Federal appeals judges have upheld the three-year prison sentence of an Eastern Kentucky coal operator who lied to insurance companies in order to get lower premiums.
A three-judge panel of the United States 6th Circuit Court of Appeals upheld the judgment against Harold K. Simpson in an order issued Monday.
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Simpson, who lives in Ewing, Va., but has operated underground coal mines in Perry, Bell and other Kentucky counties, pleaded guilty to mail fraud last year, admitting he told insurance carriers he had far fewer employees than he really did.
That meant he paid less for workers' compensation coverage than he should have, because premiums are based largely on the number of employees.
In June, 2007, U.S. District Judge Joseph Hood sentenced Simpson, 58, to three years in prison and ordered him to pay $1.5 million in restitution to three insurance companies.
Under federal guidelines, the sentence was based in part on the amount of money the companies lost because of Simpson's fraud.
Hood figured the loss as the amount of money Simpson should have paid the companies, but didn't.
Simpson objected, saying that the companies didn't lose any money. Even with his fraudulent payroll reporting, he still paid more in premiums than the companies paid out in claims, Simpson argued.
If Hood had agreed that the companies suffered no financial loss, Simpson would have been eligible for probation.
Hood allowed Simpson to remain free on bond while appealing the issue.
The federal appeals court rejected Simpson's argument, saying Hood's calculation of the sentence was correct.
What Simpson stole was insurance coverage, and the fair market value of that coverage was the amount of the unpaid premiums, the appeals court panel said.
“Simpson attempted to take something of substantial value, insurance coverage, without compensating the carriers,” thus causing a financial loss, the judges said.
Simpson's attorney Steven Reed could not be reached for comment Monday.
Simpson has had other legal troubles in the coal business.
His company and a mine foreman pleaded guilty in 2002 to not following safety rules, and in 2006 the database of the U.S. Mine Safety and Health Administration showed he owed more than $1.1 million in unpaid health and safety fines – the most of any coal operator in the nation.
Simpson later agreed to post a bond to cover future potential fines at his mines.
Three Kentucky mines where Simpson is listed as the controller are idle, according to the MSHA Web site.