Illustration by Christine Hipp.

Funding for insurance fraud investigation may soon double in Santa Cruz County, as employers who fail to maintain worker’s compensation insurance are subjected to stricter regulation of state law. District Attorney (DA) Bob Lee is petitioning for the maximum state-allocated amount of $248,665.

If the funds are granted, a projected eight new prosecutions and five new convictions will arise in Santa Cruz next year.

“We need to convince business owners the risk of getting caught is not worth the potential saving,” DA Lee said.

In 1991, the California State Senate declared insurance fraud a felony and established a fund, the California Worker’s Compensation Insurance Fraud Program, for enforcement.

Since its implementation, the program has spared an estimated $1,150,136,727 of potential state costs. This number represents a small fraction of the actual fraud taking place, according to the California Department of Insurance’s (CDI) website, as few cases are actually reported or investigated.

In California, injured workers can receive monetary benefits — including medical cost compensation and lost wage entitlement — without proving their injury to be somebody else’s fault.

According to the CDI website, “these benefits make fraudulent workers’ compensation claims an enticing target for criminals.”

While insurance fraud cases can run from relatively simple to extremely complex, in Santa Cruz, fraud occurs most frequently in a specific sector: employers who fail to provide and maintain worker’s compensation (WC) insurance, which covers an employee’s injury treatment costs.

“Each of our sweep/sting operations over the past four years have netted employers who know they need WC insurance,” DA Lee said in his report to the state, “but have chosen to take the chance and go without.”

Without WC insurance, employers may manipulate their employees to not pursue compensation and misrepresent them on insurance claims.

Santa Cruz is a “bedroom community, where the cost of living is high and few large-scale, high-wage employers exist. This adds incentive for lax employer adherence to WC insurance,” according to the DA’s report.

In March, the owner of Brookdale Inn & Spa appeared before a jury trial for prosecution of multiple charges. Sanjiv Kakkar was accused of failing to maintain worker’s compensation insurance. Kakkar was accused of two accounts of insurance fraud, issuing bad checks and dissuading an injured employee from pursuing compensation.

Historically, Santa Cruz County has contracted one part-time prosecutor. Should CDI approve the funding, a full-time investigator will augment the prosecutor’s periodic sting sweeps with more targeted investigations, according to the DA’s report.

Andrea Paradise, manager of Petroglyph Ceramic Lounge on Pacific Avenue, said providing WC insurance is easier for some businesses than others.

“We [at Petroglyph] provide it … but we [only] pay a higher amount for insurance when our workers are near the [ceramic] kilns,” Paradise said. “For other businesses like construction, where the conditions are extremely dangerous, paying for insurance is a lot more expensive.”

The state has classified construction worker’s compensation a sector of highest priority, as the inherently hazardous working environment puts the business at a high-risk for employee/employer insurance fraud. In Santa Cruz, most construction firms are small, non-union independents, adding incentive for fraud.

The county is “targeting the construction industry for possible premium fraud cases,” Lee said in the report.

Manthri Srinath, owner of local coffee shop Lulu Carpenter’s, said the idea of not maintaining WC insurance is “crazy.”

“Without WC insurance, one [employee injury] claim could put you out of business,” Srinath said. “I wish the cost wasn’t so high … but to be honest, I think the reason it costs so much is insurance companies have to cover the costs of fraud.”

The DA’s office could not be reached for comment.