Tag Archives: auto accident

Inside Perspective on Auto Fraud, Part 1

This is Part 1 in a two-part series on automobile insurance fraud.

Introduction

Traffic engineers would love to unblock the clogged arteries of Southern California’s freeway system, where rush hour is anything but “rush” — more like gridlock. But in a land where one’s car is one’s empire, one’s freedom and personal statement, carpooling is a tough sell. The high-occupancy vehicle (HOV) lanes have scant occupancy. In fact, cars carrying multiple passengers are such a rarity that they, alone, raise red flags for auto insurance claims adjusters.

Operating under the radar is a fast-growing segment of the “underground economy” — organized criminal enterprises that stage automobile collisions to defraud insurance companies of medical payments. In some cases, the entire incident is created on paper, with fictitious vehicles and false identities. In other cases, the perpetrators take real vehicles with legitimate insurance policies out to vacant lots or remote fields to crash them and then fill out a report. The most compelling cases are the ones where participants intentionally ram vehicles together on city streets — often a rear-end collision in a left-turn lane — then dial 911 and wait for police and emergency medical services (EMS) to arrive. This approach triggers a police report and EMS records, which lend an air of legitimacy to the event. It really happened.

Based on instructions from a stager, the driver and two or three passengers — who are known as “stuffed passengers” — report neck and back injuries. The passengers later visit a physician or chiropractor who is in collusion with the criminal ring. The patients sign in and leave without receiving any treatment. If the insurance company balks at paying the specious claim, the claimant enlists the help of an attorney who is also party to the scheme. The attorney is tenacious, willing to go to court, generally able to bluff until the insurance company backs down and settles.

In the process, everybody except the insurance company gets easy money. Property damage to the vehicle is paid to the owner of the vehicle, while multiple players split the proceeds of the settlement for medical payments. In a typical case where the insurance company settles for, say, $6,000, each vehicle occupant might get $1,000, the lawyers and doctors collect their fees and the enterprise leader retains 50% of the professional services fees plus the balance of the claimants’ settlement, if any. If the enterprise leader successfully stages dozens of such incidents a month, it’s a lucrative business.

This practice exploded in Southern California in the mid-1990s. If you are a special investigations unit investigator, you are dealing with this every day. The average caseload for an adjuster or claims representative might be 150 or 200 a day, depending on the size of the company. At least 25% of that is some flavor of fraud. It’s either a false claim or an embellishment to it. People are doing it. Even people who think of themselves as law-abiding are doing it, because they don’t think of insurance companies as victims. This type of activity is so prevalent that our undercover investigators would hear paramedics on the scene saying, “Okay, which one of you is going to the hospital this time?”

Automobile insurance fraud is such easy money that the business is even creating unlikely bedfellows. For example, in south central Los Angeles, the Bloods and Crips — gangs that have had an intense and bitter rivalry — are now cooperating with one another in organized insurance fraud, because it’s more profitable to join forces.

Six Steps to a Successful Insurance Scam

Constantin Borloff (not his real name), the former leader of a successful and sophisticated fraud enterprise that operated in San Diego, Los Angeles and San Francisco, shares his top tips for making fraud pay. Having paid his debt to society, the ringleader now tells insurance companies how he was able to steal so much money from them, who does it and why it’s so easy.

Go for the Med Pay Money
Borloff would insist that vehicle insurance policies have med pay coverage — coverage for reasonable expenses to treat accident-related bodily injury. Because this coverage follows the vehicle, passengers in a vehicle that has med pay coverage will likely be covered, as well. Borloff gave vehicle owners a list of insurance companies that would freely provide these policies.

In theory, claimants are supposed to repay med pay money if they receive a settlement, but that doesn’t happen, according to Borloff. “For all history, maybe two times the insurance company asked for money back. If you say you don’t have money and can’t pay it back, they say, ‘Okay, don’t pay back the money.'”

Find the Inattentive Insurance Companies
Borloff also selected insurance companies with a reputation for laxity, the ones whose claims representatives didn’t take a stand and ask the hard questions. “Big companies like State Farm or Farmers have millions of policies, good special investigation units and more experienced adjusters, so that’s where you would see more problems. It’s better to go to the smaller company or where it’s not their main business. These companies usually pay more, while the big companies usually pay a little less.”

Insiders in the business share this information, so they know which companies to avoid and which ones would pay off like loose slot machines in Henderson, NV.

