In order to submit a fraud referral it’s important to have good understanding of what fraud truly is. In some cases you may have a claimant abusing the system, but this does not necessarily mean they are committing fraud. Fraud is commonly understood as dishonesty calculated for an advantage. Merriam-Webster dictionary defines fraud as, the crime of using dishonest methods to take something valuable from another person. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading. As it relates to insurance fraud there are various elements that need to be proven for a successful fraud conviction.
An easy way to determine if you have a case that meets the criteria for fraud is to think of the milk campaign, Got Milk? You have probably seen these commercials or television ads where celebrities or athletes have a milk mustache and the tag line is, Got Milk? So think of Got Milk, when dealing with fraud except use the below defined acronym for milk to see if you have the 4 elements that are generally required for a successful fraud prosecution. Let’s take a look at the acronym and how it’s used to identify potential fraud:
M – Material misrepresentation
I – Intent to deceive
L – Loss – a loss or damages occurred as a result of the fraudulent activity
K – Knowledge. The subject had knowledge that their statements or actions were untrue.
Let’s look at each one of these a little more in-depth.
Material Misrepresentation – A material misrepresentation is deliberately hiding or falsifying a material fact, which if known by the other party, most likely would have altered or aborted a transaction. In other words it is a lie that would induce a party to act in a different manner than if they were to know the truth. It’s important to note that not all false statements are fraudulent. As stated, to be fraudulent, a false statement must relate to a material fact. It should also substantially affect a person’s decision to enter into a contract or pursue a certain course of action. A false statement of fact that does not bear on the disputed transaction will not be considered fraudulent. A few examples of a material misrepresentation:
– A subject provides false information on an auto insurance application that is so important that, had the truth been known, the insurance company would not have issued the policy or would have issued it with a higher premium.
– On a life insurance application an insured indicates that they do not smoke cigarettes, yet it is proven at a later date that they smoked cigarettes on a regular basis.
– A worker’s compensation claimant lies during a deposition, hearing, or while receiving benefits.
Intent – You have to be able to prove that an insured acted with an intent to deceive. There needs to be clear evidence that the act was intentional and not a mistake or oversight. Essentially, you need to be able to show that the insured acted with a reckless indifference to the truth.
Loss – A loss or damages, typically a monetary loss, must be proven for a successful fraud conviction. This is typically very easy to prove in insurance fraud cases when you can prove the other 3 elements as a fraudulent act would result in the payment of benefits or the payment or reimbursement of expenses when the same are not warranted, or the affording of insurance coverage or protection in exchange for the payment of inadequate premium.
Knowledge – Finally, you must be able to show that the insured had direct knowledge that they were committing fraudulent activities. A statement of fact that is simply mistaken is not fraudulent. In other words a statement of belief is not a statement of fact and thus is not fraudulent. To be fraudulent, a false statement must be made with intent to deceive the victim. This is perhaps the easiest element to prove, once falsity and materiality are proved, because most material false statements are designed to mislead.
As you can surmises, some of these elements contain nuances that are not all easily proved. That’s why it’s important to analyze any suspicious claims for these elements.
What do state fraud departments look for when pursuing fraud referrals?
In my experience in dealing with many fraud referrals over the years, I have found that companies who put together the most comprehensive “fraud packages” have the most success with successful fraud convictions. The truth of the matter is that most state fraud bureaus are understaffed and overwhelmed with work. Additionally, State District Attorney’s offices are also very busy and dealing with serious felony crimes and oftentimes fraud cases are pushed to the bottom of the pile. It stands to reason that assisting fraud departments or the DA’s office by providing them with a comprehensive fraud referral that clearly outlines all the elements of fraud and provides concrete supporting evidence will increase your chances of successful fraud convictions exponentially.
In speaking with state fraud investigators across the country, I have been told that to pursue an insurance fraud conviction they always look for the 4 elements previously defined. They also look for thorough irrefutable evidence and facts, quality video if the case involves a claimant feigning an injury, and consistency in activity to refute any potential good day/bad assertion by the claimant’s attorney.
