably, any version of the majority model safeguards against institutional influence on the criminal justice process to a greater extent than the Massachusetts model, if for no other reason than that their Fraud Bureau directors are public officials. This is particularly so in jurisdictions such as New York which have industry-assessed funds intermingled within overall department budgets. It is tempting to read the likelihood of perceived influence as a direct correlation to the exclusivity of the funding scheme, particularly if our understanding of the public's perception of influence is connected to the overt use of private assets on prosecutorial decision-making. This understanding, however, may be overly simplistic. To the extent influence is the metric for propriety, funding is simply one avenue of inferring the degree of that influence. (76) These systems also create formalized relationships between industry and government personnel with varying levels of financial independence. These structured relationships likewise can be seen as a source of perceived risk on the independence of the prosecutor.
3. The Informal Alliance
In eight states, including Indiana and Illinois, no dedicated separate Insurance Fraud Bureau is present at the state level. (77) Nevertheless, the Alliance still exists, albeit in a less formal manner.
Where there are no dedicated insurance crime agencies, industry-wide advocacy groups such as the National Insurance Crime Bureau ("NICB") often step in to fill the gap by conducting initial investigations, referring cases, and offering "expert" assistance to local police and prosecutors. (78) In cases where an NICB complaint results in prosecution, the investigator can often exercise substantial influence on the prosecution of the case. (79) Since the local district attorney and police are likely to lack specialized knowledge of the insurance industry, they may use an NICB liaison to supply that expertise.
B. THE INFERENCE OF INFLUENCE
1. Inferences of Industry Influence in the Formal Alliance The creation of a mandated Massachusetts Alliance has influenced (80) the character (81) and procedure of prosecuting units to a surprising extent.
For instance, in several federal insurance fraud prosecutions arising from Massachusetts IFB investigations, attorneys from the United States Attorney's Office shared grand jury transcripts with IFB personnel. (82) A review of these cases reflects a changing understanding of the nature of these investigators and the application of the grand jury secrecy rule. (83) In one early case, where the Government sought a court order prior to disclosing the grand jury transcripts, the district court held that IFB investigators were private personnel who were not permitted to receive such confidential information. (84) Another district court reached a similar conclusion where prosecutors disclosed grand jury minutes without seeking permission and the disclosure was revealed during pretrial discovery. (85) In a subsequent decision, the First Circuit held that rather than being a purely private agency, the IFB was under sufficient state control to render it a hybrid "quasi-governmental" entity. (86) Consequently, depending on the facts of the case and the degree of IFB participation in the investigation, its personnel may be sufficiently "governmental" as to permit disclosure of confidential grand jury materials. (87) As can be seen by this progression of cases, at least Massachusetts courts are becoming more comfortable with expanding the definition of what had once been presumed to be a private investigator (88) to constitute a "public" agent permitted access to grand jury minutes in certain circumstances. (89)
Because of the confidential nature of grand jury information and the appearance of unfair influence or access, it is troubling that in Massachusetts the majority of the IFB Board consists of private appointees. Even more troubling, however, is that these Massachusetts prosecutors have demonstrably come to view the insurance carriers as sufficiently "client-like" (90) in their relationship with the prosecutor's office to allow for the perception of inappropriate influence. (91) Phrases like "punish" (92) and "target" (93) were used by trial lawyers' associations to reflect their perception of the Alliance's capacity to influence prosecutorial charging to the lawyers' presumptive detriment. (94)
Additionally, trial lawyers clearly perceive the prosecutors as inappropriately conflicted. (95) Such perception is fairly justified given that, during the Ellis (96) litigation, it became apparent that although the privately funded insurance fraud unit of the Attorney General's office had a statutory mandate to prosecute frauds committed by, as well as against, insurance companies, it had never actually done so when the only victim was a claimant. (97) The Massachusetts Association of Trial Attorneys ("MATA") specifically noted that the Fraud Division in fact rejected "insurer fraud" cases on the ground of perceived conflicts of interest: (98)
[M]embers of MATA have presented evidence of fraudulent behavior on behalf of insurers to the Fraud Division. These MATA members were told by the Fraud Division that they would need to investigate the matter themselves because of a "potential conflict" for the Fraud Division to investigate the matter because of its ties with the IFB. (99)
In fact, when MATA offered evidence of a pattern of fraud committed against policyholders by medical professionals hired by insurance companies to conduct examinations of policyholders in relation to their claims, one of the prosecutors involved in the Ellis prosecution "declined to conduct an investigation on the grounds that such an investigation would present a 'potential conflict.'" (100)
The Fraud Division prosecutors' decision to decline to investigate allegations of insurer fraud similarly perturbed the Massachusetts ACLU, which noted in its amicus brief that
[a]lthough insurers themselves are listed as potential targets for prosecution, the Fraud Division has never prosecuted a single case against an insurer, or an agent of an insurer, when the only victim was a claimant. As long as insurers are funding the Fraud Division and the IFB, fraud by insurers will remain under, if ever, prosecuted. (101)
Such actions are certainly suggestive. The fact that a Massachusetts Insurance Fraud Division Assistant Attorney General perceived his relationship with the insurance industry as sufficiently close to preclude his investigation of a fraud case does augment the perception that the Massachusetts model creates an untenable conflict of interest situation. For this reason, it was not unreasonable for these trial lawyer associations to infer that such conflicting interest must also be implicated when a Fraud Division prosecutor exercises his discretion in claimant insurance fraud prosecutions. In other words, MATA, the ACLU, and the other Ellis amici clearly perceive these conflicting interests as so systemic to the institution that disqualification is appropriate even in the absence of an actual attorney-client relationship with an insurance carrier. (102) That any prosecutor would disqualify himself from investigating insurance company fraud as a potential conflict of interest supports such an inference.
