Lawyers handling insurance claims can tell stories where an insurance company gets aggressive against an insured based on their belief that the insured is committing some sort of insurance fraud. The Austin-American Statesman ran a story highlighting this topic in September of 2015. The title of the article is “Private Insurer Pays Government Lawyers To Pursue Fraud Charges.”
The article starts out telling us that if he had it to do over again, Odessa native Roy Kyees would have ignored what the doctor told him. He would have walked out of that office and never filed a work injury claim for his back pain. He would have just paid for it out of his own pocket.
Then he never would have tangled with the largest provider of workers’ compensation insurance in Texas. He never would have gotten indicted for insurance fraud. Never would have been arrested and put in leg chains in his hometown jail.
Then again, Kyees didn’t know in January 2006 what he knows now: that his insurance company not only hired the investigators who compiled the case against him; it also pays the salaries of the government prosecutors who got him indicted on felony fraud charges.
Unlike other insurance companies in the state, Texas Mutual Insurance Company enjoys an exclusive deal with the Travis County district attorney.
Both the prosecutors and company executives say the arrangement benefits Texas businesses by cutting down on costly fraud and keeping workers’ compensation insurance affordable.
“All we agree to do is reimburse the Travis County prosecutor for the cost of handling our cases,” said Tim Riley, chief of fraud investigations at Texas Mutual. “Our interest, our ability to influence anything, ends at the door.”
But that hasn’t stopped critics from calling the funding deal a classic conflict of interest.
A six-month Texas Tribune and Austin American-Statesman investigation reveals a series of troubling issues with the chummy partnership — including an absence of written procedural safeguards, a lack of awareness of terms and conditions in the contract authorizing the relationship, and what some say are inappropriate statements made on social media by the lead prosecutor of the unit.
“He who pays the fiddler sets the tune,” said Aviva Abramovsky, a law professor at Syracuse University and former chair of the Association of American Law Schools‘ insurance law section. “What makes it problematic, particularly in an insurance case like this, is it’s only for this company. They’re the only ones who get private justice. And that’s unfair.”
Kyees, who started working at age 13 and went into the oil fields of the Permian Basin before he could finish high school, isn’t shy in describing his feelings about the deal between the insurer and local prosecutors.
After engaging in the fight of his life to clear his name and healing from the humiliation of an arrest, Kyees prevailed in his criminal case and ultimately obtained a settlement in a malicious prosecution lawsuit. But he remains embittered.
Travis County prosecutors “just take whatever Texas Mutual hands them,” he said in an emotional June interview. “I don’t think an insurance company should have that much power to do people like that — just treat them however they want to and then have district attorneys just taking their word for it.”
Funding deals allowing insurance companies to finance the costs of fraud investigations have blossomed around the nation in recent decades as lawmakers look for ways to help cash-strapped prosecutors pursue complex crimes that ultimately cause premiums to rise for everyone.
But typically those financing schemes rely on pooled or industrywide assessments — with multiple insurance companies paying taxes or fees into a government fund. A public agency then disburses the money to state or local prosecutors.
Such arrangements in Massachusetts, California and other states have drawn criticism from defense lawyers and legal scholars who say the prosecutions lean too heavily in favor of insurer interests while offering too few protections for defendants.
Colorado’s government-run workers’ compensation provider once had a similar arrangement with the state attorney general’s office, but it was replaced in 2012 with pooled funding from all insurers, officials say.
None of the myriad public-private partnerships examined by the Tribune and the Statesman are as direct and intimate as the one in the Texas capital. In Travis County, the arrangement is singularly focused on one company: Texas Mutual makes the referrals, provides the investigators and directly pays all the bills. At one time the company even provided office space for the lead prosecutor. The Travis County DA has statewide authority over such cases because Texas Mutual is headquartered in Austin.
Prosecutors say Texas Mutual gets special treatment because of its history as a state-created entity, but the Legislature turned it into a regulated mutual insurance company — owned by policyholders — in 2001, and it’s no longer a state entity “for any purpose.”
Still, in exchange for guaranteed payments from Texas Mutual of more than $400,000 a year, the Travis County district attorney’s office prosecutes alleged “crimes committed against the company,” according to their contract.
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