William Reed Jenkins III (Jenkins) was allowed as a result of a plea agreement with the U.S. Attorney to plead guilty to only two counts of wire fraud in violation of 18 U.S.C. ? 1343, when he admitted to being involved in multiple actions involving a possible loss to the insurers defrauded in excess of $20 million. The district court sentenced him to 70 months’ imprisonment. Jenkins appealed his sentence, arguing that the district court did not apply the appropriate sentencing enhancements because he only intended to defraud the insurers of a smaller amount than the evidence showed.

The Eighth Circuit Court of Appeal affirmed the sentence in United States v. Jenkins, 578 F.3d 745 (8th Cir. 08/24/2009), proving that an insurance agent committing fraud against the insurers he represented should not expect mercy once caught and convicted. Any agents presented with a get-rich-quick scheme should consider whether they would be so lucky as to only receive a 70-month sentence.

Jenkins served as a licensed insurance agent in California, selling life insurance policies for the Life Investors Insurance Co. of America (“Life Investors”) and the Fidelity and Guaranty Life Insurance Company (“Fidelity”). Jenkins helped clients prepare their life insurance applications, and he submitted completed applications by facsimile to the insurers’ home offices in Cedar Rapids, Iowa (Life Investors), and Baltimore (Fidelity). The insurers compensated Jenkins by paying him a commission on each policy sold or renewed, usually a percentage of the policy’s yearly premium.

Beginning in July 2000, Jenkins and others devised and carried out a scheme to defraud Life Investors and Fidelity by fraudulently obtaining life insurance policies in the names of people who were in poor health or who did not know that policies were being taken out in their names. By misrepresenting the applicant’s background and medical history, Jenkins was able to obtain policies insuring the lives of individuals who were otherwise uninsurable or who were only insurable at a higher premium. The ultimate goal of the scheme was for the co-schemers to collect the policies’ death benefits when the insureds died, which would be sooner than the insurance companies’ actuarial tables would have predicted because of the misrepresented information. Jenkins stood to benefit from the scheme by collecting commissions on the premiums paid by his co-schemers for these fraudulently obtained life insurance policies.

From at least July 2000 until May 2003, Jenkins’s co-schemers supplied Jenkins with names and other information to include in the fraudulent life insurance applications. Using this information, Jenkins created the fraudulent applications. Jenkins also listed the co-schemers as the beneficiaries of the policies. Once the insurer approved the policy application, Jenkins’s co-schemers paid the policy premiums and attempted to collect the death benefits upon the insured’s death.

When Life Investors and Fidelity discovered the scheme, they immediately cancelled or rescinded all of the fraudulently obtained policies and notified law enforcement. By that time, however, the insurers had already issued to Jenkins’s co-schemers 37 fraudulently obtained life insurance policies with stated death benefits totaling $10,350,001, received $274,586 from the co-schemers in premiums, and paid Jenkins $86,542 in sales and renewal commissions. The insurers had not paid any death benefits on the fraudulently obtained policies, and they refunded premiums totaling $197,467 for the cancelled policies.

Jenkins was charged with six counts of wire fraud for his role in the scheme, and he pleaded guilty to two counts pursuant to a plea agreement.

Jenkins argued that the district court erred by finding that he, like his co-schemers, intended that Life Investors and Fidelity pay the co-schemers the total amount of death benefits of the fraudulently obtained life insurance policies as a result of the offense. According to Jenkins, the only losses he intended the insurance companies to suffer were the commissions he received on the policies, not the death benefits which might later be paid to his co-schemers. The court disagreed. Jenkins stipulated that the ultimate goal of the scheme, as the defendant knew, was for the co-schemers to collect the policies’ death benefits upon the death of the insured and that once a fraudulently obtained life insurance policy was issued, defendant’s co-schemers made premium payments on the policy to keep the policy current until the named insured died. When a named insured died, the co-schemers attempted to collect on the life insurance policy’s death benefit. Defendant admitted he knew his co-schemers were attempting to collect death benefits from the fraudulent policies in this manner.

Because the court did not clearly err in making a reasonable estimate that the intended loss was more than $7 million but not more than $20 million, the Court of Appeal concluded that the district court properly enhanced Jenkins’s base offense level by 20 levels. The court also approved a sophisticated means enhancement and an abuse-of-trust enhancement in reaching its sentence.

Here, the circumstances attendant to Jenkins’s relationship with Life Investors and Fidelity demonstrated that he occupied a position of private trust. Accordingly, the court rejected Jenkins’s argument, and held that the district court did not err in applying the enhancements that authorized a 70-month sentence.

Jenkins, as an agent of two insurers, owed a duty of good faith and fair dealing to the insurers he agreed to represent. Rather than acting honorably, Jenkins entered into a scheme that, if successful, could have cost the insurers for whom he worked more than $20 million.

In a plea that comes close to the original definition of “chutzpah”– where a person convicted of murdering his parents seeks mercy from the court because he is an orphan–Jenkins argued he was entitled to a shorter sentence on conviction because he only intended to defraud the insurers out of the commissions he collected in the fraudulently obtained life insurance policies and it was his co-schemers who intended to defraud the insurers of the stated value of the fraudulently obtained policies.

Do the crime, do the time

Insurance is a risk-taking business. Jenkins forgot that in every risk taken is the potential for loss. He took the risk that his crime would not be discovered. He lost. He did the crime. He was caught. He will do the time no matter how brilliantly his lawyers argued to reduce his punishment. That he could afford to pay them to make the argument leads to the conclusion that all of his crimes were not discovered by the prosecutors.

An insurer takes risks and hopes to profit from intelligently underwriting the risks taken. To do so, the insurer relies on the good faith and fair dealing of the proposed insureds and the agents or brokers who present the business to them. When an agent is tempted to enter into a criminal enterprise and, like Jenkins, creates fraudulent applications to obtain life insurance for people who were not capable of being insured because of illness, age or risk of imminent death, he should be caught and punished.

The lesson to be learned from this case is that the risk of entering into a criminal enterprise is great. Although you can successfully steal from an insurer for a period of time, you cannot succeed forever. Greed caused Jenkins to forget what he learned when he first became a licensed insurance agent: when a risk is taken, the person taking the risk must be ready to take the loss when it comes.

Jenkins did the crime. He knew the risk he was taking. He entered an agreement with the prosecutor to plead guilty to two of the many counts with which he was charged. He showed a lack of professionalism by arguing to the court of appeal that his sentence was too severe. To do so was an expression of unmitigated chutzpah.