Proving Insurance Fraud: Real Case Studies

Robert R. Pohls, Managing Attorney

PROVING INSURANCE FRAUD

REAL CASE STUDIES

2011 Western Claim Conference September 20, 2011

Renaissance Esmeralda Hotel Indian Wells, California


REAL CASE STUDIES

Slide 2

AGENDA

1. What is insurance fraud?

2. Recognizing insurance fraud

3. The Claim-Handler’s Dilemma

4. Claim Strategies

5. Litigation Strategies

6. Trial Strategies

7. Claim Management Considerations

8. Questions


REAL CASE STUDIES

Slide 3

WHAT IS INSURANCE FRAUD?

Legal definition of fraud:

“One who willfully deceives another with intent to

induce him to alter his position to his injury or risk, is

liable for any damages which he thereby suffers.”

Cal. Civil Code §1709


REAL CASE STUDIES

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Examples of actionable fraud:

Cal. Civil Code §1710

· Suggesting a fact is true when not believed to be true

· Asserting a fact is true without reason for believing it to be

true

· Suppressing a fact when obligated to disclose it or giving

information which is likely to mislead about that fact

· Making a promise without any intent to perform it


REAL CASE STUDIES

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Working definition of insurance fraud:

Coalition Against Insurance Fraud

“Any deliberate deception perpetrated against

or by an insurance company or agent for the purpose of unwarranted financial gain.”


REAL CASE STUDIES

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Types of insurance fraud:

Hard Fraud When someone deliberately plans or invents

a loss that is covered by their insurance

policy in order to receive benefits

Soft Fraud When the policyholder exaggerates an

otherwise legitimate claim


REAL CASE STUDIES

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Examples of insurance fraud:

Life · Misrepresentations (or omissions) in application

· Fake death claims

· Fraudulent procurement

Health · Provider fraud (bogus treatment/diagnosis)

Disability · False claim of injury or sickness

· Exaggeration of symptoms/functional impairment

· Concealment of income-producing activity


REAL CASE STUDIES

Slide 8

RECOGNIZING INSURANCE FRAUD

Fraudulent insurance claims are purposely made to look

legitimate.

Claimants often “control” the circumstances surrounding a

fraudulent claim:

· Time · Place · Witnesses · Nature of Injury · Symptoms

Claimants learn from past claim experiences:

· Paid Claims · Denied Claims · Fraud by Others · “Professional” Crooks


REAL CASE STUDIES

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RECOGNIZING INSURANCE FRAUD

Fraudulent claims often are crimes of opportunity.

Pay attention to claims that involve those opportunities.

Consider fraud reporting obligations or referral to SIU.

Trust your instincts . . .


REAL CASE STUDIES

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REAL CASE #1

Two men from North Las Vegas go to an agent’s office in

suburban Henderson to apply for a $250,000 life insurance

policy.

Conditional receipt given in exchange for tender of initial

premium.

Insured fails to appear for paramedical exam because he was

murdered.

Police suspect the man who accompanied him to the agent’s

office (who was to be named as the beneficiary).

Gregory v. Company


REAL CASE STUDIES

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THE CLAIM-HANDLER’S DILEMMA

You should be trying to confirm that benefits are payable.

Investigating the possibility of insurance fraud creates the

impression you are trying to establish that benefits are not

payable.

· If you are right, you may uncover a fraud.

· If you are wrong, you may make it difficult to defend

a claim for bad faith.


REAL CASE STUDIES

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CLAIM STRATEGY #1:

A picture’s worth a thousand words.

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REAL CASE STUDIES

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CLAIM STRATEGY #2:

Read Between The Lines.


REAL CASE STUDIES

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REAL CASE #3 Multiple-Murder/Suicide

Insured dies in a multiple-murder suicide during the

contestable period.

· Application denied prescription drug use.

· Vendor’s database reflects no known prescriptions.

Medical records predominantly relate to childbirths and known

history of surgery.

OB/GYN’s records also mention insured’s request for anti-

depressants and doctor’s prescription for Lexapro.


