Car Shop Owner Accused of Fraud

Launching a crackdown against a new but fast-developing type of insurance fraud, a joint law enforcement task force sent undercover agents to 12 San Fernando Valley body shops with an undamaged car. Officials said they found that 11 were willing to make up fake insurance claims to pay for the fancy paint detailing that the agents sought.

In addition, workers at 11 of the body shops allegedly told the undercover officers that they would inflate their claims, and at four shops the officers were encouraged to actually damage the vehicle so they could make even larger claims, said Los Angeles Police Cmdr. Michel R. Moore.

One body shop owner, Larry Hernandez, 47, of Larry’s Auto Body in San Fernando, was arrested Thursday on felony insurance fraud charges.

He stands accused of submitting a claim of $2,800 to the Automobile Club of Southern California for repainting a car to repair damage that did not exist. He has been released on $30,000 bail.

If convicted, Hernandez would face a state prison term of two to five years. He could not be reached for comment Friday. Moore said other arrests are pending after the completion of the sting.

Deputy Los Angeles Police Chief Ronald Bergman estimated fraud of all kinds “amounts to 20% to 30% of all auto claims paid in the U.S.” He said a newly formed task force was spreading its inquiries into this new type of fraud.

Officers said it is not uncommon for teenagers and young adults to obtain a plain car for $5,000 or $6,000 and take it to a body shop for a detailed paint job that would otherwise cost another $2,000 or $3,000. The paint job is then paid for by their insurance company, on the belief that the car has been damaged in an accident.

Ralph E. Lumpkin, a regional director for the National Insurance Crime Bureau, estimated that $300 to $400 of the average annual insurance premium paid goes to defray fraud costs. Premiums would certainly come down if fraud could be eliminated, he said.

Moore said the San Fernando Valley has about 1,600 auto repair shops. The 12 involved in the sting had all been named in complaints received by police.

The undercover agents pretended to be young drivers asking questions about how to get what essentially would be a free paint job, he said. The body-shop operators in question allegedly volunteered ways to defraud the insurance companies.

As of Friday, Hernandez was the only one who had allegedly filed a fraudulent claim in the sting, police said.