Insurers’ Foreign Dilemma

Within three months of his arrival in America, Russian emigre Oleg Popov was playing the big shot. Only 29, he leased a $1.6-million Beverly Hills spread and cruised the streets in an array of flashy cars. He even bought himself a $1.5-million life insurance policy.

One year later, in 1994, Popov was reported shot dead in St. Petersburg, Russia’s old imperial capital. Popov’s ex-wife filed a claim for the insurance proceeds, but Prudential Insurance Co. delayed payment for more than two years while it dug into the case.

Among other concerns, Prudential worried that Popov wasn’t really dead. The insurer found he was the target of criminal inquiries in three countries, leading some investigators to speculate privately that he had faked his death to throw authorities off his trail.

But Prudential found no evidence he was alive, and the ex-wife finally sued to collect. After a drawn-out court battle, the insurer agreed last month to pay her and her son a multimillion-dollar settlement that included the insurance proceeds and additional compensation.

Prudential’s decision to pay up is the latest example of how death claims from abroad are sending a chill up the spine of the life insurance industry. Even as they push into developing nations to sell policies, insurers are finding it tough to determine the truth when a policyholder is reported dead outside the U.S.

The vast majority of death claims are legitimate, but thousands filed each year appear not to be. Often the cost of conducting an international inquiry makes it cheaper to pay a claim than to find out for sure. An estimated 15% of fake claims result in payouts, according to the Coalition Against Insurance Fraud.

“I’ve seen far too many situations where it boils down to a business decision” to pay the claim, said Phillip Stano, former general counsel of the American Council of Life Insurers. “And that’s regrettable, because that’s just encouraging the next fraudulent claim.”

In 1998, the nation’s top 25 life insurers were fighting payment on more than $85.5 million worth of allegedly fraudulent death claims, regulatory filings show. Some major life insurers report that their claims departments run across 1,000 suspicious claims per year. One industry organization estimates that the claims are flowing in by the tens of thousands. Fake claims are pushing up life insurance premiums at least 2% per year, industry experts say.

California regulators received reports of nearly 100 fake death claims in the last two years. One major life insurer said it reported 15 cases of suspected false claims to New York state authorities alone last year, 12 of which involved foreign deaths. One year earlier, it reported 10 cases in New York, eight of which involved foreign deaths.

In a typical scheme, the beneficiary of a life policy files phony documents from another country claiming the insured person died suddenly--usually in an auto accident or natural disaster. Frequently the documents come from unstable countries with shoddy record-keeping and minimal standards for verifying death.

Faced with such a claim, the insurance companies might elect to spend a large sum to investigate. But often they don’t because the chances of success are so slim. And if the result is merely to delay payment, the company can expose itself to pricey lawsuits and massive damage awards.

In countries such as Haiti, the Philippines, Thailand and Vietnam, bogus deaths are becoming a cottage industry. Policyholders can buy “death kits”--packets of false documents that typically include a death certificate, photograph, police reports and burial records--for less than $1,000. Some have even tried to back up their claims with videos of staged funerals or stand-in corpses.

But other crooks have found they can obtain a payout from their insurer with far more pedestrian scenarios.

In one recent case, a Pakistani woman notified the lender holding her husband’s insurance that he had died of heart failure while visiting his daughter in Pakistan.

Transamerica Occidental Life Insurance Co., the insurer, was provided with a death certificate from the Karachi city registrar and “verification” of the death from a lawyer in the U.S., a company spokeswoman said.

Transamerica paid the claim, worth $966,895. Only later, after the firm received an anonymous tip in 1997 that Ismail Ali Mohammad was still alive, was an inquiry launched. Investigators then found someone had applied for a driver’s license using the same thumb print as the supposed dead man.

Mohammad and his wife--who each held Pakistani and Canadian citizenship--were later found and arrested in Lakewood. At the time, Mohammad insisted he was his wife’s brother-in-law. Each was convicted of fraud charges and served two years in prison, authorities said. Transamerica recovered about $750,000.

Although insurers say they don’t screen claims based on the origins of their policyholders, investigators say supporting documentation from some countries raises eyebrows.

Last February, a New York man was arrested on fraud charges after submitting two claims worth $1.5 million for the alleged death of his brother. Siontro Noel told two insurers his brother Ariel died when his cruise ship sank off the coast of Haiti.

He offered up a blizzard of records from Haitian authorities, including a medical examiner’s report, police documents and a death certificate, according to New York regulators. But the Haitian documents were filled out in English, not the customary Creole, which raised insurers’ doubts.

They later discovered that there had been no cruise ship--and no brother. Noel, a Haitian immigrant, obtained the policies on a false identity he created--and was using a third identity to commit welfare fraud, authorities said.

A Hobson’s Choice

Such cases are bubbling to the surface at several insurers just as the industry is making a consolidated push to sell insurance to ethnic groups where it traditionally has failed to secure a foothold, particularly in rich markets such as Los Angeles. Life insurers are also lobbying to loosen restrictions blocking them from selling policies in China, India and Japan.

In the competition for market share, the insurers are stuck with a Hobson’s choice. If they screen applicants or reject claims too aggressively, they appear xenophobic and could run afoul of antidiscrimination laws. If they don’t, the flood of false claims may only increase.

“They have got to be very careful,” said Richard H. Ross, deputy commissioner of the California Department of Insurance. “They couldn’t just say, ‘This guy’s last name ends in an ‘o,’ send that to the fraud division.’ ”

Many claims first eyed with suspicion can turn out to be true. In 1998 Hartford Insurance Co. received a claim contending that a policyholder from Haiti had died suddenly while visiting her home country--just a few months after she’d left her job at a hotel in Connecticut.