What would make an insurance company an unattractive target? “I don’t know what will stop me,” Borloff. said “All insurance companies are bound by law to pay. So for us, the system is working perfectly. The insurance company can fight, and they have a lot of resources to fight, but eventually they have to pay something. Maybe more, maybe less, but eventually they have to pay something.”

Choose Participants Who Won’t Raise Suspicion
In a perfect world, your participants are white American citizens with clean driving records and their own driver’s licenses. Judges and juries look most kindly upon this type of claimant, according to Borloff.

It is equally important that their behavior fits accepted patterns. For instance, policies should be active for four to eight months before the staged collision. Claims should be modest, usually no more than $5,000 or $6,000. Activities were choreographed to avoid triggering red flags. “I know insurance companies have about 25 red flags,” Borloff says. “What the claims adjusters know, the criminal enterprise knows twice. I knew about all these red flags, and I tried to avoid them.”

Distributing the cases is one way to avoid detection, Borloff said. “If the enterprise will do, say, 20 collisions a month, the claims will go to five different insurance companies, each to a different attorney — 10, 15 or 20 different attorneys — and any given adjuster will have at most two cases to a specific attorney. Will the adjuster be suspicious about it? I don’t think so. It’s very difficult for the insurance company to catch these people in this situation.”

Borloff tells of a fringe case where a woman, working against the advice of her stager, staged four accidents in a single week. She submitted claims to four different insurance agencies. All four claims were paid, but this pattern of activity could have exposed everybody in the fraud enterprise to scrutiny and discovery.

Pay More Than Lip Service to the Medical Treatment
When private investigators were first sent to wait outside medical clinics to observe and videotape (the comings and goings of visitors), the first people they caught were the ones who walked in, signed in and left within a minute. People quickly learned to stay longer inside the clinic and have follow-up visits at intervals that would seem appropriate for their injuries and type of care.

Keep Your Stories Straight
Cappers and stagers write notes for people so they can remember their stories when talking to claims representatives and, later on, if they meet with an attorney and go into depositions. Somehow, somewhere, there is a record of all this. If the ring is dealing in volume, there must be good notes, or they won’t remember the details of a case, and that’s how they get tripped up. Some stagers get tripped up simply by having these notes in their possession — in their offices or briefcases, waiting to be found during a routine traffic stop or search.

Insulate the Players From Each Other
These groups tend to function as classic cell networks. In an effective cell network, the claimant may or may not be exposed to the other people involved, or may be only exposed to the doctor but not to the attorney. That’s how these people are protected from one another. Participants may not have a knowledge of what else the group is doing. When we arrested 72 people on a state level and brought them into interrogation rooms for 72 hours, it was pretty clear that they only knew their own activities or those of friends they had brought into the group. They had no knowledge of the bigger scheme. That’s how you protect your enterprise.

The parties in these fraud rings learn never to admit to anybody that the accident was staged. Everybody in the enterprise knows it, but if you tell even one person, there’s a point of vulnerability. It is especially important to insulate the medical and legal providers, because their professional licenses are critical to facilitate these claims. They take it all the way and never back down.

How often would a criminal enterprise walk away from a case because an insurance company’s special investigations unit got involved? “I would not walk away, but I would accept lower settlement, for sure,” Borloff said. “One time, one of my colleagues made a terrible mistake and sent 63 cases to Allstate — one attorney, same office. They came to me and said, ‘What should we do now, SIU is after us?’ I said, ‘Don’t give up, try to fight,’ but they decided to give up. It was the biggest red flag. They lost money. It upset people.” Giving up is tantamount to an admission of wrongdoing.

This series of articles is taken from the SAS white paper of the same name. © 2013, SAS Institute Inc. Used by permission.

Insurers Rearm To Fight Professional Fraudsters

Many insurers are redesigning their strategies to deliver systems that forestall attempted fraud, adapt to changing fraud techniques, and are applied at all points of interaction between a policyholder and an insurer. This change is driven by the alarming increase in professional fraud networks in the last five years and the realization that an effective fraud strategy can provide a competitive advantage in the currently very difficult market conditions.

A number of technologies have now matured to a level where, when used in combination, they offer insurers highly effective means of detecting and preventing even the most sophisticated fraud schemes. As a result, these technologies—which include predictive analytics, link analysis, text mining, in-memory database, and cloud services—will become significant areas of investment for insurers during the next 12–24 months.

