Coronavirus Leads to Uptick in Claimed Insurance Fraud
We’ve talked about the ongoing debate over whether business interruption coverage legally applies to pandemic-related business shutdowns (the prevailing answer from the courts is it does not). The coronavirus outbreak has led to other insurance-related concerns as well – specifically, an alleged increase in the prevalence of insurance fraud. As consumers and small businesses are hurt by the pandemic, and insurers point to clear language restricting coverage under existing policies, some consumers have lost trust in the insurance industry. Whether due to logistical challenges for claims investigation, lack of respect for the industry, or financial hardship more generally, many insurance industry professionals claim there is a significant rise in the proportion of insurance claims containing some element of fraud. Read on to learn about the increase in insurance fraud over the last year, and call a dedicated New York insurance coverage defense attorney for help defending against overbroad insurance coverage claims.
Industry Pros Claim More Fraud
As reported by Forbes and other periodicals, insurance industry professionals allege that around ten percent of all insurance claims have some element of fraud. Ten percent in a normal year is already fairly significant. With the coronavirus pandemic, however, the number has nearly doubled: According to a 2020 report on insurance fraud, industry respondents estimate that upwards of 18 percent of 2020 insurance claims contained an element of fraud. The difference is stark, and it is a reminder of the importance of conducting due diligence and thorough investigations of all claims, even when such investigations are more challenging given the pandemic.
Alleged Reasons for the Increase in Fraudulent Claims
The insurance fraud report suggests a number of reasons why the coronavirus has led to an increase in fraudulent claims. Foremost among them are the industry’s necessary adjustments to the COVID-19 pandemic. Remote working has led to fewer inspections, especially as claims adjusters prefer not to expose themselves to infection by conducting on-site reviews. Moreover, most professionals are experiencing a significant increase in workload, creating gaps for policyholders and third-party claimants to exploit. Adjusters may be unavailable or unwilling to go on-site to inspect, for example, automobile repairs or the extent of property damage, leading to inflated billing and overestimates of damage.
Additionally, as consumers feel they are being treated unfairly, they are more willing to stage claims in order to secure a windfall. They might inflate their damage estimates or intentionally damage non-essential pieces of property such as outdoor sheds, garages, or barns. They will then file claims seeking maximum compensation and use the benefits to cover other, unrelated costs. As in-person visits by claims adjusters are discouraged during the pandemic, these claims can be difficult to investigate and may simply get rubber-stamped to avoid the risk and the hassle.
Some insurers are looking to automated claim processing and auditing software to offset these difficulties. Incorporating modern technology, ensuring that all claims are properly valid and documented, and relying on insurance defense attorneys when claims are overblown or fabricated can reduce the coronavirus-related burdens on the insurance industry.
The Insurance Industry has a Built-in Motive to Assert Fraud
For the most part, the insurance industry is ultimately owned by financial companies who see insurance as a business to generate cheap cash for their other investments. The aggressive use of “examinations under oath” (EUOs) – essentially pre-trial depositions taken without any court supervision – has become common practice with insurers referring “suspected fraud” claims to law firms who specialize in “fraud” investigation. One attorney with a large law firm told me that his “fraud” practice has grown so fast that he has no time for anything else and has trouble hiring new attorneys to assist. At one oral argument about two decades ago, I questioned a lawyer with such a practice as to what percentage of claims referred to him for fraud investigation he found to be legitimate and he refused to respond, because the answer was “zero.” If it was referred to him, the policyholder is presumed guilty. The industry knows that the insureds responding to fraud claims are almost always not represented by counsel, and since there is no court to supervise the process, the firm is free to employ “Gestapo” tactics with the threat that if you don’t cooperate, the insurer will disclaim on that ground as well as fraud. These “investigations’ virtually always lead to smaller or no payouts as the insurers squeeze their own insureds. The aggressive use of EUOs is usually directed to consumers and relatively small claims such as property damage, auto theft, etc. rather than the large claims from businesses that pay more profitable premiums and are otherwise better equipped to defend themselves from aggressive insurance coverage practices. Thus, the alleged increase in fraud by insurers could well include some self-interested exaggeration.
However, that is not to suggest there is no significant problem with fraudulent insurance claims. There are many well documented cases of organized insurance fraud rings often including dubious personal injury claims as well as intentional fender benders, theft or arson. These fraudulent claims hurt all consumers by increasing risk and therefore the cost of insurance as well as hurting innocent policyholders who are often the target of organized fraud rings. Still, the insurance industry has a duty to use the EUO process judiciously and in good faith to protect consumers who have already suffered a loss.
For experienced and professional legal guidance on a New York insurance defense or toxic tort claim, contact the Islip offices of Richard A. Fogel at 516-721 -7161.