Although Congressmen write law, they are not above it. FormerArizona Congressman Richard Renzi learned this lesson the hard waywhen he was convicted by a jury on charges of conspiracy,honest-services fraud, extortion, money laundering, making falsestatements to insurance regulators, and racketeering. InU.S. v. Renzi, the NinthCircuit Court of Appeal was asked to reverse convictions forblatant insurance fraud by using clients funds held in trust tofund Renzi's successful campaign for Congress.

The evidence showed that Renzi, who owned and operated aninsurance agency, misappropriated clients' insurance premiums tofund his congressional campaign, and lied to insurance regulatorsand clients to cover his tracks. Finally, the evidence establishedthat Renzi used his insurance business as an enterprise to conducta pattern of racketeering activity by diverting clients' insurancepremiums for his personal use, facilitating an extortionate landtransfer, and laundering its proceeds.

Renzi owned and operated Renzi & Co. (R & C), aninsurance agency specializing in obtaining insurance coverage fornon-profit organizations and crisis pregnancy centers. On Dec. 10,2001, Renzi publicly announced his candidacy for a seat in the U.S.House of Representatives serving Arizona's First CongressionalDistrict. The very next day, Renzi began diverting cash from R& C to fund his congressional campaign. Between December 2001and March 2002, Renzi transferred more than $400,000 from insurancepremiums paid to R & C to his "Rick Renzi for Congress"account. To avoid campaign disclosure regulations, Renzi claimedthe money as a personal loan to the Renzi campaign. But most of thediverted funds were directly traceable to insurance premiums R& C had collected from clients.

Because R & C no longer had the money, Renzi didnot pay the broker to fund the insurance for hisclients. Two months later, Safeco—showing amazingpatience—warned R & C that it planned to cancel R & C'spolicies for nonpayment.

A month later Safeco began sending cancellation notices to R& C's clients. With cancellation notices in hand, worriedclients began calling R & C. Renzi dictated a letter sent toclients later that month. The letter stated that, because"spiritual counseling was no longer covered" under Safeco's policy,R & C had "replaced" Safeco with the "Jimcor Insurance Co." Theletter promised that clients would experience "no lapse incoverage." Jimcor is not an insurance company (While Jimcor Agencywas a broker for some of R & C's policies, Jimcor was not abroker for these particular ones. And although Jimcor Agency was abroker, it was not an insurer.) The new certificates Renzi sentwere entirely fabricated. Renzi caused at least 74 letters andphony insurance certificates to be delivered, but only to clientswho had called R & C to voice concern.

On November 5, 2002, Renzi was elected to the House ofRepresentatives. A few weeks later, Renzi received a $230,000 giftfrom his father. That same day, R & C paid the full amount dueand Safeco decided to retroactively reinstate all of R & C'spolicies.

Next page: The trial

Testimony at trial established that there was no "inadvertentcomputer slip" as Renzi claimed. Rather, Renzi had instructed anemployee to create the fake certificates, insert the false coverageinformation and send the certificates to complaining clients.

 In his appeal, Renzi contended that his insurancefraud conviction cannot stand because R & C was not "engaged inthe business of insurance" as required by statute. However, actionsspeak otherwise. R & C went so far as to issue fake insurancecertificates to clients, which listed Renzi as Jimcor InsuranceCo.'s "authorized representative." And during the period of timewhen clients were not covered by any policy, R & C paid clientsdirectly after purportedly adjusting any outstandingclaims. The Ninth Circuit Court of Appeal concluded thatif it looks like an insurance agency and acts like an insuranceagency, it's probably engaged in the business of insurance.

The Constitution and our citizenry entrust Congressmen withimmense power. Former Congressman Renzi abused the trust of thisnation, and for doing so, he was convicted by a jury of his peers.After careful consideration of the evidence and legal arguments,the Ninth Circuit affirmed the conviction and sentence imposed onRenzi.

Insurance is a business of the utmost good faith. Members ofCongress must be honorable and serve their constituents—not theirpersonal gain. The jury found that Renzi used the business ofinsurance with utmost bad faith, stole funds entrusted to him byhis clients to fund his run for Congress, lied to his clients whentheir policies were cancelled for non-payment of premium that hadbeen stolen by Renzi, created false and fraudulent insurancepolicies to stop complaints from his customers, and then lied tothe regulators investigating his acts.

The insurance conduct proved against Renzi—ignoring the othercharges for the purpose of this article—is the ultimate expressionof bad faith. His punishment—only three years in prison—wasmerciful.

Barry Zalma, Esq., CFE, is a California attorney, insuranceconsultant and expert witness specializing in insurance coverage,claims handling, bad faith and fraud. Contact him at [email protected].