How to increase your fraud referrals
The key to successful claims investigations and ultimately successful fraud referrals is to build a solid case with as many pieces of evidence as possible. The better you are able to package your evidence and submit all relevant facts to a state’s respective fraud reporting division, the better chance you have at a successful prosecution.
As discussed in the Ethos Guide to Fraud Fighting book (click here to order a FREE copy), the key to successful investigations is preparation, conducting effective due diligence or background investigations, gathering as much evidence as possible and not just relying on surveillance.
In conclusion, in determining if you have a fraudulent case as opposed to perhaps abuse of the system it is important to identify the following key elements:
– There is always a false representation – the lie.
– The lie must be intentional or knowingly made.
– The lie must be made for the purpose of obtaining a benefit the claimant is not due, denying a benefit that is due, or obtaining insurance at less than the proper rate.
– The lie must be material, that is, it must make a difference: “If the truth had been told, would you have done anything differently?”
One of my favorite movies growing up was “Serpico.” Starring Al Pacino, it’s a true life story about a New York police officer, Frank Serpico, who went undercover to expose corruption in the police force. Serpico was an honest cop trying to do the right thing, but he was harassed and threatened by his peers.
The struggle led to infighting within the police force and problems in his personal relationships.
In one compelling scene, Serpico tells a fable he calls “The Wise King.” It’s a story about a king beloved by his people. In the middle of the kingdom there was a well from which everyone drank. One night, a witch poisoned the well. The next day, everybody drank from the well except the king. The people, aside from the king, went crazy, committing crimes and creating chaos. Observing this behavior, the king approached his subjects and reprimanded them. He demanded they change their behavior. The citizens who once loved the king became irate and accused him of acting crazy. They came together and made a pact to kill the king. Clearly, in their minds, he had gone mad. The king feared for his life. Later that night, he drank from the well and immediately went insane. Upon seeing the crazed king the next day, all the people rejoiced because their beloved king had regained his reason.
This scene hit me like a ton of bricks when I was a kid. It may have had something to do with my decision to become a fraud investigator. Well, either that or Magnum P.I.’s lifestyle.
In any event, “The Wise King” story came back to me while watching a recent “60 Minutes” segment titled, “Over a Barrel,” which detailed the BP oil spill claims process.
Now, for the record, I am in no way condoning BP’s action in the tragic oil spill that occurred four years ago. The company’s actions were careless, negligent, and obviously damaging to our environment. However, BP responded immediately by reimbursing victims as soon as possible and paid billions of dollars in federal fines.
This blog isn’t really about BP, though. Rather, it points to the many unscrupulous people that take advantage of tragic events whenever a reimbursement program is in place. Unfortunately, this fraudulent behavior occurs with far too much regularity. It happened in the 9/11 tragedy, it happens anytime there is a serious train accident, and it clearly is happening in the BP reimbursement program.
After the BP tragedy, the government appointed renowned resolution attorney Ken Feinberg to spearhead the claims administration process and pay legitimate victims in an expedient manner. Mr. Feinberg handled the reimbursement plan in exemplary fashion during the 9/11 tragedy.
As in all reimbursement programs, he indicated that there were two types of claimants, the deserving and the devious. Unfortunately, the devious seem to far outnumber the deserving. His comments on the BP claims submissions were startling. He stated that of the approximately one million claims that his department reviewed, two-thirds were unfounded. This is a polite way of saying that 66% of the claims were fraudulent.
The reality is that BP has been victimized by an ocean of swindlers and has paid hundreds of millions of dollars to people who never saw oil anywhere but on television. Here are some true examples of parties who filed claims and actually got paid.
– A man in Oslo, Norway slipped on the ice, broke his leg, and filed a claim.
– A wireless phone company that burned down and went out of business prior to the actual oil spill filed a claim.
– An RV park owner who was foreclosed upon prior to the spill filed a claim.
