U.S. insurer faces criminal investigation over Iraqis’ unpaid death benefits

Reporting from Washington —  An administrative law judge has referred a U.S. insurance company for criminal investigation after the firm failed to pay benefits to survivors of nine Iraqi translators killed while working for the American government.

Under a federally funded program, Chicago-based CNA Financial Corp. provides insurance coverage to contractors killed or injured while working overseas for the U.S. The slain translators were helping to train Iraqi police recruits.

CNA withheld information from the federal government and avoided making payments to the families who lost relatives in a 2006 attack, according to court files and interviews. One widow was unable to keep up the payments and lost her home after her son and other translators were ambushed by insurgents in the southern city of Basra, one of her attorneys said.

In a ruling last week, administrative law Judge Daniel Solomon ordered CNA to begin making payments to the families. In an unusual move highlighting the government’s concern over potential fraud, the judge also told the Labor Department, which oversees the program, to investigate whether the insurance carrier should face criminal charges. A Labor Department spokesman said the agency would “fully investigate” the allegations to determine whether to ask the Justice Department to prosecute the case.

CNA said it was also looking into the case.

“We are investigating the matter and will take all appropriate actions,” said Katrina Parker, a company spokeswoman.

Attorneys for the families said they believed that CNA withheld documents to avoid making payments.

“These were people who helped the U.S. in Iraq,” said Agnieszka Fryszman, an attorney for the families. “Their families were kicked to the curb when they were most in need of help.”

Under the Defense Base Act — essentially the workers’ compensation system for overseas federal contractors — the government has paid nearly $1.5 billion to purchase insurance policies since 2001. But reporting in 2009 by ProPublica, the Los Angeles Times and ABC’s “20/20” revealed deep flaws in the program. Workers fought long battles for medical care. Foreign workers often never received payments or treatment. The Labor Department seldom took action to enforce the law.

Congress subsequently held hearings, which showed that American insurers were reaping large profits from the program. CNA reported taking in nearly 50% more in premiums than it paid out in benefits.

The case decided last week began on Oct. 29, 2006, when insurgents boarded a bus and killed 17 Iraqi-born translators. CNA paid death benefits to the translators’ children and spouses, according to interviews and court records, but not to other survivors. Several translators had no children, but supported parents or other family members.

In such cases, the Labor Department demands proof that survivors relied on contractors’ earnings. CNA hired investigators who interviewed nine families, confirmed their eligibility and even set up bank accounts, records show.

But CNA withheld portions of the investigators’ findings when it submitted the claims to the Labor Department, court records show. As a result, Labor Department officials accepted CNA’s declaration that there were no dependents to pay.

The translators’ attorneys estimated that CNA owed a total of about $500,000 to the nine families. Instead, CNA paid about $45,000 into a special federal fund set up to help support the workers’ compensation system.

t.christian.miller@propublica.org

T. Christian Miller is a senior reporter for ProPublica, a nonprofit investigative newsroom.