The cost of fraudulent insurance claims in the United States is estimated to be $120 billion dollars per year. Fraud is responsible for 10 percent of the property/casualty industry’s sustained losses and loss adjustment expenses, according to Best’s Review. Even though the majority of fraud involves healthcare claims, a significant portion involves property and casualty claims submitted to private insurance companies. Claims representatives are on the front line of fighting the never ending war against insurance fraud. This three-part series will discuss ways to recognize potentially fraudulent property and casualty claims and fight them in the courtroom. In this issue we look at the myths surrounding insurance claims and the signs that may indicate a potentially fraudulent property claim.
DISSPELLING THE MYTHS
Claims representatives understand that insurance fraud is just what the term implies – FRAUD. It is wrong and it is a crime. However, cheating on an insurance claim is not necessarily perceived by the general public as being wrong or unethical. We have all experienced the policyholder who has stated, “If you have a property claim, you need to add in a few additional items to give yourself negotiating room with the insurance company because the insurance company will chisel you on your claim.” Some people consider insurance premium to be deposits into savings accounts which are available to be accessed through claims, whether legitimate or not. Many people believe that insurance companies are wildly profitable; therefore, a fraudulent insurance claim doesn’t hurt them. These myths have created a perception that fabricated or exaggerated insurance claims are morally acceptable.
Insurance fraud is no respecter of persons. In my 34 plus years of practice, I have seen insurance fraud committed by preachers, churches, teachers, doctors, business people, rich people, poor people – every person of every walk of life (except for Franciscan Monks).
One of the most prevalent myths is that it is easier for a claims representative to deny a claim than it is to pay one. We all know that there could be nothing further from the truth.
Once myths become embedded into the fabric of society they are extremely hard to dispel. In representing insurance companies at trial, it takes extensive education during jury selection to perspective jurors to attempt to at least counter the false perceptions that they have concerning false insurance claims.
Inaccurate perceptions about fraudulent insurance claims are not only held by policyholders and the general public, but there are also some false perceptions that are held by insurance companies themselves. One prevalent myth is that fighting insurance fraud is not cost effective. Even though it may be true that the expense of resisting a small suspected fraudulent claim may be more than the claim itself, over the long term, companies that have a consistent policy of aggressively investigating suspected fraudulent claims have seen real and tangible savings for policyholders not to mention immeasurable intangible benefits.
Insurance fraud is only restricted by the limits of human imagination. It would take several volumes to chronicle all of the different ways in which insurance fraud has been committed.
FRAUDULENT PROPERTY CLAIMS
Arson is one significant way in which fraudulent property insurance claims are asserted. Whether a fire is intentionally set should always be determined by a certified fire and arson investigator. However, in reviewing a fire scene, there are certain indicators that can indicate that a fire was intentionally set. Finding personal contents in unusual places, heaviest burning at floor level or below and flammable liquid pour patterns could all suggest an intentionally set fire.
Damage caused by an intentionally set fire is insured as long as the policyholder was not responsible for the ignition of the intentionally set fire. Therefore, once it has been established that a fire was intentionally set, the next issue is to determine whether the policyholder was responsible for the fire. It is rare that arson is documented by direct evidence. Therefore, most fraudulent insurance claims, including arson, must be established by circumstantial evidence. Circumstances such as locked exterior doors, a lack of personal or sentimental items in the fire debris (wedding books, family photographs, etc.), absence of pets, delayed ignition devices, the opening or access to a safety deposit box shortly before the fire, may indicate that a policyholder was responsible for an intentionally set fire.
Many claims representatives believe that it is necessary to establish a financial motive before an insurance company can assert that a policyholder was responsible for an intentionally set fire. This is another myth. Insurance fraud, just like everything from shoplifting to tax fraud, is committed by people of all economic backgrounds. Another myth is that, even if a fire was intentionally set by a policyholder, the mortgagee is automatically paid. There are circumstances, even though they are rare, where the mortgagee was responsible for the ignition of the fire, either on his own or in concert with the policyholder. Therefore, if the mortgagee is an individual or a small lending institution, one should never out right assume that the mortgagee does not have some involvement.
Aside from arson, the main area of property insurance fraud involves fraudulent theft claims. Some of the indicators of a fraudulent homeowner theft are as follows:
- A lack of carpet indentations in a place where an item was supposedly sitting on carpet;
- A lack of an electrical outlet at or near a place where an electrical appliance was supposedly situated;
- A lack of evidence of forced entry;
- A complete absence of supporting documentation such as owners’ manuals, canceled checks, etc.;
- Highly documented claims;
- Suspicious receipts;
- Suspicious photographs;
- Long distance telephone calls made at the time when the theft supposedly occurred;
- Owner’s manuals that pertain to models of electrical equipment and/or appliances that were not on the market at the time that the policyholder claimed to have purchased them;
- All cash purchases;
- A lack of warranty registration;
CONDUCTING THE INVESTIGATION
After the claims representative identifies sufficient evidence so as to create a legitimate concern that a claim may be fraudulent, the next step is for there to be a thorough investigation. This investigation should include a cause and origin investigation by a certified fire and arson investigator in the event of a fire loss. In addition, a thorough background investigation should be conducted concerning the possible involvement of the policyholder, whether it be a fire loss or a theft loss. If these investigations confirm that there is a significant possibility that the claim is fraudulent, an examination under oath of the policyholder should be taken as a matter of course.
Given the right circumstances, insurance companies, in my view, ought to not only aggressively defend suits based upon fraudulent claims, but also assert counter-claims seeking recovery of attorney’s fees and expenses in defending against fraud. Juries can be made to understand the costs of fraud. They also understand that fraud results in higher premiums, which we all end up paying. Finally, Jurors do not appreciate our Courts being used to perpetuate dishonesty, lies and the intentional destruction of property. In Part II of this series, which will be published in the next newsletter, we will look at ways to recognize potentially fraudulent casualty claims and jewelry theft claims.