– A Pontiac owner who could no longer sell Pontiacs because GM discontinued the line before the oil spill filed a claim.
– $60,000 in compensation went to colorectal surgeons located 300 miles from the coast.
– $173,000 went to an escort service located in Florida. (Why always Florida?)
– $8 million was approved for companies that clean up after hurricanes. The reality is, their income was down because there weren’t any hurricanes after the spill.
In total, the suspected false claims amounted to approximately $500 million paid out in damages.
The issues spiraled out of control essentially for two reasons:
1) A poorly written contract by BP opened a gigantic loophole for plaintiff attorneys, and they had a field day. BP was trying to pay claims as early as possible and included a sentence in the contract that read, “…all losses are presumed to be attributable to the oil spill.” In essence, BP unknowingly stated that no proof was required to file a claim, even if the claim had nothing to do with the oil spill. Attorneys flooded the television market with ads that “losses don’t have to be directly traceable to the oil spill.” The proliferation of these ads highlighted the same element: no proof required. One attorney actually wrote in a mass mailing to thousands of people, “…the craziest thing about the settlement is that you can be compensated for losses that are unrelated to the spill.” A Pied Piper approach to recruiting claimants with this message ensued and the claims administrators began to pay.
2) The second problem was that the claims administration process was handed over to a new company. The new claims administrators argued that because of the contract language, if a business lost money and filed a claim, they as administrators were not allowed to question if the claim had anything to do with the BP oil spill. The main lawyer for the alleged victims said of the contract, “A deal is a deal.”
Is it just me, or is all of this an assault on common sense? When does the spirit of an agreement outweigh a few poorly written sentences? Seemingly intelligent people are actually arguing that parties who have not been affected by a tragic accident in any manner should have every right to file a claim and receive a monetary award. One plaintiff attorney commented in the “60 Minutes” piece about the overall lack of common sense here, saying, “It is what it is.”
First of all, I hate that saying.
The whole philosophy of “It is what it is” is flawed. If something is wrong, that’s just the way it goes? As a guy who has dedicated his life to fighting fraud, I beg to differ.
As a fraud fighting community, let’s not be like the king in Serpico’s story. Let’s not drink from the poisoned well because everyone else is crazy and we just want to assimilate.
In closing, more than $3 billion in claims have been approved so far in the BP claims process. Thousands more have been filed. “60 Minutes” subsequently called over a dozen applicants who are believed to have filed false claims and collected money.
Not surprisingly, none returned the call.
I was speaking with one of our clients recently. He mentioned that he received an email from an investigative company that was offering surveillance services for free if they failed to obtain results.
In the advertisement, results equated to obtaining videotape documentation of the claimant.
Tongue firmly planted in cheek, said client asked me if Ethos could make him the same proposal. He laughed, of course, fully aware of the slippery slope involved here.
One of the few things I remember from my college economics course, aside from that haunting feeling of sheer dread, was my professor’s constant referral to the old adage, “There’s no such thing as a free lunch.” He would expound, “In other words, nothing, and I mean nothing, is free. Ultimately you will pay for it one way or another.”
Quite frankly, the dangling of free investigative services is a desperate marketing ploy that could actually cause the customer a myriad of problems.
First, and arguably most importantly, there are legal ramifications to consider in this scenario. Any good plaintiff attorney would have a field day in court with an investigation company that made such an offer. Any suggestion of being remotely impartial (which investigators should be) goes out the window when payment for services is tied to getting “positive” results.
Incidentally, discovering that a claimant is truly injured and not fabricating their claim IS A POSITIVE RESULT. However, that’s a different topic for a future blog.
Getting back to my point, it stands to reason that any investigative vendor whose goal is to stay in business needs to be paid for its services. Seriously. I can tell you first-hand that properly operating an investigative company is an expensive endeavor. The costs involved are significant—payroll, insurance, case-related, overhead, etc. I could go on, but I’m getting heartburn.