Investigators said they were still skeptical after the beneficiary of the $40,000 policy produced photographs of the funeral in Haiti. But after tracking down the woman’s doctor, the investigators learned that the woman had been diagnosed with terminal cancer and had returned to Haiti to be with her family.

Still, investigators and insurance lawyers note that foreign nationals hold a distinct edge in attempting life insurance fraud by trying to collect on a purported death outside the U.S. When a U.S. citizen dies unexpectedly outside the country, the State Department takes a report, confirms the person’s identity with passport records and often pressures local police to track down leads.

But if the policyholder is a noncitizen, insurers seeking to verify the death are on their own. Only a handful of reputable international claims firms exist. “It’s just difficult to gather the necessary facts,” Ross said. “The degree of difficulty . . . takes on a geometric proportion when you have to do anything in terms of a foreign investigation.”

That was the situation faced by 12 insurers who had issued nearly $5 million worth of policies to Mohammad Reeza Saeedi, an Iranian businessman who had lived in Glendale and had reportedly died when he slipped on a staircase while visiting a friend near the Iranian city of Saravan in 1992.

Saeedi’s wife produced documentation of the death and pointed the insurers’ investigators to a remote Iranian cemetery where they found a tiled headstone marking his grave. But several insurers still resisted payment. Ultimately, all 12 settled out of court, with most paying a fraction of the policies’ value, said Frank Darras, a Claremont attorney who represented Saeedi’s wife.

Darras said he offered to include a clause in the settlement requiring his client to repay the money if her husband resurfaced within three years.

“In the strongest terms, I believed he was dead, and I believed we had a country that made it very difficult to prove it.”

Lawyers for some of the insurers said they agreed to pay settlements despite their lingering doubts about the claim.

“We definitely thought it was a fraud case, but it’s very difficult to prove someone is not dead,” said Stephen Galton, an attorney for J.C. Penney’s insurance division and other defendants in the case. “The information we were getting [from investigators in Iran] was so unreliable that you didn’t know what the reality was.”

In the case of Oleg Popov, Prudential was provided with a Russian death certificate. Prudential hired Jericho, N.Y.-based First Services to investigate the claim filed by Popov’s ex-wife, who was living in Russia and was the guardian of their 7-year-old son, the named beneficiary of the policy.

Prudential’s probe started with Popov’s business, MCW Enterprises. The insurer’s investigators quickly found themselves following a trail already being blazed by the FBI. In 1996, while Prudential was still digging, a federal grand jury handed up an indictment alleging MCW Enterprises was a front for Popov and two other men, who had used the firm to defraud the government of Kazakhstan out of more than $4 million.

Under FBI Scrutiny

Federal prosecutors in Los Angeles said Popov and his business partners bribed a top Kazakhstan official to help secure a contract to provide 25,000 tons of Cuban sugar to the former Soviet republic. But after receiving most of the $6.7 million due on the contract, the men never sent the sugar, the indictment alleged.

Popov’s partners, Serguei Adoniev and Vitaly Rashkovan, pleaded guilty in U.S. District Court in Los Angeles and received prison sentences. Adoniev was subjected to “voluntary deportation” to Russia.

Prudential also found that Popov had been under scrutiny for more than contract fraud. FBI documents showed Popov and Adoniev were believed to be connected to 1.1 tons of cocaine seized on the Russian-Finnish border in 1993. And another former business associate, who was serving 10 years in prison for killing his wife, told investigators the murder was actually carried out by Mafia hit men acting on orders from Popov.

Cloud Lingers Over Claim

In sum, at the time of his reported death or shortly thereafter, Popov was the subject of investigations by U.S., Russian and Swedish authorities as well as Interpol, records show.

Documents obtained by Prudential’s investigators and later filed in court report that Popov’s corpse was identified by his ex-wife and the body was allowed to be released to the family for burial.

But sometime after Popov’s reported death, according to a Prudential memo, “someone appears to have used the insured’s identity recently to ship a car from Newark, N.J., to the Netherlands.”

Prudential’s inquiry continued amid pleas for payment from Popov’s ex-wife. Finally, she sued the insurer to force it to turn over the proceeds.

Soon after it started examining Popov’s claim, Prudential’s investigators speculated that about the possibility of the ex-wife might be involved in Popov’s reported death. But Prudential said in an internal memo in 1996 “there is no other information . . . that substantiates” that position.

In court, Prudential didn’t argue that Popov was still alive. Rather, it said Popov’s insurance policy wasn’t valid because he had lied on his application. His ex-wife countered that Popov had answered exactly the questions asked.

Popov had listed his occupation as president of MCW, which he described as a “trade company.”

Prudential never pressed for more details before issuing him the policy.

Last August, a federal judge in Los Angeles awarded a partial judgment to Popov’s ex-wife. Rather than litigate the rest of the lawsuit, Prudential agreed to settle the case for $3.75 million--a sum that includes the face value of the policy, plus interest and other compensation, records show.

The insurer and lawyers for Popov’s ex-wife declined to comment on the case.

Still, investigators who worked the case say a cloud lingers over Popov’s claim.

Dan Brownlee, a vice president of First Services who helped dig into the Popov case, said “I have some doubts” about his reported death. He said his doubts deepened when he learned of the impending law enforcement focus on Popov.

“We’ve had several cases where the motive for dying was not the insurance proceeds,” Brownlee noted. “We had a guy in Haiti once who was faking his death because he had felony warrants for homicide. Insurance was not his primary consideration.”

John J. Healy, a New York claims investigator who said he reviewed the reported death again last year, also questioned the validity of the claim: “I’m not sure it’s him, frankly.”

In general, insurers are spotting more false death claims, Healy said, but lack the weapons to combat them.

“You can’t redline, you can’t refuse to insure somebody from another country,” he said. “This is the land of milk and honey.”