Assignment of Benefits…Conspiracies Abound!

It’s December 30, 2009 somewhere in Miami, Florida–the day before New Year’s Eve. Carolina Espinosa, the 31 year old wife of 56 year old Fausto Espinosa, drives the couples’ Rolls Royce to the home of Jose Gonzalez. The three are concocting a plan to commit arson as a small part of their elaborate and immensely diabolical property insurance fraud ring–one this married public adjuster couple operated for close to a decade.

The three are merely the top tier of two dozen or more co-conspirators in a multi-million dollar criminal enterprise police, arson and DIF (Division of Insurance Fraud) investigators dubbed “Operation Flames & Flood II.”

Like numerous PA scams uncovered in recent years, insurers in the “Flames and Flood” case took it heavy. So, too, did Florida’s six million home and condo owners and renters. Here the net losses totaled over $7 million from 25 separately “staged” events.

The average claim filed against Citizens was $189,702 for 12 claims totaling $2,276,431.37, including two water losses. Citizens successfully denied one claim based on the claimants lack of insurable interest.

State Farm had the highest single payout of $975,777. Tower-Hill had more payouts than any other private carrier with three total.

Mr. and Mrs. pubic adjuster were meticulous, making certain to never use the same private insurer more than once (other than Tower-Hill) and to carefully review policies for water exclusions that might make the setting of a fire the best option. Indeed, “fire” was their choice in all but four (4) of the twenty five (25) staged events. And, due in part to the unique position and knowledge of public adjusters, both the floods and every one of the flames, were never conclusively declared by investigators to have been staged. Not one!

For a breakdown on each carrier’s losses I assembled a sheet using the un-redacted arrest affidavits provided by the Dade County States’ Attorney, Katherine Fernandez Rundle’s office, and those received from the Department of Financial Services (DFS) and used to revoke the public adjuster licenses of Fausto and Carolina Espinosa. You can review my loosely assembled claim summary here.

But, know this. Operation “Flames & Flood” was an investigation into a monumental conspiracy involving far more than just two very bad public adjusters. It included electricians who rewired surge protectors. Plumbers who loosened pipes, remediators who overcharged and, complicit homeowners–some with drug and gambling habits and others desperately behind on their mortgage payments.

“Flames and Flood” included overextended contractors on the verge of bankruptcy. It included lawyers’ spouses who were water extractors, fire remediators, an appraisal company owned by the Espinosa’s, appliance store owners, an auto stereo outlet, numerous field “recruiters” looking for willing homeowners and, of course…it included attorneys!

That’s right! Lawyers who, according to official affidavits, were not only “aware of the scheme” but who many times participated in ways beyond just filing suits. One attorney even appeared at the fire scene warning the homeowner not to sign with the other public adjusters who arrived and to stick with Espinosa so everything could go according to plan.

Affidavits indicate that the attorneys were not only paid their fees but, were sometimes paid a percentage of the claim direct from Espinosa, presumably for other services. For details on each of the 25 events, begin reading on page 6 of the 52 page “Statement of Facts in Support of Arrest” from the 11th circuit court.

Now… let’s shift gears.

This was a diverse and far reaching scam operated by some really bad people. But, there was one common thread necessary and present for each of the 25 staged events…


All of the public adjusters in this, and I’d be willing to bet, in other fraud rings, have relied, in whole or in part, on Assignment of Benefits (AOB); or, similar language that guarantees the claim check will have the PA’s name on it, and more. As you read the arrest affidavit you’ll find numerous references to the “assignment” clause in the PA’s contract.

One of my subscribers sent me this PA’s contract as an example. And, while this PA may be honest, it’s a cinch that those who are not honest use similar language.

“I, hereby, assign any and all insurance rights, benefits, proceeds and any causes of action under any applicable insurance policies to…[the public adjuster]”

Think about it. A public adjuster can’t contract with the homeowner until after the loss, in the Espinosa’s case, an arson. If the public adjuster plotted with the homeowner to defraud the insurer, and the homeowner refuses to pay the PA his percentage, seeking redress in the courts,  or even filing a lien to enforce an illegal contract becomes problematic.

PA’s with criminal intent must control the claim, and most importantly, they must control the claim payment.

Though most are honest and ethical, PA’s are uniquely positioned to commit insurance fraud. They know the claim process. They know the ins and outs of fraud investigation. Fact is, AOB gives those with Espinosa’s mindset not just additional means to commit fraud but, the inspiration to turn to fraud in the first place.

In closing–while congratulations are in order for all those (arson investigators, DIF and police detectives, prosecutors and regulators) who helped bring down this vast network of insurance fraudsters, it’s somewhat disconcerting that no one has pointed to the role that Assignment of Benefits played in both incentivizing and enabling this and other scams like it across Florida.


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  1. herbie wiles says:

    I appreciate your excellent coverage on Public Adjusters. If Greed wasn’t present on both the AOB and the insured we would not have the problem.

    • Good observation Herbie. In fact, the real abuse occurs at the intersection of “greed” and “opportunity”. In this instance (Flames & Flood) the result is arguably worse with PA’s than the other offenders; Water extractors and roofers. PA’s, the bad ones, can bring all the others into the act.

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