An inference of conflicting interests' influence on a prosecutor in the charging phase is particularly problematic because this area of prosecutorial discretion is beyond the criminal justice system's capacity to meaningfully review. (103) Therefore, the Massachusetts prosecutor's refusal to investigate allegations of insurer fraud due to a potential conflict of interest would be particularly troubling to those lawyers most likely to be subjected to IFB scrutiny for their own representation of covered claimants. (104)
In any event, it seems logically inconsistent that circumstances could justify failing to bring fraud cases against insurance companies and yet allow for the recusal of a prosecutor on conflict-of-interest grounds without the obvious perception that some corollary diminution of that office's ability to remain properly impartial exists. Though the Massachusetts courts were unconvinced of this conclusion, it defies credulity that a public prosecutor would identify a potential conflict sufficient to prevent his office from investigating allegations of insurer fraud without at least some indicia of a potential conflict of loyalty existing for the prosecutor when investigating allegations of policyholder insurance fraud.
Though other legislative funding schemes for insurance fraud cases differ among the various states, some analogous inferences could be drawn. Fully "governmental" model states like Pennsylvania are funded in a manner very similar to Massachusetts's. (105) The implementing legislation for the Pennsylvania Insurance Fraud Prevention Authority is specifically designed to keep the assessed monies completely separate from the state's general revenues. (106) Those monies are held in a restricted trust and are not considered "general revenue of the Commonwealth." (107) Use of the funds is restricted to "effectuate" only the purposes of the Insurance Fraud Prevention Authority's implementing legislation. (108) Additionally, in the event of IFPA's dissolution, such funds remaining in the trust would be returned to the assessed insurance companies, after deducting only the costs to the state in closing down the office. (109) If funding is pertinent to a determination of loyalties, (110) there seems little difference in the Pennsylvania funding system (the restricted funds of which may create a sense of obligation) and the Massachusetts system.
2. Industry Influence in the Informal Alliance
Though it is tempting to conclude that the legislative mandate creating formal insurance fraud bureaus is itself the sole source of perceptions of improper influence on the prosecutorial process, the informal Alliance structure suggests otherwise. This is illustrated in Daniels v. Liberty Mutual Insurance Co. (111) which involves a district court's determination of whether a "NICB" investigator could be considered an "employee of the government" for purposes of the Federal Tort Claims Act. (112) After having been acquitted of criminal charges stemming from alleged insurance fraud, Rick Daniels, a Liberty Mutual policyholder, sued his insurance company and various allied parties for malicious prosecution. (113) Among the lead figures in the underlying prosecution was Joseph Jaskolski, an investigator for the NICB. (114)
The NICB and Jaskolski asked the district court to certify that Jaskolski was acting as an "employee for the government" (115) at the time of the Daniels prosecution and hence was entitled to immunity pursuant to the Federal Employee Litigation Reform and Tort Compensation Act. (116) The evidence proffered by Jaskolski and the NICB in support of this motion revealed that Jaskolski was the primary moving force behind Daniels's investigation and prosecution. (117) Not only did he refer the Daniels case to the FBI, (118) but he assisted the FBI agent assigned to the case in conducting the investigation (119) and had access to grand jury information. (120) The government's identification with Jaskolski was so strong that when Daniels sought discovery of grand jury materials, "the Government actually argued that Jaskolski was Government personnel," (121) who, as such, "must not disclose a matter occurring before the grand jury." (122)
In his affidavit, Jaskolski further attested that he had accompanied FBI Agent Campbell on interviews of witnesses (123) and on-site inspections, (124) assisted in reviewing documents, (125) escorted witnesses at the grand jury proceeding, (126) and assisted the United States Attorney at trial. (127) He further maintained that he acted "under the direct supervision and control" (128) of either the FBI or the United States Attorney in conducting these activities, and hence "did only what [he] was told to do by either Agent Campbell or AUSA Butler, or other FBI agents and U.S. Attorneys." (129) Regardless of who was nominally controlling whom, however, it is clear that Jaskolski at least had an unusually symbiotic relationship with the FBI and the United States Attorney. For instance, at Daniels's trial, even though introduced as a representative of the NICB, he sat at the prosecution table, (130) retrieved documents for the government, (131) and "considered himself part of the prosecution team." (132)
Despite Jaskolski's contentions of FBI and prosecutorial control of his actions, the court concluded he was not entitled to governmental immunity and allowed the suit for malicious prosecution to go forward. (133) In this case, the scope of interaction between the NICB and the prosecution was striking, particularly given there was no formal, legislatively mandated relationship between the NICB and the United States Attorney's office for the Northern District of Indiana....
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