On Sunday April 19th The Albany-Times Union published a very interesting article about a business owner who falsified insurance filings. David M. Johnson, CEO of a company called Professional Fire Restoration Services pled guilty to a misdemeanor count of falsifying business records. At the heart of the case is the fact that when applying for insurance with Hartford Insurance Co. he listed the company as CPJ of Albany Inc. and stated that they were in the janitorial service business not the fire restoration business. Since janitorial work is less dangerous he was able to purchase a cheaper insurance plan than the higher cost and legally required fire restoration insurance.
On August 12, 2012 one of the company’s employees severed an arm in a chainsaw accident. Hartford paid out $700,000 in the worker’s comp claim. While processing the claim the insurance company realized that the policy was cheaper than the one that was legally required. Mr. Johnson must pay $180,000 in restitution fees. That amount represents the difference in the legally required insurance policy and the cheaper one purchased by Mr. Johnson. In addition, the company is on three years’ probation.
Essentially the company was slapped with $180,000 fine, three years’ probation and legal fees. In terms of cost cutting they got off relatively easy. This was a felony and Johnson could very easily have found himself behind bars. Also, his company could have been forced to pay significantly more in damages to Hartford Insurance. Obviously, businesses need to watch costs and prudent managers keep costs down where they can. However, cost cutting measures like these endanger the safety and well-being of employees. Good luck recruiting the best talent possible when cut costs on the back of worker safety. Of course, that assumes that the penalties from insurance fraud don’t cripple the company with fines and imprison upper management.