A recent Ovum report, Tackling Insurance Fraud, discusses the reasons behind the increased focus on insurance fraud and explains how a range of technologies can be applied to implement a comprehensive and effective insurance fraud system.

Professional fraudsters use sophisticated schemes—such as staged or induced auto accidents, life insurance owned by strangers, or false hit-and-run claims—to illegally obtain significant sums from insurers. Professional fraud schemes often involve complex networks of criminal players within medical services providers, auto repair centers, hospitals, insurance agents, or even insurance companies. The volume of organized professional fraud is low in comparison with that of opportunist fraud by amateurs, but the sums being claimed illegally by an individual group can amount to many tens of thousands of dollars and, in some cases, millions.

The vast majority of insurers have already invested, to some degree, in fraud technology. Although this investment has delivered benefits, it has tended to take a piecemeal approach. Investment is usually focused only on the claims phase. Technology used today is generally not sufficient to address the growing problem of professional insurance fraud.

The continued fragility of many developed economies means that insurance markets will remain extremely competitive for at least the next 36 months, with only muted premium growth, limited room for rate increases, and investment returns that will remain volatile. So, insurers are urgently seeking ways to significantly and sustainably reduce both administration and claims costs. As claims payments typically account for 80% of an insurer's costs (excluding administration costs), reducing them by decreasing the level of fraudulent payouts can have a significant impact on a carrier’s cost base and margins.

With the Association of British Insurers (ABI) estimating that fraud currently adds approximately £50 to each auto policy, an effective fraud strategy can drive significant competitive advantage in a tough market by allowing insurers to reduce premium levels. An effective fraud strategy can also bring additional service benefits. In particular, simplifying and expediting the processing of legitimate claims increases the likelihood that a policy-holder will renew a policy.

There is no single “silver bullet” technology that can fully address the issue of complex insurance fraud. However, technology areas such as predictive analytics, text mining, link analysis, in-memory databases, and cloud services, together with fraud technologies commonly used today (such as rules-based systems and anomaly detection) can be combined to create highly effective systems that detect even the most sophisticated and complex fraud schemes. These systems are able to detect and adapt even to previously unknown fraud techniques that may be employed by professional fraudsters.

To date, most insurers have focused their fraud strategies on the claims process. While this is a critical point at which to detect potential fraud, the effectiveness of a fraud strategy, particularly in avoiding organized criminal fraud, can be significantly enhanced by using technology across the entire insurance product lifecycle. It is now possible to apply technology in real time, at multiple points at which insurers and policyholders interact. For example, the use of link analysis can stop fraud by identifying applicants with connections to others that have either committed fraud or are suspected of doing so.

Professional fraudsters can be very sophisticated. Insurers need to keep rearming themselves if they are to win the battle and help themselves thrive in a tough market.

An Inside Perspective On Automobile Insurance Fraud, Part 2

This is Part 2 in a two-part series on automobile insurance fraud. Part 1 in the series appears here.

Who Participates In This Type Of Insurance Fraud?

Just about anyone. You'd be surprised. Even people who consider themselves upstanding citizens will get drawn into the business, because they see it as a victimless crime. One of the first cases I investigated involved a college-educated, former Farmers Insurance adjuster from Ohio. One day, he just decided to go to the dark side of the earth and started staging collisions from Ohio to California. He got away with $11 million before we caught him and put him in prison. He had so much activity going on that he carried a briefcase with him, and in that briefcase were 13 valid licenses from Colorado, Ohio and Texas — all valid — along with lots of crib notes from all of his activity. In an unlucky turn of events for the fraudster, he was stopped for speeding one night. As he opened his briefcase to get out a driver's license, that sheaf of crib notes was visible to the highway patrol officer, who reached right over his head and grabbed it. Lesson learned. Keep your crib notes to yourself.

People don't necessarily set out to go into insurance fraud as a career, but it's easy to see the attraction, said Borloff. “When you're first introduced to the people in this business, they say, 'This guy, he's in the insurance business,' and everybody understands he doesn't have an insurance company, he's in a different side of the business. But he's a well-to-do guy, with a house in Beverly Hills, with a car, with everything. And you ask yourself, 'Why can he do it and I can't?' And then you start to learn.”

