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Insurance fraud may be on the rise. Among the more common schemes are property fraud, medical fraud and personal-injury fraud. Among the more esoteric forms are life insurance fraud and disaster-related fraud, such as claims arising from the World Trade Center disaster. According to the National Insurance Crime Bureau, property/casualty insurance fraud costs Americans approximately $20 billion per year, and the “average” household paid between $200 and $300 in additional premiums last year due to insurance fraud. Consider these recent examples: On May 13, 2002, a New York psychiatrist was arrested for allegedly over-billing Fortis Insurance Co. for treatment that he claimed occurred up to six times per week. The treatments actually occurred only two or three times per week. In May 2002, a claims processor employed by Blue Cross Blue Shield of Central New York was arrested and charged with insurance fraud for allegedly submitting 138 fraudulent claims, using the names of several family members, between November 2000 and March 2002. The claims processor issued checks worth more than $100,000 from Blue Cross Blue Shield. Sept. 11 not only gave rise to a new sense of American nationalism, but also to fraudulent claims. In March 2002, the Manhattan District Attorney and New York Attorney General announced charges against 22 people who filed false death certificates claiming that family members died in the attacks on the World Trade Center. These false claims were submitted in an effort to obtain emergency relief funds from the government. Among those charged, 14 people obtained nearly $760,000 in emergency relief funds as a result of fraudulent death claims. One individual allegedly claimed that his car, worth approximately $38,000, was destroyed in the garage of the World Trade Center on Sept. 11. He submitted a claim to GEICO Auto Insurance. A red flag arose when he subsequently attempted to re-insure the same vehicle with GEICO. To combat fraud, insurers should make every effort to improve the documentation secured during the claims process. This is particularly true when insuring property. In the property/casualty setting, claims professionals must comprehensively document all aspects of the reported loss prior to issuing proceeds. When handling an auto loss, such documentation should include verification of individual’s identities through the use of Department of Motor Vehicle driver’s license information, criminal history checks, national Social Security database searches and other public records databases. There should be an effort to locate claim histories involving the same individuals and vehicles. Claims representatives handling auto losses should also check with the DMV to secure the ownership history of any vehicles involved in a purported accident. Photos of the property should be taken, and any pre-existing damage should be documented. In the event that the property has incurred prior damage, the claims representative should contact the carrier’s claims department or special investigative unit to obtain information about the prior incident. Insurers can also create indexes of attorneys and physicians that can be used to track patterns of abuse. Sometimes when there is a scheme to defraud, individuals will be directed to the same attorney, who then sends clients to the same treating physicians, who render the same opinions regarding causation and damages. Insurers and their attorneys should search for and investigate such patterns for possible fraud. Independent agents and brokers should scrutinize insurance applications for false information. Ideally, agents and brokers should be given responsibility to confirm information on the application and to be certain that reports about prior losses are complete. When an agent or broker knows that a particular commercial applicant has changed its name following a loss, the agent or broker should be trained to take the initiative to provide notification about the name change and prior loss. WHEN ALL ELSE FAILS — SUE ‘EM! Insurers can and should commence litigation to combat fraud. In 1998, Allstate Insurance Co. filed suit against a group of individuals, including physicians, attorneys and chiropractors, for $107 million, alleging that they had defrauded Allstate by staging accidents in Southern California. More recently, Travelers Insurance Co. filed a suit for declaratory judgment in Connecticut, seeking to recover proceeds paid to insureds after a fire destroyed their home. The proceeds were sought under a breach-of-contract theory based upon investigators’ findings that the insureds started the fire. Travelers Insurance Co. won at the trial level, and the judgment was affirmed by the Connecticut Appellate and Supreme Courts. WHAT ELSE CAN ATTORNEYS DO? In personal-injury cases where fraud is suspected, attorneys should consider arranging for surveillance. Videotapes of supposedly disabled plaintiffs participating in strenuous activities can be extremely damaging. Attorneys handling auto cases should always check the underwriting files to be certain that the drivers involved in accidents were listed as the drivers on the insurance policy. Some people try to “piggy-back” onto the policies of other people, such as their parents, claiming that they just happened to be using the vehicle on the day of the accident, when, in fact, they are the primary drivers of the subject cars and should have been listed as such. Finally, attorneys representing clients who allegedly have suffered property losses should investigate to be certain that their clients haven’t exaggerated their losses. Such exaggerations, or “soft frauds” can, in certain instances, preclude clients from recovering any insurance proceeds. Alan J. Levin is a partner at Edwards & Angell, www.ealaw.com, and is the chair of the firm’s Insurance and Reinsurance Practice Group. Charles F. Gfeller is an associate at Edwards & Angell and is a member of the Insurance and Reinsurance Practice Group.

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