Insurance Insights header
Volume 5, No. 7 - July 2016

In The Know

- Keeping you informed is what it's all about

We are sharing this important information to educate our licensees about this issue and how they can help on the front line to eliminate fraud, E&O claims, and even avoid possible criminal charges themselves.

The Shell Game: Fraud In The Florida Construction Industry

By Karen Phillips. Reprinted with permission from the June 2016 issue of Rough Notes Magazine, Florida Special Report.

A dangerous fraud scheme has infiltrated the construction industry in Florida over the last several years. Usually involving residential home building, it started in South Florida but has swept northward to encompass most major cities in the state. The scheme revolves around “shell companies,” which on the surface look legitimate and have proper workers comp coverage, but in reality are operating a giant pool of off-the-books labor and are hiding millions of dollars of unreported payroll.

The fraud starts when a labor broker, also called a facilitator, induces a (sometimes) innocent third party—often a foreign national with family to support in his or her home country—to set up a company with the state Division of Corporations that has a very generic name that may reference construction. The company’s name has to be generic, because different crews will be (a) working on many different job sites and (b) often performing all types of construction work. Often the words “Construction Services” or “Services Corp” are in the name. A series of three initials like “ABC Construction” is also common.

The owner then approaches an insurance agent to secure workers compensation coverage and reports just enough payroll in a construction class to look legitimate and to not arouse suspicion from the insurance carrier. Most often, the class code is one that typically uses unskilled labor, such as drywall, framing or concrete.

After the workers comp coverage is in place, the business owner takes his certificate of insurance (COI) listing the company’s workers comp coverage and then rents that COI out for a fee to dozens of different construction crews doing work on many different job sites.

When the general contractor pays the crew for work performed, the labor broker takes that check to a check-cashing store, gets the cash, takes his (substantial) cut, gives the check cashing store its cut, and gives what’s left to the crew leader to pay his crew for doing the work. The labor broker can have dozens of crews using hundreds of workers on different jobs sites at any one time, which means he is cashing millions of dollars in payroll checks in any given policy period.

The victims

None of this payroll is reported to the company’s insurance agent or workers comp carrier. Neither the carrier nor the agent know the true exposure associated with the policy for the shell company. For example, what is supposed to be a company with $50,000 in framing payroll that is paying $8,500 in annual premium could in reality be a company with $5 million in framing, drywall and concrete payroll that should be paying $850,000 annually. This results in hundreds of thousands of dollars of unpaid premium that the insurance carrier never receives. If claims are made on the policy, they usually are from workers the insurance carrier never knew they were covering and for which they never received a penny. Of course, the shell game also reduces the commission the insurance agent should have received. Other victims of this scheme are the undocumented workers who are injured working for one of these companies. They are the ones doing the hard work, and if they are hurt on the job, they have no idea what to do. Usually the only name they know is their crew leader; they don’t know the name of the shell company and they don’t know the name of the shell company’s insurance carrier. This complicated structure means injured workers can be left on their own to try and find medical help for injuries.

Warning signs

Shell companies often have several common characteristics. Individually, these signs might be legitimate, but taken together, they usually add up to fraud:

  1. Generic company name like “ABC Construction” or “XYZ Services Corp.” These generic names allow the shell company to perform a wide range of construction jobs.
  2. Class code on the policy is one that does not require a license and can use unskilled workers, like framing,
    carpentry, concrete, masonry, wallboard or painting.
  3. Company address is not a legitimate business address. Often, shell companies use a P.O. Box or a UPS
    store as their business address. They will even work out of a small house or condo.
  4. Down payment for the policy is made using a money order or starter check where the company name is
    hand written.
  5. Company is located in a part of the state that is far away from their insurance agent. Often shell companies
    will use an agent in a different part of the state to avoid scrutiny.
  6. Company wants to make changes to their workers comp policy shortly after binding, such as adding or changing
    class codes.
  7. Company does not comply with audit requests from the insurance company.
  8. Company requests a large number of COIs not in line with the estimated payroll for their policy, requests certificates listing generic descriptions of operations, or wants class codes listed on the COI that are not on the policy.

Shell companies do their best to look legitimate on the surface, but there are some things agents can do to avoid doing business with them:

  1. Meet clients in person. Make sure the person you are dealing with is the company owner or officer, and not an unrelated third party. Make sure the company owner or officer has a valid Florida driver’s license.
  2. Require original signatures on all documents.
  3. Google the company’s business address to make sure it is legitimate.
  4. Make sure the company has a legitimate company bank account.
  5. Ask if the company will be paying state and federal unemployment taxes on its employees.
  6. Check the Proof of Coverage database maintained by the state Division of Workers’ Compensation to see if the company has had prior coverage and if that coverage was cancelled.
  7. Know which subcontractors your client uses. Most importantly, agents should immediately report any suspected
    fraud or unusual activity to the insurance carrier. Agents are an insurance company’s eyes and ears in the field
    and the best weapon to help stop fraud before it starts.

The author

Karen Phillips is the general counsel for the Florida United Businesses Association (FUBA), a small business trade association. She also is general counsel for FUBA Workers’ Comp, the managing general agent for the
Florida Citrus, Business & Industries Fund, which provides workers compensation insurance to 7,000 Florida businesses. She can be reached at

Click here to read the article in its entirety>>

What is an Unaffiliated Agent?

