Ãå±±ÂÖ¼é

A decision by a federal appeals court last week shows what limited options insurance carriers have when they discover major misrepresentation by the insured long after claims have been paid.

The U.S. 11^th Circuit Court of Appeals last week found that MONY, also known as Mutual of New York, could not sue a well-known Tampa ophthalmologist for unjust enrichment after the insurer discovered that the doctor had misrepresented the extent of his disability and loss of income.

The July 23 ruling threw out a verdict that had awarded more than $388,000 to MONY in 2023. A federal court jury found that the eye doctor, Bernard Perez, had no lasting effects from a bout of skin cancer in 2011, despite his claims. After the trial judge added interest, the award came to almost $449,000.

But the doctor appealed, and the 11^th Circuit found that Florida law does not allow unjust enrichment tort claims if the matter is covered by a contract – an insurance contract, in this case.

“MONY’s unjust enrichment claim must fail under Florida law because it covers the same subject matter as the insurance contract,” appellate court Judge Stanley Marcus wrote in the opinion.

The insurance policy contained no clawback provision that would allow the insurer to seek disgorgement of improvidently made payments to Perez through the years, the court found.

“MONY’s failure to include a clawback provision does not allow it to contravene or unsettle what is clearly established law in Florida.”

Clawback provisions are rarely seen in insurance policies, said Karyn Roeling, president of the Seibert Insurance Agency in Tampa and chair of the Florida Association of Insurance Agents. But clawbacks are not barred by Florida insurance law, MONY’s attorney told the court.

Short of including a clawback clause in the policy, MONY, a subsidiary of Protective Life Insurance Co., could have sued Perez for fraud or misrepresentation, the judges noted. The insurer also could have attempted to prosecute the eye doctor on criminal charges and could have sought restitution and forfeiture of the insured’s assets, explained Scott Johnson, a longtime Florida insurance educator and consultant. In most cases, when a property insurance carrier discovers material misrepresentation, the insurer will simply cancel or nonrenew the policy, then turn the case over to prosecutors or the Florida Department of Financial Services’ fraud investigation team, Johnson said.

It’s not clear why MONY did not pursue the criminal-fraud angle in the Perez case. Attorneys who represented the company in the appeal could not be reached for comment.

The case highlights the perils of potentially fraudulent and unchecked information in disability insurance. Long considered a rampant problem for Social Security Disability, alleged fraud can also affect private insurers’ disability expenses.

In this case, the story involves an eye doctor who is somewhat famous in the Tampa area, having been featured in a few articles by local television and newspapers through the years. Bernard Perez and his brother, sons of a physician in Cuba, immigrated to Florida with their family in the early 1960s, after Fidel Castro’s communist regime overthrew the Cuban government, FOX 13 news reported a decade ago. The brothers had separate ophthalmology practices until 1994, when they merged, creating Perez & Perez, the appeals court explained.

In 2011, Bernard Perez was diagnosed with squamous cell carcinoma in the neck area. He underwent surgery that year and the cancer was successfully removed. But Perez, who had been keeping up a disability insurance policy with MONY since 1988, told the insurer that he was unable to work a full schedule. He and his physician have said that Perez suffered from chronic fatigue, could stand for only one hour a day, and could not lift more than 60 pounds.

The insurer became suspicious as early as 2012 but continued to make disability payouts of $13,137 per month until early 2018. To receive benefits under the residual income loss provision of the policy, an insured must establish an earnings loss of 20% or more due solely to the injury or sickness. If an insured’s earnings loss from reduced workload is greater than 75%, he will receive full, basic monthly income.

MONY’s investigation at some point obtained testimony from Perez’ ex-girlfriend, who said the eye doctor had no apparent physical issues after the cancer treatment.

“From 2016 to 2020, she testified, that in the course of their relationship she observed Perez unload 85 bags of mulch, garden almost every day, and indeed walk some 10 miles a day during a trip to New York City and walk 40 miles during a weeklong trip to Madrid,” the appellate court recounted.

The ex also said Perez went boating on most Sundays, took lengthy paddleboard trips and went snow skiing in Aspen on three straight days.

The insurance company also began digging into Perez’ finances. Invesigators attempted an independent forensic financial audit of the medical practice, but Perez did not respond. After MONY threatened to discontinue benefits payments, Perez’ lawyer asked the insurer to identify the policy provision that requires compliance with an audit. MONY argued that while the policy does not mention that, a monthly claims form notes that the company may require verification of income. Still, Perez refused to cooperate.

In February 2018, MONY finally halted payments. This was about the time that a in the Tampa Bay Times showed Bernard Perez examining a patient at the eye clinic. Perez’s brother had removed a parasitic worm from the patient’s eye.

After MONY stopped monthly payouts, Perez sued for breach of contract. More than a year later, MONY filed its own lawsuit, claiming fraud and seeking a judge’s declaration that the carrier was entitled to condition its benefits payments on compliance with an audit.

Meanwhile, MONY investigators had found that Perez had allegedly understated the number of hours he worked, had failed to disclose that he had sold his interest in the ophthalmology practice, and had quietly formed a new practice without informing MONY, the court noted. He also had some large expenses, including management fee payments to his sister and hefty automobile expenses.

“MONY convincingly demonstrated that many of the business expenses submitted by Perez were untruthful,” and Perez had been deceptive about the number of hours he was able to work, the judges wrote.

The case finally went to a jury. After a nine-day trial in Tampa, the jury found that Perez had been unjustly enriched and that MONY did not breach the insurance contract. The jurors awarded MONY the $388,000 in damages.

But Perez appealed and the appeals court decided that the case should never have gone to trial.

“We, therefore, conclude that the district court erred under Florida law in allowing MONY’s unjust enrichment claim to move forward,” the 11^th Circuit wrote. “This claim should not have been sent to the jury. Accordingly, we set aside the jury verdict in favor of MONY on its unjust enrichment claim and, on remand, direct the district court to vacate its judgment awarding MONY $448,930.”

The district court erred in failing to interpret an ambiguous term found in the insurance contract, leaving it to the jury to construe what it meant, the judges noted. Under Florida law, it is neither the parties’ nor the jury’s role to interpret ambiguous contract provisions found in an insurance policy, but rather the court’s.

The appeals court did not disturb the jury’s finding against Perez’ counterclaim of breach of contract by the insurance company. The judges ruled that the evidence of Perez’ dishonesty so pervaded the trial that the jury could not have found in favor of Perez on that claim.

“As we see it, MONY’s unjust enrichment claim and Perez’s breach of contract counterclaim are mirror images of one another — since the jury found that Perez was unjustly enriched, it could not have found that MONY breached the insurance contract by halting payment for the same reason,” the court noted.

To further appeal, MONY would have to ask the U.S. Supreme Court to consider the case, something that is unlikely to happen.

Related: Case to Clarify Economic Loss Rule Settles Days Before Fla. Supreme Court Arguments

Topics Lawsuits Carriers