REAL CASE STUDIES

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Mama always said:

“IF YOU TELL ONE LIE, YOU’LL HAVE TO TELL ANOTHER.”


REAL CASE STUDIES

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REAL CASE #4

Proposed Insured: Stacey

Applicant/Owner: Cynthia

Proposed Beneficiaries: Cynthia’s 3 children (all minors)

Application: · Completed in agent’s office (Los Angeles)

· Dated: March 17, 2004

· Physical Description: 32 years old

5’1” and 120 lbs.

· No Adverse Medical History

· No History of Tobacco Use

· Occupation: Unemployed

Cynthia’s Kids v. Company and Agent


REAL CASE STUDIES

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REAL CASE #4

Face Amount Applied For: $50,000

Monthly Premium: Less than $20/month

Cash With Application: First month’s premium

· No paramedical examination

· Additional underwriting requirements satisfied on May 3, 2004

· Underwriter approved application: 4:48 p.m. on May 5, 2004

· Pronounced dead at 6:20 a.m. on May 6, 2004

· Agent was told Stacey died of a heart attack



REAL CASE STUDIES

Slide 18

REAL CASE #4

Initial Telephone Interview of Cynthia

· Stacey had “never been ill and didn’t have a family physician.”

· Stacey had gone to Houston to visit their mom and became ill.

· Stacey was taken to “the largest trauma center in Houston,”

which is where she died.

· Cause of death is not yet known.



REAL CASE STUDIES

Slide 19

REAL CASE #4

Telephone Interview of Stacey’s Mom

· Stacey died of a “massive heart attack.”

· Stacey had been “physically healthy.”

· Stacey was mentally ill.

· Stacey had been living in a nursing home in Southern CA

· Had “breathing problems” in March 2004.

· Was moved to a Southern CA hospital for 4-5 days,

then transferred to hospital in Houston “to be closer.”



REAL CASE STUDIES

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CLAIM STRATEGY #3:

Give ’em some rope.


REAL CASE STUDIES

Slide 21

REAL CASE #4

Telephone Interview of Cynthia

· Stacey had been “in and out of mental type institutes.”

· Someone asked her if she had insurance “in case

something happened to” Stacey.

· Picked Stacey up from a nursing home one day to go

shopping with two friends, then to agent’s office to sign

the application.



REAL CASE STUDIES

Slide 22

REAL CASE #4


· Did not remember any application questions being

read to her.

· Just “signed the application” where “she was told to.”

· Told the agent that “if something happened to her and

her sister, she wanted her [Cynthia’s] kids to be the

beneficiaries.”



REAL CASE STUDIES

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REAL CASE #4


· Reported that she has “only a 5th grade reading/writing level.”

· Claimed she went to the agent because the insurer indicated

its agents would “do everything” for her.

· Trusted the agent “with everything.”

· Told the agent that:

· Stacey “was in a nursing home for mental problems.”

· Cynthia was supposed to be the beneficiary, not her kids. · Friends and family told her to “get a lawyer.”



REAL CASE STUDIES

Slide 24

REAL CASE #4


· Told the agent in January 2004 that Stacey was mentally ill

and living in a nursing home.

· One friend went with her and Stacey to the agent’s office to

sign the application on March 17, 2004.

· “no questions were asked.”

· she and Stacey “both signed paperwork” where told.

· Is “sure the agent is trying to trick her as she is sure the agent

forged her signature on the policy.”



REAL CASE STUDIES

Slide 25

REAL CASE #4


· Stacey left Los Angeles for Houston on April 22, 2004.

· Stacey “got away from” her mother, became delusional, and

was admitted to hospital involuntarily.

· Stacey was discharged, then re-admitted after a week or two,

just before she died.

· Stacey was 5’1” or 5’2” and weighed about 260 lbs.



REAL CASE STUDIES

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CLAIM STRATEGY #4:

Dig deep . . . really deep.


REAL CASE STUDIES

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REAL CASE #4

Autopsy Report

Death was the result of “[c]ardiomegaly associated with

hypertensive cardiovascular disease,” secondary to

obesity.