"Unaffiliated insurance agent" means a licensed insurance agent, except a limited lines agent, who is self-appointed and who practices as an independent consultant in the business of analyzing or abstracting insurance policies, providing insurance advice or counseling, or making specific recommendations or comparisons of insurance products for a fee established in advance by written contract signed by the parties. An unaffiliated insurance agent may not be affiliated with an insurer, insurer-appointed insurance agent, or insurance agency contracted with or employing insurer-appointed insurance agents. [See subsection 626.015(18), F.S. (effective July 1, 2014)]

An agent who appoints his or her license as an unaffiliated insurance agent may not hold an appointment from an insurer for any license he or she holds; transact, solicit, or service an insurance contract on behalf of an insurer; interfere with commissions received or to be received by an insurer-appointed insurance agent or an insurance agency contracted with or employing insurer-appointed insurance agents; or receive compensation or any other thing of value from an insurer, an insurer-appointed insurance agent, or an insurance agency contracted with or employing insurer-appointed insurance agents for any transaction or referral occurring after the date of appointment as an unaffiliated insurance agent. An unaffiliated insurance agent may continue to receive commissions on sales that occurred before the date of appointment as an unaffiliated insurance agent if the receipt of such commissions is disclosed when making recommendations or evaluating products for a client that involve products of the entity from which the commissions are received. [See subsection 626.311(6), F.S. (effective July 1, 2014)]

General Lines Agents - Lawful Fees


As an agent, you or your agency may charge a consumer the actual cost of the motor vehicle report (MVR) for each licensed driver. However, you may not include subscription or access fees associated with obtaining the MVR in the cost to the consumer. See s.627.7295(5)(b), F.S.

Policy Fee

A licensed general lines agent may charge a per-policy fee not to exceed $10 to cover the administrative costs of the agent associated with selling the motor vehicle insurance policy if the policy covers only personal injury protection coverage as provided by s. 627.736 and property damage liability coverage as provided by s. 627.7275 and if no other insurance is sold or issued in conjunction with or collateral to the policy. The fee is not considered part of the premium.

Credit Card Fee

If a credit card company charges a fee for payments of policies/premiums, then in accordance with 626.9541(o)2., F.S., a licensed agent may charge “ . . . the exact amount of any discount or other such fee charged by a credit card facility in connection with the use of a credit card, as authorized by subparagraph (q)3., in addition to the premium required by the insurer.”

Section 626.9541(q)3., F.S. states, “A licensed agent or insurer may solicit or negotiate insurance; seek or accept applications for insurance; issue or deliver any policy; receive, collect, or transmit premiums, to or for an insurer; or otherwise transact insurance in this state, or relative to a subject of insurance resident, located, or to be performed in this state, through the arrangement or facilities of a credit card facility or organization, for the purpose of insuring credit card holders or prospective credit card holders if:

a. The insurance or policy which is the subject of the transaction is noncancelable by any person other than the named insured, the policyholder, or the insurer;

b. Any refund of unearned premium is made to the credit card holder by mail or electronic transfer; and

c. The credit card transaction is authorized by the signature of the credit card holder or other person authorized to sign on the credit card account.”

See s.626.9541(q), F.S.

Citizens' Maximum Coverage Limit Decreased Effective January 1, 2017

As required by Senate Bill 1770, enacted by the Florida Legislature in 2013, and by approval of Citizens’ Board of Governors, Citizens will decrease allowable maximum policy coverage limits.

Effective January 1, 2017, for new business and renewals, the following personal residential risks no longer are eligible for coverage under Florida law:

 A structure that has a dwelling replacement cost (Coverage A) of $700,000 or more
 A single condominium unit with a combined dwelling and contents replacement cost (Coverage A and C) of $700,000 or more
 A tenant contents policy with a Coverage C limit of $700,000 or more

Note: The maximum coverage limit changes reflected above will not affect policy forms where lower maximum coverage limits already exist.

Because the Florida Office of Insurance Regulation (OIR) determined there is not a reasonable degree of competition in Miami-Dade and Monroe counties, these two counties are exempt from the decreased coverage limit of $700,000. The maximum coverage limit of less than $1 million will continue to apply to risks in these two counties.

Citizens will comply with the nonrenewal guidelines in Florida Statute 627.4133 and mail affected policyholders nonrenewal notices in advance of nonrenewal dates of January 1, 2017, or later. The nonrenewal will be effective at the end of each policy’s current term.

Agency principals will receive a separate email soon containing a list of affected policyholders, in order to assist them with securing coverage elsewhere.

Citizens’ website, systems and manuals will be updated to reflect this change.

Click here to read the bulletin at Citizens' website>>

Summer 2016 PDM for Consumers with Medicaid or Children's Health Insurance Program (CHIP)MEC: An Overview of for Agents and Brokers - Register Now

Registration is now open for the “Summer 2016 Periodic Data Matching (PDM) for Consumers with Medicaid or CHIP Minimum Essential Coverage (MEC): An Overview of for Agents and Brokers” webinar scheduled for August 5 at 1:00 PM Eastern Time.

The webinar will provide an overview of the summer 2016 PDM process for consumers enrolled in both a Marketplace qualified health plan with advance payments of the premium tax credit and/or cost-sharing reductions and MEC through Medicaid or the Children’s Health Insurance Program. The webinar will explain how agents and brokers can assist affected consumers.

To register for the webinar, please log in to Registration closes 24 hours prior to the event.

If you have questions on the webinar registration process, visit the “Agent and Broker Webinars” section of the Agents and Brokers Resources webpage for more information. If you require assistance with registration or logistics, you may contact the REGTAP registrar at 800-257-9520, 9:00 AM – 5:00 PM ET, Monday through Friday or email

The Florida Statutes Are Available Online

The Florida Statutes can be viewed at Online Sunshine - Title XXXVII Insurance.