Contractor enters
‘no contest’ plea to
workers’ comp fraud

The defendant's firm did roofing
work but did not tell his insurer

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By Debra Barayuga
Star-Bulletin

The owner of a local siding business who failed to disclose he was also doing roofing work to avoid paying higher insurance premiums has pleaded no contest to workers' compensation fraud.

The case is believed to be the first case prosecuted by the Office of the Prosecuting Attorney since the workers' compensation fraud statute was passed in 1996.

William Lyden, who owns Lyden Siding -- a company that held the contract for Sears Roofing -- pleaded no contest yesterday to first-degree theft and two counts of workers' compensation fraud.

One of his employees, Chinnough Colburn, a project supervisor, pleaded no contest to a reduced charge of criminal solicitation, punishable by a year in jail.

According to court documents, Lyden failed to disclose to his insurance agent that he was also in the roofing business when he sought workers' compensation insurance in October 1998. The insurance company needs that information to determine the premium for workers' compensation insurance.

Lyden also told an insurance field auditor that the only type of work his company did was siding and some kitchen cabinet work. Because of the risk of injuries involved in roofing work, premiums are usually higher than those for installing siding or kitchen cabinets.

Workers' compensation fraud is difficult to detect unless someone reports it or someone is injured, said deputy prosecutor Randal Lee.

This particular case was uncovered after an employee of the company fell from a roof while doing roofing work in April 1999. According to court documents, the employee was called by Colburn while en route to the hospital and told not to reveal the true cause of his injuries. Colburn allegedly told him to tell the hospital he had fallen from a ladder. The employee told his doctors the truth the next day.

Lyden's misrepresentations were discovered after the firm's office manager filed a workers' compensation claim saying she was experiencing work-related stress from having to lie about the injured employee's workers' compensation claim. She was fired immediately after she filed her claim.

Lyden sought to dismiss the indictment against him because he paid in full the workers' compensation premium and the employee's medical and disability benefits -- an amount in excess of $20,000 -- after it was learned his company was doing roofing work.

But Lee argued in his filings that Lyden should not be allowed to escape prosecution just because he later paid the premiums he fraudulently withheld from the insurance company. Also, Industrial Indemnity would not have issued the workers' compensation policy had it known Lyden was doing roofing work.

Bob Dove, president of Hawaii Employers Mutual Insurance Co., says honest employers and competition are hurt by premium fraud.

If employers do not pay their fair share, the system has to subsidize those who cheat. Also, dishonest employers have an unfair advantage over their competitors, allowing them to bid lower to secure jobs.

Circuit Judge Wilfred Watanabe granted Colburn's request to defer his plea, giving him a chance to clear his record if he stays out of trouble. He also ordered Colburn to pay a $500 fine.

Lyden faxes a maximum 10 years for first-degree theft when sentenced July 15. Workers' compensation fraud is punishable by a five-year term.

Lyden's attorney, Randal Yoshida, declined comment.

Colburn's attorney, Darwin Ching, could not be reached for comment.