You normally can’t buy insurance to cover your losses when you commit a crime such as bank robbery.
http://liarcatchers.com/insurance_fraud.html
But you can now buy insurance specifically tailored for certain misdemeanor crimes of health-care fraud.
Corporate insurance broker Marsh and insurer Allied World Assurance Co. have joined to sell what they say are the first of these policies. They hope the insurance will appeal to top executives at pharmaceutical, biotech, medical-device, and hospital companies who worry they will be the next target of increased federal prosecution of health-care fraud.
This odd situation is born of market forces and a legal principle called the responsible corporate officer doctrine, or the Park doctrine, stemming from Supreme Court cases involving regulations designed to protect consumers of food and drugs.
Generally, a misdemeanor is a less serious offense than a felony and carries lesser penalties – shoplifting a candy bar vs. robbing a bank of $1 million, for example. Misdemeanors are also easier than felonies for prosecutors to prove.
But because the safety of food and drugs for millions of Americans is so critical, Congress raised the bar on conduct of food and drug company executives under the Food, Drug and Cosmetic Act.
Under the act, food and health-care executives may be guilty of a misdemeanor even if they did not know bad things were happening under their watch or if they failed to correct a problem once they learned of it.
In the last decade, prosecutors began using the act as a hammer in attempts to stop the marketing of drugs for uses not approved by the U.S. Food and Drug Administration, especially when patients were harmed.
“We recognized that the responsible corporate officer doctrine had become a more prevalent issue and with the increased scrutiny that pharmaceutical and medical-device companies are under, we thought there would be a market” for insurance, said Maureen Gorman, a senior vice president with Marsh, which began offering the new coverage in early February.
Neither Marsh nor Allied World Assurance would say how much such a policy might cost. They said cost would vary widely based on company size, business activities, executive compensation, risk, internal-auditing processes, and regulatory record.
While the two firms suggest their policies will be unique because they focus on health care, other insurers have offered policies to protect directors and officers for years.
“If someone pleads guilty to a misdemeanor with little to no evidence that they engaged in deliberate criminal conduct, there is a strong argument that this person deserves coverage,” said Steve Shappell, a managing director with Aon Corp. and leader of the insurer’s legal and claims practice within the financial-services group. “If the evidence is more compelling that someone engaged in affirmative conduct, then the exclusions to the policy might apply.”
Sorting that out, however, could be tricky.
One of the most recent health-care fraud cases to rise to prominence involved medical-device manufacturer Synthes Inc. The company, with U.S. headquarters in Chester County, paid $24 million in fines and four executives pleaded guilty to one misdemeanor count each of shipping adulterated and misbranded bone cement across state lines.
The executives hoped for probation, but federal judge Legrome D. Davis said their conduct was “egregious” and sent all four to prison.
Brian Casey, Allied World’s vice president for professional lines and lead underwriter, declined to say what costs an insurance policy would have paid under those circumstances.
“This is only for misdemeanor criminal prosecution that does not involve criminal intent,” Casey said.
Marsh’s Gorman said the policies would not reimburse a company for payments to the government to settle criminal charges. Such payments have reached into the billions in recent years.
But some legal fees for the company probably would be paid during the process, which can take years. And the executive pleading guilty might, depending on state laws, get reimbursed for lost pay because he or she could no longer work in health care. Government programs such as Medicaid and Medicare often will not deal with such convicts, making them almost unemployable in the field.
Another factor is that prosecutors negotiating plea agreements – and wanting the defendants to feel the sting – might stipulate that any insurance policy could not be invoked.
Prosecutors may argue for charging corporate executives this way based on a 1943 decision in a case called U.S. v. Dotterweich and a 1975 decision in U.S. v. Park. In those cases, the Supreme Court said the importance of food and drug safety warranted stiff accountability for executives.
The Park decision involved Acme Markets Inc. and its chief executive officer at the time, John R. Park, who did not respond to government investigators finding evidence of rats in food warehouses in Philadelphia and, later, in Baltimore.
“We are satisfied that the act imposes the highest standard of care and permits conviction of responsible corporate officials who, in light of this standard of care, have the power to prevent or correct violations of its provisions,” Chief Justice Warren Burger wrote in the majority opinion in Park.
Health and Human Services Secretary Kathleen Sebelius, whose purview includes the FDA, was surprised to hear of the new, health-care-focused insurance policies when asked about them during a recent visit to Philadelphia.
“Really?” said Sebelius, who was the Kansas insurance commissioner before becoming that state’s governor. “I don’t practice law on a regular basis, but usually you can’t insure yourself as a bank robber for robbing banks. That is intriguing. I’d like a list of their customers because that would give us a pretty good target of people to go after.”
