If you’ve been reading this blog, you know my feelings about the fraud defense.  It is a helpful tool in an E/C’s assortment of defense strategies, but it should be used after thoughtful deliberations.  The First DCA has limited the definition of fraud in hopes to curb the rampant use at the trial court level.  Yet, the Court refused to apply a reverse penalty to E/C’s when they commit fraud.

Now, it appears there is a penalty for E/C’s who use the fraud defense and lose at trial.

In Carrillo v. Case Engineering, Inc., Claimant sought PTD benefits in relation to his compensable accident.  The E/C in turn asserted the Claimant committed fraud, as dictated by s. 440.105 and 440.09.  Keep in mind, fraud is an affirmative defense where the E/C has the burden of proving, much like the Claimant has the burden to prove compensability.

At trial, the Judge found that Claimant did not meet his burden to prove PTD, but also that the E/C did not meet its burden to prove fraud.  End of story, right?  It never is.

Claimant filed for attorney fees–even though he lost.  His reasoning was that the E/C put the entire issue of compensability at issue–essentially denying the claim–when the E/C raised fraud as a defense.  The Judge denied the motion for fees since Claimant’s attorney lost PTD and the First DCA reversed.

The reasoning is simple, the First DCA found that even raising the issue of fraud as a defense, put Claimant’s entitlement to benefits at risk.   And, if a Claimant attorney can defeat the affirmative defense then he effectively saved the employee’s rights to future W/C benefits. 

There was debate about this issue for years.  Many E/C attorneys (including myself) believed that if they asserted fraud, but continued paying benefits until a Judge agrees with them, then they would not be exposed to an attorney fee if they lose the fraud defense.  Not so, says the First DCA.

Now, I’ve warned about relying too much on the fraud defense.   It is a tool, not a weapon.  In the Carrillo case, the Claimant lost his PTD bid but his attorney will still earn a huge fee based–paid for by the E/C–on future compensability of the claim.  If a Claimant requires long term pain management care, that fee could be as much as a fee for PTD. 

Think about it: the E/C won in this case, but still has to pay a huge fee.

As claims professionals, and Employers, it is essential to truly weigh the cost and benefits of asserting the fraud defense.  It is not a position to be taken lightly and used if you have weak or absolutely no evidence to back up.  Furthermore, the First DCA has raised the standard of what fraud is that if an E/C is not 100% sure of fraud it should reconsider the notion.  We should never use fraud as an intimidation tactic or as leverage to settlement. 

Bottom line, as an E/C, we need to be more careful about what we declare as a fraud.

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