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Arrested in Alleged Insurance Fraud (NICA)
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A supplier of drivers to
courier services filed false workers' comp claims, authorities say.
By Marc Lifsher
Los Angeles Times, May 5, 2006
Massachusetts authorities, acting on insurance fraud indictments in
California, have arrested executives at a company that helps courier
services cut payroll expenses by making their drivers independent
contractors instead of employees.
Thomas McGrath, the owner
and president of Braintree, Mass.-based NICA Inc., was arrested by
state troopers Wednesday along with seven current and former employees
on charges of defrauding California's workers' compensation insurance
fund, said Ernie Marugg, a San Diego County deputy district attorney.
Each was charged with 50 counts of conspiracy, fraudulent purchase of
workers' comp insurance and the filing of false claims for benefits,
Marugg said. All eight are free on bond pending an arraignment in San
Diego County Superior Court sometime this month.
NICA allegedly filed about $600,000 in fraudulent claims against
California's State Compensation Insurance Fund on behalf of injured
couriers, Marugg said.
The claims ranged from a few hundred dollars to more than $100,000 and
involved payments for medical care and temporary and permanent
disability benefits.
Prosecutors allege that the claims violated the state's insurance laws
because the couriers didn't work directly for NICA. If convicted on all
counts, the suspects could be sentenced to as much as 59 years in
prison and fined $1.2 million, according to the San Diego County
district attorney's office.
Among those indicted along
with McGrath were NICA Chief Operating Officer Andrew Rogantino,
Controller David Kenyon and Western Regional Director Timothy Bergin.
Calls to McGrath and the others were referred by NICA to attorneys, who
did not return telephone calls seeking comment.
NICA helps courier companies make the switch by providing payroll
services, so-called occupational accident insurance and liability
coverage. NICA said late last year that it served approximately 400
courier companies with 16,000 drivers in 42 states. About a third of
its business is in California.
The charges arose in part from an ongoing investigation of NICA by the
California Department of Insurance and the California Employment
Development Department. In October, agents of the departments served
search warrants on NICA's offices.
The investigation is part
of a crackdown by state regulators on courier companies that avoid
paying workers' compensation and unemployment insurance premiums by
reclassifying their drivers as independent contractors.
The probe began in early 2003 and so far has assessed more than $37
million in back taxes and penalties against 153 courier services.
Targeted companies include a subsidiary of United Parcel Service Inc.
and smaller firms, some with as few as two dozen drivers.
The controversy over whether to classify couriers as employees or
independent contractors has split the industry.
Employers that continue to provide their drivers with workers'
compensation coverage and unemployment insurance contend that they're
losing business to competitors that switched to the contractor model
with the help of NICA and similar companies.
Courier companies that
make their drivers independent contractors can reduce payroll expenses
by as much as 40%, regulators say.
State officials say such
companies have avoided paying the state more than $100 million in
payroll taxes and workers' compensation premiums.
The criminal indictment in San Diego is NICA's second run-in with
prosecutors.
McGrath and his company
were convicted in U.S. District Court in Boston in 1997 on multiple
federal fraud charges.
McGrath and NICA paid
$133,000 in fines and restitution, and McGrath spent five months in
confinement and five months in home detention.
NICA currently faces a wrongful death lawsuit in New Mexico over a
fatal motor vehicle accident involving a courier service driver
affiliated with NICA.
A second action filed in March in San Diego County accuses NICA and
other defendants of violating California's Unfair Competition Law.
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