The concern then for free surveillance is that the investigative company will likely be compelled to take matters into its own hands to ensure claimant activity. Now you’ve stepped into a legal AND ethical minefield. Numerous lawsuits have befallen investigators employing pretexts that forced claimants outside their residences or enticed claimants to commit actions they otherwise would not have undertaken. Such behavior is an ethical violation that can adversely impact both the investigative company and its clients.
Professionally speaking, and here I realize I’m pouring salt in the wounds of the above-referenced sued investigators, such measures are unnecessary.
Trust me. There is enough fraud out there that too-good-to-be-true promotions are not warranted. A professional investigative company that does its work on the front end will, more times than not, reward its clients with useful investigative information.
Finally, this free-services-for-no-results sham gives the investigative industry a bad reputation. Certainly a diligent investigator who plans accordingly and patiently sits on surveillance deserves to be paid fairly regardless if a claimant is active or not. Professional investigative companies should always put themselves in the best position to obtain results; however, they cannot force someone to be active.
Truly, the simple gist is this. If it sounds too good to be true, then it usually is.
Ethos’ online monitoring and purchase programs are beyond compare in the risk mitigation industry
These multifaceted, intensive Internet investigations are designed to provide clients with unprecedented amounts of information regarding their products and associated online sellers. Considered deep dive reconnaissance, the programs reveal movement of counterfeit, diverted, and stolen goods which immediately impacts your brand protection and product security bottom line.
Why is a partnership with Ethos the right choice for you?
– We start by carefully reviewing your needs and objectives, and customize the right approach to maximize results and maintain efficiency. We create a tailored yet flexible program that not only fits your needs, but adapts and maneuvers to meet current business trends and concerns. Honestly, achieving your desired result is our number one goal.
– Ethos routinely goes beyond traditional problem sites such as eBay and Amazon to explore hidden complications both domestically and abroad. This may include, among others, Craigslist, Alibaba, TaoBao, and Mercado Libre as well as dedicated seller websites.
– Research, investigation, documentation, and follow-up can include online monitoring programs and purchases. Plus, Ethos maintains discreet resources and can source product via a myriad of order, purchase, and payment options both online and in the field.
Clearly, our online monitoring and purchase programs are like nothing else in the industry. Please contact us today and experience the Ethos Difference for yourself.
We will honor and serve your bottom line
• We will strive to meet your objectives in the most cost-effective manner possible.
• We will tell you forthright if we feel your assignments lack financial merit or practicality.
• We will contact you if, during an investigation, positive results appear impossible.
• We will provide affordable “preliminary” services to determine if further work would be beneficial.
• We will update you immediately should additional expenses be expected or incurred.
We will be punctual, pro-active, and professional
• We will rank among this industry’s leaders in turnaround times for both surveillance and SIU files.
• We will doggedly pursue any and all answers, both in-house and in the field, to ensure your objectives are met.
• We will strictly adhere to all state and federal laws so that each and every one of our investigations is legally sound.
• We will only utilize experienced, thoroughly trained investigators.
We will have what you need, where you need it
• We will arm you with our full arsenal of risk mitigation weapons including surveillance, security consulting and brand
protection, employment screening, data support services, and adjusting services.
• We will continue operation in all 50 states.
• We will continue to expand our international presence. We have performed investigative work in over 40 countries.
We will communicate and remain accessible
• We will acknowledge receipt of all assignments.
• We will provide consistent updates as work on your file progresses.
• We will have a designated point of contact for you to call or email with questions, comments, or concerns.
• We will inform you of your assignment’s completion and send you a professionally prepared final product.
We will value your business
• We will continue to operate with the true service partner mentality upon which Ethos Risk Services was founded.
• We will approach each assignment with the mindset that your bottom line is our bottom line.
• We will adhere to any extraordinary guidelines that your company mandates.
• We will employ the latest in investigative technology to obtain the best and most productive results possible.
• We will work tirelessly to ensure that your Ethos experience is worthy of another Ethos experience.