31 Named in Phony Accident Scheme : Fraud: They are accused of collecting $1 million in claims. Officials say it is Orange County’s largest insurance scam.

Thirty-one people have been indicted on charges of staging scores of auto accidents and collecting $1 million in phony claims in Orange County’s largest insurance scam ever, authorities said Wednesday.

The case, though massive, involves just one of dozens of fraud rings that generate an estimated $500 million to $1 billion in phony or inflated claims each year in California, insurance company executives and fraud investigators said.

Some officials estimate that one out of every five dollars that consumers pay for auto insurance goes for fraudulent claims. Insurance companies cite fraud as a major cause of skyrocketing premium rates.

The fraud scams are myriad and ingenious, investigators say. According to the indictments unsealed Wednesday, the Orange County ring, allegedly masterminded by a Fullerton body shop owner, used the same cars to submit scores of phony damage claims.

“Sometimes they’d take out five policies in a two-day period on the same car,” said Officer Theresa Clark, who investigated the case for the California Highway Patrol.

The car owners would then allegedly damage the autos--including a Porsche and a Mercedes-Benz--tell the insurance companies that one car had run into up to four others in a parking lot and then collect up to $10,000 in property damages on each car, investigators said.

Clark said the defendants knew that police would not investigate a parking lot crash in which no one was hurt.

“One of them said (the crash) happened in the Santa Ana Courthouse parking lot,” she said.

The defendants allegedly filed similar claims on the same accident with multiple insurance companies, varying the details of the parking lot accident only slightly. The insurance companies, which included Farmers, State Farm, Mercury Casualty, Allstate, Travelers and Auto Club of Southern California, sometimes cross-check bodily injury reports but not property damage claims, Clark said.

Orange County Deputy Dist. Atty. Dan McNerney said he was not surprised by the alleged scam. “It’s an easy thing to do, especially when the claims don’t involve personal injury. They tried to get $3,000 to $5,000 per vehicle--amounts that investigators usually aren’t suspicious about.”

But the overall impact of hundreds of phony claims has prompted the insurance industry to push for legislation to make many types of insurance fraud felonies instead of misdemeanors, in hopes that prosecutors will take more interest in such cases.

The State Bar of California also has identified at least 47 attorneys suspected of handling false insurance claims, and at least nine of them are under investigation, said deputy chief trial counsel Frank Bassios.

Specialized units to prosecute auto insurance fraud are now being formed by district attorney’s offices across the state, including Orange County’s. Further mandates to curtail auto insurance fraud were included in Proposition 103, the controversial insurance reform initiative passed in November, 1988.

As an indication of the size of the overall problem, State Farm Insurance Co. statistics show that the bodily injury rate in California is 22.5 injuries per 1,000 accidents. That is almost double the figure for similar accidents in the rest of the nation.

“The cars come together only 10% more in California, but you get hurt twice as often, and I just don’t believe you people out there are more fragile than the rest of us,” said G. Robert Mecherle, a claims vice president for State Farm Insurance in Bloomington, Ill.

In addition, since 1986, reports of false automobile claims to the state Department of Insurance have increased by almost 300% statewide, from 1,355 to almost 4,000 in 1989.

The Orange County case began to unfold in March, 1987, when a sheriff’s deputy arrested one person named in the scheme and discovered that the suspect had fake identification and several insurance policies showing different names. The Sheriff’s Department handed the case over to the California Highway Patrol, which submitted the case to the Orange County Grand Jury after 2 1/2 years of investigation.

Last Thursday, the grand jury issued a 28-page sealed indictment charging the 31 suspects with nine counts of conspiracy to commit grand theft. The alleged ringleader, Norman Sidney Gerstein, 38, of Colton, was charged with nine conspiracy counts as well as one count of possession of cocaine for sale.

Authorities say 60 people took out fake insurance policies, but the indictment names only 31. The defendants allegedly submitted 57 false claims to nine insurance companies from April, 1986, to March, 1988.

The CHP asked that the indictments be sealed to prevent the targets from fleeing before they could be arrested. Early Tuesday, CHP officers arrested 18 of the 31 suspects, including Gerstein and his wife, in Orange, Riverside and Los Angeles counties, as well as in Sacramento. Three more of the accused turned themselves in to the court Wednesday morning, while one was already in state prison, serving time for an unrelated crime.

Gerstein is being held in Orange County Jail in lieu of $250,000 bail, and is expected to be arraigned Friday with some of the other defendants, McNerney said. The others are to be arraigned in two weeks, he added.

Nine of the accused are still at large and investigators believe that at least four have left the state. They are now being sought in Florida, Oregon and Georgia.

If convicted, the defendants could face a maximum penalty of three years in prison on each count of conspiracy to commit grand theft. On the cocaine charge, Gerstein also faces another four years.

Gerstein is also suspected in a second fraud ring that involved employees of two more insurance companies, said Chief Clarence C. Tuck of the CHP’s border division based in San Diego. Tuck declined to comment further because that case is still under investigation.