A California court has revived a $22.9 million fraud lawsuit alleging an attorney helped clients deceive GEICO with fake injuries and fabricated business losses.
The Court of Appeal's decision on January 6 reverses a lower court's dismissal and clarifies a thorny issue in California's Insurance Frauds Prevention Act: when does a fraud complaint rely too heavily on information that's already out there?
The case involves a 2009 car accident that eventually led to a $22.9 million verdict against GEICO Indemnity Company. But according to the lawsuit, that eye-popping award was built on a foundation of lies.
Jerilyn Henggeler, a former neighbor of policyholder Omar Dauod, filed the fraud complaint after reading about the verdict. She was stunned. Henggeler had known the Dauod family for years. Their daughters had been playmates. And what she'd witnessed firsthand didn't match what a jury had apparently believed.
According to court documents, Henggeler saw Omar playing basketball, swimming, and appearing perfectly healthy in the years after his accident. Yet he'd convinced a jury he was severely injured and emotionally devastated. He'd testified that he lost a real estate development business. But Henggeler knew him as a real estate salesman, not a developer.
After the 2009 accident, an insurance arbitrator determined the other driver was at fault, and Farmers Insurance paid Omar $100,000. Attorney James Ballidis then submitted an underinsured motorist claim to GEICO on the Dauods' behalf. After arbitration, an arbitrator ordered GEICO to pay $400,000 in December 2013. But in December 2014, Ballidis filed a lawsuit against GEICO, alleging breach of contract and bad faith. The Dauods claimed GEICO's delays caused them to lose two homes and Omar's business. A jury awarded Omar $22.9 million.
That's when Henggeler decided to act. Her complaint laid out what she described as an elaborate deception. She claimed Omar and Ballidis presented GEICO with claims about multiple business ventures in Colorado that either didn't exist or didn't involve Omar at all.
Omar had testified about developing a golf course and office complex. Public records showed he wasn't a member of the company that owned the property, and the golf course already existed. Documents submitted to GEICO included an escrow letter addressed to Omar's four-year-old son and a company called Jordan Equities, which had never been registered in California or Colorado. Another letter, supposedly from Omar's brother-in-law, appeared to bear a forged signature, Henggeler alleged.
As for physical injuries, Henggeler said she regularly saw Omar playing basketball and going about his life without apparent difficulty. Yet Ballidis had testified at trial that Omar would never play basketball again.
Even the claim about losing two homes didn't hold up, according to Henggeler. Former tenants told her Omar had simply pocketed their rental payments instead of paying the mortgages, deliberately allowing the properties to go into foreclosure.
Under California's qui tam statute, private citizens can sue on behalf of the state when they believe someone has committed insurance fraud. If successful, the relator receives a portion of any recovery.
The defendants moved to dismiss, arguing that Henggeler's case ran afoul of the public disclosure bar, a provision designed to prevent opportunistic lawsuits based entirely on information already in the public domain. The trial court agreed, noting that Henggeler had learned about the case from news coverage and relied on testimony from the GEICO trial.
But the appeals court saw it differently. In a partially published opinion that will serve as binding precedent, the court drew a crucial distinction: there's a difference between using publicly available information and basing a case on publicly disclosed allegations of fraud.
The public disclosure bar, the court explained, was never meant to prevent someone from gathering evidence from public records or court files. It only kicks in when a complaint essentially copies allegations of fraud that have already been publicly aired.
"The public disclosure bar applies only when the complaint is based on publicly disclosed 'allegations' of fraud or specific fraudulent 'transactions,'" the court wrote. Simply using information, even information related to fraud, doesn't trigger the bar.
The court found that the bankruptcy records, civil judgments, and corporate filings Henggeler consulted weren't themselves allegations of fraud. They were evidence she used to build her case. The same went for the trial testimony. Omar and Ballidis weren't alleging fraud when they testified. They were denying it, trying to prove Omar's damages were real.
The case now returns to Orange County Superior Court, where it will proceed on the insurance fraud claim. Whether Henggeler can prove her allegations remains to be seen. But at least now she'll get the chance to try.