Height: 5’ 4”

Weight: 309 lbs.



REAL CASE STUDIES

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REAL CASE #4

Medical Records

· hypertension, with non-compliance regarding

treatment and abnormal EKG’s associated with the

hypertension;

· asthma, COPD and pulmonary hypertension;

· obesity;

· congestive heart failure and cardiomegaly; and

· ten year history of mental/nervous disorders, including

numerous medications and institutional stays.



REAL CASE STUDIES

Slide 29

REAL CASE #4

Medical Records

(California) Medical Center 6/17/2003 - 10/31/2003

(California) Care Center 10/31/2003 - 1/23/2004

(California) Hospital 1/23/2004 - 1/27/2004

(California) Nursing Home 1/27/2004 - 3/5/2004

(California) Hospital 3/5/2004 - 3/11/2004

(Texas) Hospital 3/14/2004 - 4/8/2004*

(Texas) Hospital E.R. 4/11/2004 - 4/12/2004

(Texas) Psych Ward 4/12/2004 - 5/6/2004



REAL CASE STUDIES

Slide 30

REAL CASE #4

Medical Records

3/5/2004 Admitted (SOB/aggressive behavior)

3/9/2004 “Cardiology assessment with COPD confirmed

. . . Discussed patient’s predicament last night

by phone with patient’s sister, Cynthia, and

mother. On learning of CHF, they agreed to

permit . . . development of appropriate Tx.”

3/11/2004 Discharged (to fly with Cynthia’s Mom to Texas)



REAL CASE STUDIES

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CLAIM STRATEGY #5:

Get them to commit.


REAL CASE STUDIES

Slide 32

REAL CASE #4

Telephone Interview of Agent

· Only two people came to the office on the application date:

Cynthia and Stacey.

· All application questions were read aloud while displayed

on two computer monitors.

· Cynthia had no problem reading the questions. · Stacey answered all the questions “No.”

· Would not have taken the application if knew Stacey was in a nursing home for mental problems.



REAL CASE STUDIES

Slide 33

REAL CASE #4

Telephone Interview of Agent’s Assistant

· Came to office on date application was completed

· Called just before coming

· No prior calls, messages or discussions about Stacey

Letters from Agent and Agent’s Assistant

· Application completed on March 17, 2004

Telephone Call to Cynthia

· One friend – Michele – was with Cynthia and Stacey

when the application was signed in the agent’s office.

· Michele “moves around a lot” and cannot be contacted.



REAL CASE STUDIES

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CLAIM STRATEGY #6:

Tie up any loose ends.


REAL CASE STUDIES

Slide 35

REAL CASE #4

Telephone Interview of Agent

· Cynthia specifically said she did not want to be named the

beneficiary.

· Cynthia gave no reason for not naming herself.

Letters from Agent and Agent’s Assistant

· Cynthia asked that her three kids be named beneficiaries.



REAL CASE STUDIES

Slide 36

REAL CASE #4

Telephone Call to Agent

· Cynthia signed the application when it was filled out.

Claim Form Addendum:



REAL CASE STUDIES

Slide 37

REAL CASE #4 Cynthia’s Kids v. Company and Agent


· Stacey signed the HIV consent form on the date the

application was completed

· Application was mailed to Cynthia’s home for Stacey

to sign

HIV Consent Form Application


REAL CASE STUDIES

Slide 38



· Stacey signed the HIV consent form on the date the

application was completed

· Application was mailed to Cynthia’s home for Stacey

to sign

HIV Consent Form Application


REAL CASE STUDIES

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CLAIM STRATEGY #7:

Get an Explanation.


REAL CASE STUDIES

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Denial Letter

Our investigation indicates Stacey was confined in a hospital

“in Houston, Texas from March 14, 2004 to April 8, 2004; therefore

she could not have appeared in the agent’s office in California to

complete this application, as confirmed by Cynthia in previous

statements.”

In addition, “the application did not include information about

the insured’s history of schizophrenia, hypertension with non-

compliance regarding treatment, abnormal EKGs associated with

the hypertension, congestive heart failure, cardiomegaly, and

pulmonary hypertension during her confinement.”


