Bad lawyer files: Fourth yacht’s the charm

Or, “Not only loose lips sink ships.”

Bloggers Grace and Wallace point us to the tale of the infamous (and now suspended) attorney Rex DeGeorge, which has important lessons how the plaintiffs’ bar has made insurance more expensive for all of us: because insurers who suspect fraud risk substantial liability for “bad faith” denial of coverage (e.g., May 5, where an insurer who merely investigated an $8,000 chiropractor’s bill was hit with a $150,000 judgment), insurance scamsters can manipulate the system by threatening a suit. For an individual case, simply defending the non-payment may be more expensive than making the payment; even on a systematic basis, the risk of losing a case and facing punitive damages can put insurers in a bind. This is lengthy, but worth it.

In 1970, DeGeorge received $43,000 from Hartford Insurance when he told them that his 43-foot yacht had been stolen by Peruvian coffee merchants. He used the proceeds to buy a 57-foot racer. Lloyd’s of London paid him $194,000 when he told them in 1976 that it had sunk. In 1983, yet another yacht “exploded”; though DeGeorge claimed it was because of “hit men”, he didn’t report it to the police, but to his insurance company. When Fireman’s Fund refused to pay, DeGeorge threatened suit, and they coughed up $250,000. Similar suits resulted in a $700,000 settlement from Home Insurance and more from Transamerica Insurance from a claim that four dozen paintings had been burglarized from his home; a $550,000 settlement from Monarch Insurance for a disability claim; and a threat of a suit brought a settlement from American Express for two separate claims of lost suitcases on trips abroad. All in all, DeGeorge had received over $2 million from insurance companies from various claims, including 29 separate claims of disability.

Cigna, however, was willing to fight when DeGeorge claimed that a 76-foot yacht had been seized by pirates off the Italian coast who had sawed large holes in the hull. The Italian Coast Guard was skeptical because DeGeorge and his two companions hadn’t bothered to use the yacht’s functional radio to summon help. DeGeorge had purchased the yacht for $1.9 million, but resold it to a corporation he was the sole shareholder of for $3.6 million, and that company asked for that amount from Cigna, who, under California law, had only 30 days to respond or risk punitive damages in a “bad faith” lawsuit.

Cigna sued to get out of paying the claim, and DeGeorge countersued. The litigation ended up costing Cigna nearly $3 million in attorneys’ fees, which explains why so many other insurance companies simply settled. Cigna won the case, and even got an order requiring DeGeorge to pay its attorneys’ fees.

DeGeorge, however, shifted his assets overseas and declared bankruptcy. The sham of the bankruptcy was shown when DeGeorge was indicted; he withdrew the petition so that he wouldn’t have to rely upon a court-appointed lawyer and instead could use Mark Geragos (Feb. 18; Dec. 16) to defend him in the criminal case. DeGeorge’s luck really ran out: the jury didn’t believe Geragos’s closing argument that a Russian submariner acting in league with drug smugglers was the one who sank the yacht, and DeGeorge was convicted of fraud, conspiracy, and perjury in 2002. He just lost the appeal of that conviction, though the case was remanded for minor sentencing adjustments. But DeGeorge continues to sue insurance companies; after the conviction, as we mentioned Feb. 17, 2003, a civil jury awarded him $391,000 (plus $4700/month) in a suit against Equitable Life Assurance over a supposed “brain condition”, despite testimony that DeGeorge rehearsed and researched his symptoms, and even though DeGeorge was forced to appear in court in chains and shackles with armed guards.

(Davan Maharaj, “Recurring Tales of Sunken Yachts and Pirates”, Latitude 38, May 2002; “Lawyer?s Conviction in Plot to Scuttle Yacht Upheld”, Metropolitan News-Enterprise, Aug. 31; William P. Barrett, “Why Insurance Rates Are High”, Forbes, Sep. 15, 2003; on DeGeorge; C.D. Cal. USAO press release, Mar. 4, 2002; United States v. DeGeorge opinion; “Rex DeGeorge”, California Bar Journal, May 4, 2002; Cigna v. Polaris Pictures Corp. opinion).

One Comment

  • One Too Many Games of “Yacht-zee!”

    The conviction of former attorney Rex DeGeorge (not currently licensed to practice, for reasons which will be obvious) for insurance fraud, perjury and related crimes has been upheld by the 9th Circuit Court of Appeals. Mr. DeGeorge’s case provides an