Lost Horizon

An Illinois Hearing Board has concluded that charges of dishonest conduct had not been proven and should be dismissed.

The Administrator filed a one-count Complaint against Respondent Tracy H. Wolfe (“Respondent”) alleging she falsely claimed she was an employee of a company in order to receive insurance benefits, and submitted claims for insurance benefits to which she was not entitled. Respondent was charged with engaging in dishonest conduct as well as criminal conduct that reflected adversely on her honesty, trustworthiness and fitness as a lawyer.

The Hearing Board found the charges of the Complaint were not proved by clear and convincing evidence and therefore recommended the Complaint be dismissed.

The background

Respondent was admitted to practice law in Illinois in 2002. After working for law firms where she handled large-scale commercial real estate transactions, she became assistant general counsel at General Growth Properties. In the fall of 2009, she was laid off from General Growth Properties and started her own firm. She stopped working in September 2014 and has not done any legal work since that time. Respondent testified she has never practiced employment law, owned or managed a business, participated in choosing a group insurance plan, or had responsibility for administering employee benefits. (Tr. 17-27, 41, 71, 229-30).

Daniel Michael, Respondent’s father, founded Horizon Realty group (“Horizon”), a family-owned commercial real estate company, in the early 1980s. Horizon Group Holdings is the umbrella company for various Horizon entities. Respondent’s tax records reflect that from 2011 through 2015 she had a 24% ownership interest in Horizon Group Holdings through a trust, and as an individual. As a part owner, she was provided with K-1 tax schedules. She did not receive W-2 forms. (Tr. 62, 70, 130-34, 142, 217; Adm. Ex. 15).

Jeffrey Michael, an attorney and Respondent’s brother, has worked at Horizon since 2001 and is currently the Chief Operating Officer in charge of day-to-day operations. In 2010 his role with respect to health insurance was to shop for coverage, communicate with the insurance broker, and determine the employer contribution amount. He deferred to his staff with respect to enrolling employees and calculating their payments. (Tr. 217-22).

The allegations of dishonesty related to maternity coverage

During the time Respondent worked at law firms and General Growth Properties, she received health insurance as an employee through her employers’ policies. When she started her own firm in 2009, she obtained health insurance pursuant to the Consolidated Omnibus Reconciliation Act (Cobra). At that time Respondent and her husband, who was a partner with a large company, were living with Respondent’s parents in Highland Park. (Tr. 19-20, 27-28).

Between 2009 and October 2010, Respondent decided she wanted to have a second child. Her Cobra coverage had a waiting period of twelve months for maternity benefits, and other private insurance options had a similar requirement. Her husband did not have insurance coverage through his business. Respondent testified when she mentioned the situation to her father, he told her she could be added to Horizon’s policy. She understood from his statement that she was allowed to be on the policy. (Ans. at pars. 4, 6; Tr. 29-31, 76).

The conduct came to light when Horizon declared bankruptcy

In 2014 Horizon Group Management filed for bankruptcy. Paul Bauch, attorney for the bankruptcy trustee, testified that one of the duties of the trustee was to recover any money fraudulently transferred from the bankrupt estate. Bauch received Horizon’s financial records in November 2015 and discovered that assets had been transferred to family members to pay credit card and other expenses, including health insurance premiums for Respondent. A compilation of the premiums, prepared by the trustee’s accountant, indicates $70,170.16 was paid to Blue Cross between February 2011 and April 2015 on behalf of Respondent. After confirming Respondent was not an employee of Horizon, Bauch made a demand for the return of those funds. He testified Horizon should not have been paying the premiums that were Respondent’s personal expense. (Tr. 79-89, 95, 115; Adm. Ex. 3, 7, 12).

Respondent testified she was contacted by the attorney for the bankruptcy trustee in June 2016. Prior to that time she had not been concerned about qualifying for coverage under the Horizon policy because her father had told her she qualified. She hired a lawyer with respect to a settlement. (Tr. 62-65, 72).

On October 25, 2016, the trustee, Blue Cross and Respondent agreed to a settlement whereby Respondent would pay the bankrupt estate 80% of the insurance premiums paid on her behalf and, in turn, she would be released from any further liability regarding the payments. Stephanie Poulos of Blue Cross reviewed the settlement draft and understood Blue Cross was not required to refund any money and was releasing all claims against Respondent. To Poulos’ knowledge, Blue Cross never made a demand on Respondent or Horizon to pay the difference between the amount received as premiums and the amount paid out for claims. Poulos did not become aware that Respondent was not an employee of Horizon until months later when she received a subpoena from the ARDC. (Tr. 66-67, 90, 103-104, 158, 178; Adm. Ex. 10).

The trustee notified the ARDC. 

After discussing the matter with the ARDC’s ethics inquiry service and other attorneys, Bauch reported Respondent’s conduct to the ARDC. In a November 2016 pleading filed with the bankruptcy court, Bauch stated he had been instructed by the ARDC to report Respondent’s conduct. Bauch testified he was trying to demonstrate to the court that Respondent’s family was using Horizon as their piggy bank to pay their personal expenses.

Her explanation

In the case before us, Respondent acknowledged she completed portions of insurance applications that identified her as an employee of Horizon when, in fact, she never worked for Horizon. Further, while covered by the Horizon policy, she submitted claims for medical services and received payments from Blue Cross. Those facts, while seemingly incriminating, must be viewed in light of other evidence and Respondent’s explanations for her conduct.

Respondent denied that her actions stemmed from any calculated plan to deceive anyone; rather, she explained that in light of her father’s statement that she could be added to the Horizon policy, she failed to give any real thought to her eligibility. We found Respondent to be a very credible witness and her explanation to be reasonable. In our opinion, her deference to her father’s judgment was realistic in light of his position of authority in the company and the fact he would be expected to have knowledge of company benefits. Respondent’s legal expertise, while extensive in the area of commercial real estate, did not encompass the interpretation of insurance benefit plans.

Even if Respondent had given greater thought to the language of the application form, the wording of the acknowledgement paragraph was vague in that it stated she was applying for coverage for which she was eligible or “may become” eligible. The Blue Cross representative was not asked to interpret that language, nor was it referenced in the terminology definitions we reviewed. With respect to an “x” next to “Active Employee,” Respondent did not recall if she made that mark. Since at least one other person entered information on the application form, we draw no conclusions with respect to that mark. We also note there were no other options provided, such as “owner” or “other.”

Aside from the issue of Respondent’s motivations, which we conclude were innocent, we find there was a complete failure of proof as to whether she was, in fact, eligible for coverage. It was incumbent upon the Administrator to provide proof of the policy terms, requirements, benefits and definitions in place at the time of the alleged wrongdoing, but that proof was lacking. 

Conclusion

We find that a violation of Rule 8.4(b) was not proved by clear and convincing evidence. The criminal statute requires that a person “knowingly” engage in a “deceptive act” to gain control of the property of an insurance company. In our discussion of Rule 8.4(c), we concluded that Respondent’s conduct stemmed from her lack of attention and her assumptions based on statements made by her father, rather than from any knowing behavior or conscious deceptive act meant to deprive the insurance company of its property. Moreover, there was no evidence she had the proper materials in front of her that would establish the criteria for her insurance coverage, or that she knew those criteria. For those same reasons, we find Respondent did not knowingly engage in any deceptive act in violation of the insurance fraud statute.

(Mike Frisch)