REAL CASE STUDIES

Slide 41


Attorney’s Response

“On March 17, 2004, Stacey, Cynthia and a friend” (Michele)

went to the agent’s office.

· No one asked them questions.

· Neither of them signed a document with medical

questions.

· Cynthia left the office with a Binding Receipt.

As of March 17, 2004, Stacey “was residing in a nursing home

in Pasadena, California. To the extent any medical records

show Stacey residing in Texas as of that date, they are in error.”


REAL CASE STUDIES

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LITIGATION STRATEGY #1:

Don’t bite off more than you can chew!

Proving fraud requires evidence of:

• Representation of fact

• Falsity

• Knowledge of falsity

• Intent to deceive

• Actual reliance

• Reasonable reliance

• Damage


REAL CASE STUDIES

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Basic Contract Principles

Every contract requires consenting parties. If there is mutual

assent to the subject matter of the agreement, a contract

results. However, it may be voidable when there is a harmful

mistake as to some basic or material fact that induced the

aggrieved party to enter it.

· If both parties are mistaken and neither is at fault (or both

are equally to blame), the mistake may prevent formation of

a contract.

· A contract formed when one party has made a unilateral

mistake is not voidable unless the other party had reason

to know of the mistake or his or her fault caused it.


REAL CASE STUDIES

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Insurance Laws

California “If a representation is false in a material point,

whether affirmative or promissory, the injured

party is entitled to rescind the contract from the

time the representation becomes false.”

Cal. Ins. Code §359

Whether the representation was intentionally or

unintentionally false does not alter the injured

party's right to rescind the policy.

Telford v. New York Life Ins. Co., 9 Cal.2d 103, 105 (1937)


REAL CASE STUDIES

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Insurance Laws

No. Carolina “. . . a representation, unless material or

fraudulent, will not prevent a recovery on the

policy.”

N.C. Gen. Stat. §58-3-10

Illinois “No such misrepresentation or false warranty

shall defeat or avoid the policy unless it shall

have been made with actual intent to deceive or

materially affects either the acceptance of the

risk or the hazard assumed by the company.”

215 ILCS 5/154


REAL CASE STUDIES

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Insurance Laws

Ohio No answer to any interrogatory made by an applicant in

his application for a policy shall bar the right to recover

upon any policy issued thereon . . . unless it is clearly

proved that such answer is willfully false, that it was

fraudulently made, that it is material, and that it induced

the company to issue the policy, that but for such

answer the policy would not have been issued, and

that the agent or company had no knowledge of the

falsity or fraud of such answer.

Ohio Rev. Code §3911.06

See also, Ohio Rev. Code §3923.14


REAL CASE STUDIES

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Consider Alternatives

Application Agreement:

“Coverage will be effective as of the policy date if the

following conditions are met:

· the first premium is paid when the policy is

delivered;

· the Proposed Insureds are living on the

delivery date; and

· on the delivery date, the information given to

the Company is true and complete without

material changes.


REAL CASE STUDIES

Slide 48

Consider Alternatives

Binding Receipt:

· “There is no coverage under this Receipt if the

application contains any material misrepresentation.”

· “No death benefit is provided by this Receipt unless

death results from an accident that occurs or an

illness that first manifests itself after the Application

Date.”

· “Coverage under this Receipt will end when the first of the

following occurs: (a) The application is approved; (b) Notice

of disapproval of the application is given; (c) 60 days have

expired starting with the Application Date.”


REAL CASE STUDIES

Slide 49


Gather all your bricks.


REAL CASE STUDIES

Slide 50

Rescission Checklist

1. Do I have the complete file?

- All coverage(s) with the company.

- Correct policy forms with all riders.

- All signed application forms, especially the delivery

requirements.

- Conditional receipt form.

- Applicable underwriting guidelines.


REAL CASE STUDIES

Slide 51


1. Do I have the complete file?

- Recording of inspection report/telephone verification.

- Premium/Billing information.

- Outstanding or incomplete investigation.

- Medical record requests (time period).

- Inspect original application documents to assess the

appearance of alteration – different handwriting or

color ink.


REAL CASE STUDIES

Slide 52


2. Is the policy contestable?

· Has the policy been in effect less than two years?

· Review the language of the contestability provision.

· except for fraudulent misstatements. · strict two years.

· If outside the contestability period, are you in a jurisdiction that provides other recourse?

· Are there other ways to adjudicate the claim?

· Waiver of premium rider (life insurance) · Pre-existing condition limitation


REAL CASE STUDIES

Slide 53


3. What do we need to prove?

· Which state’s law applies?

· Require proof of intent to deceive?

· Require proof of loss-causation?

· If group insurance:

· Does ERISA apply?

· Do DOL regulations impose other requirements?


REAL CASE STUDIES

Slide 54


4. Misrepresentation/Concealment

· Are there misrepresentations in the application?

· Were facts omitted from responses in the application?

· Were the facts subjective or objective?

“Have you ever received treatment for or been

diagnosed as having or had any of the following?”

“Within the past 5 years have you had a physical

examination, medical consultation, X-ray or

laboratory study, or been a patient in a hospital

or other medical facility?”


REAL CASE STUDIES

Slide 55


5. Materiality

· Were the misrepresented/concealed facts material?

· Is there an underwriter’s opinion about materiality?

· Are there written underwriting guidelines that support the underwriter’s opinion?

· Did the underwriter comply with those guidelines?

· What information did the underwriter consider?

· Did the underwriter know of other facts that created a duty to make further inquiries?


REAL CASE STUDIES

Slide 56


6. Conditional Receipts

· Generally two types that provide different contractual rights:

1) Provides coverage if conditions are met, with a beginning and end date;

2) Fixes a date for determining insurability, if conditions are met.


REAL CASE STUDIES

Slide 57


6. Conditional Receipts

· When did the Company get the money?

· How long did it take to underwrite the application?

· Compare to company standards

· What caused the delay?

· Was the policy delivered?

· How?

· By whom?


REAL CASE STUDIES

Slide 58


7. Change in Health

· What documents were signed at time of delivery?

· Do the medical records suggest any material change in the insured’s health and/or insurability during the underwriting process?

· Were those facts misrepresented or concealed in the delivery receipt?

· Were those facts material?


REAL CASE STUDIES

Slide 59


8. Reinstated Policies

· Was the policy ever reinstated?

· Does the reinstatement application provide an alternative basis for adjudicating the claim?

“The reinstated policy will only cover disabilities due to injury occurring after the date of

reinstatement, and due to sickness beginning more than 10 days after that date.”


REAL CASE STUDIES

Slide 60


9. Agent Misconduct

· Investigate the agent’s relationship with the company and with the insured · Review the agent’s statement (with application and in claim file)

· Interview the agent · Get the agent’s files


REAL CASE STUDIES

Slide 61


10. Claim Determination

· Appropriate tone

· Properly quotes from applicable policy provisions

· Factually accurate

· Identifies all basis for decision, including alternate

grounds

· Avoids inconsistent positions

· Complies with company protocols

· Was there a reservation of rights?


REAL CASE STUDIES

Slide 62


Leave no stone unturned.


REAL CASE STUDIES

Slide 63

REAL CASE #3 Multiple-Murder/Suicide

· Application denied prescription drug use.

· Vendor’s database reflects no known prescriptions.

· OB/GYN’s records also mention insured’s request for anti-

depressants and doctor’s prescription for Lexapro.

· Pharmacy records confirmed one prescription filled.

· Report of underwriting telephone interview also denied

prescription drug use.

· Recording: “I had my OB prescribe anti-depressants, and I

filled the prescription once . . . But I never took them.”


REAL CASE STUDIES

Slide 64

Make a new friend.



REAL CASE STUDIES

Slide 65

REAL CASE #5 Spencer v. Company

· Insured claims to be totally disabled by generalized back pain

· Former occupation as an independent cameraman

· Claim file reflects a website devoted to his business which

promotes his projects

· Insured suggests all projects were completed long ago

· Insured claims to have had no new projects in years

· Also claims to have refused projects because unable to

hold and operate his camera


REAL CASE STUDIES

Slide 66

REAL CASE #6 Paul v. Company

· Insured claims to be totally disabled by low back pain

· Daily activities include:

· Morning hot tub

· Watch news from bed

· Home exercise routine

· Study towards graduate degree in new field

· When answering questions about efforts to secure new job,

insured claims he spends time with his “blog”

· Insured also mentions riding a bicycle to local meetings of a

networking group


REAL CASE STUDIES

Slide 67


Shop around.


REAL CASE STUDIES

Slide 68

REAL CASE #7 Penelope v. Company

· Insured worked as chiropractor and received full benefits for

total disability due to low back pain

· Claim file reflects inquiry through agent about ability to

qualify for further benefits after career change

· New claim involves impact of carpal tunnel syndrome on

insured’s work as skin esthetician

· Insured denies any work-related activity in past year


REAL CASE STUDIES

Slide 69

Be ready to herd some cats. LITIGATION STRATEGY #6:


REAL CASE STUDIES

Slide 70


Letter from Attorney

“I have reviewed the underwriting and claim files. . . It

appears the initial meeting with the agent was probably in

February 2004, at which time Cynthia was given a binding

receipt post-dated to March 17, 2004 (the date Cynthia would

have premium funds available).”

Cynthia: Went to agent’s while shopping since just got tax refund

Agent: No way (and no reason) to post-date binding receipt

Binding Receipt: No coverage 60 days after application date


REAL CASE STUDIES

Slide 71


Cynthia’s Testimony

“I told the agent that Stacey was in a nursing home, had

schizophrenia, was depressed and had hallucinations.”

Agent: Would not have taken application if knew of those facts.

Underwriter: Application would have been denied without

inquiry if those facts were known.

Cal. Ins. Code §332: An applicant who communicates some

(but not all) facts which are material to the risk he or she

is trying to insure is not excused from his or her failure to

communicate other facts which are material to that risk.


REAL CASE STUDIES

Slide 72


Cynthia’s Testimony

“No one asked us any questions. The agent must have

filled out the application.”

Agent had never met, talked to, or talked with anyone about Stacey,

but application had her:

· Address · Date of Birth · Social Security Number

Agent had never met, talked to, or talked with anyone about Cynthia’s

kids, but:

· all 3 are named in application

· all 3 have a different last name than Cynthia


REAL CASE STUDIES

Slide 73

Trial Strategy Number 1:

Keep the stories

straight.


REAL CASE STUDIES

Slide 74

Underwriter’s Perspective

· 32 year old non-smoker

· 5’1” and 120 lbs.

· No adverse medical/psychiatric history

Claim Handlers’ Perspective

· 32 year old smoker

· “about” 260 lbs.

· Significant undisclosed medical/psychiatric history

· Imposter at point of sale Jury’s Perspective

· 309 lbs.

· Cynthia and her mother were told she was dying

· Could not have been in agent’s office on either date


REAL CASE STUDIES

Slide 75

Let the facts speak for themselves.

If they are enough to prove fraud, jurors will see it.



REAL CASE STUDIES

Slide 76

Remember the “simple” truth.



REAL CASE STUDIES

Slide 77

Claim Management Considerations

· Insurance fraud is a crime of opportunity.

· Did the opportunity simply present itself?

· Was the opportunity manufactured?

· Insurance fraud is prevalent because insurers’ remedies

often are limited and there is little risk of prosecution.

· Understand what litigating a fraudulent claim is (and is not).

· Consider the potential for future claims under the policy.

· Make sure you have the stomach for it.

Robert R. Pohls, Managing Attorney

e-mail: [email protected]


REAL CASE STUDIES

2011 Western Claim Conference September 20, 2011

Renaissance Esmeralda Hotel Indian Wells, California

QUESTIONS?

Documents

Proving Insurance Fraud: Real Case Studies