It starts easily enough. The newcomer becomes the defendant in one staged accident, and voilà, $1,000 just falls into his lap. “It's a big deal for this guy,” said Borloff. “He just calls the insurance company, and that's it, he's a rich man. He wants to do it again. Trust me, he wants to do it again and again.” However, a savvy criminal enterprise will not use this guy again. They will use another guy, then another. So now our newcomer is intrigued to work it from the other side of the fence, to run his own business.

First he needs to recruit lawyers and doctors — and that's surprisingly easy, said Borloff. Where would you find an attorney willing to take such a risk? “Word of mouth or the Yellow Pages,” Borloff quipped. “Any attorney wants more business.” The business is so attractive that it is relatively easy to find professionals who want to be a part of it.

“Think about it. Who is this lawyer guy? He spent three years in law school, and he spent a lot of money. He is out of school now, and he has a lot of debt. What can he get? He can get a job for about $40,000 to $50,000 a year at the most, if he is lucky. So he opens his own office. He has just one secretary, and he's waiting for clients. But there are no clients, because there are a lot of lawyers around with the big names, big firms and so on. He is desperate.

“If you come to this guy and say, 'You know, I can give some business to you,' what will he say? As a lawyer, he is like an innocent girl — he wants seduction. You should not say to him, 'It's a staged accident.' No, you say, 'I can give you some business, but you will have to follow my instructions and pay me 50 percent.' He says, 'Of course,' and he agrees. If you teach him properly, he will properly do his business for you.”

Is it really that easy? Are there attorneys willing to look the other way at the likelihood that their cases are fraudulent? Yes. In a separate case, when I had an attorney in an investigation room and got him to confess, I asked him, “What were you thinking?” This was an aha moment. He said, “It's quite simple — there aren't enough real accidents to go around.” It's that simple.

Besides, real accident cases get complicated and messy, Borloff said. “Attorneys don't like real accidents because there are so many problems. There isn't a cooperative defendant — he says, 'No it didn't happen.' There are too many problems. It's easy for me to work with defendants who say, 'Yes, I hit him, I was not paying attention,' and with attorneys who want money.”

Many of the people involved in these schemes don't quite see it as wrong but rather as a rightful Robin Hood redistribution of monies. “I had one good, white-bread American guy. He was the perfect defendant,” said Borloff. “He did the accident, and then on the way home, he sees somebody not driving the proper way. He gets on the phone, calls the police, and gives them the license plate number. I said, 'You turned him in? You broke the law too.' He said, 'No, that was the insurance company.' Sometimes the insurance company is not seen as the good guys.”

Fraud Ring Leader: “This Is A War That Will Never End”

“If you want to win this war, you can't do it,” said Borloff. “It's like the Cold War between the USA and Soviet Union. There was intelligence and counterintelligence, and it went on for a long, long time.” Insurance companies develop more sophisticated fraud detection and prevention tactics, but the criminal enterprises adapt and become more sophisticated too. An insurance company known to have strong defenses may repel fraudsters, but only for awhile. Pitted against the fraud rings, insurance companies are at a disadvantage, said Borloff.

They lack depth in claims adjusters. “A good, educated adjuster knows how to work — he has some police experience, maybe some counterintelligence experience,” said Borloff. “I ask you, how many adjusters do you have with these credentials? I can tell you 1 percent is a generous calculation.”

Even if you can recognize staged collisions, there's still generally a payout. “You can try to fight it, but it's probably just to reduce the amount you have to pay,” said Borloff. Adjusters can try to bluff — say that the examination of the car indicates there weren't four passengers, or that damages are inconsistent with the accident description — but that doesn't work. The stager knows a lie when he hears it.

The legal system doesn't offer much redress. When a claim looks suspicious, a smart adjuster asks for a deposition and asks smart questions of the plaintiff in front of him. He may do his best, probing for details, hoping to ferret out inconsistencies. “But it's worthless,” said Borloff. “It doesn't matter what the answers are. If the people said back pain the first time, and neck pain the second time, what does it prove? It proves nothing. You can't go to court with this stuff. After the deposition, the adjuster doesn't have a lot of choices. He has to negotiate the price.”

The adjuster can make a lowball offer, but a good defender will push back, knowing the adjuster's supervisor will approve more, and the insurance company doesn't want to go to court. In court, the insurance company can only argue on the facts, but the facts are that the incident did happen, and the plaintiffs do report that they suffered pain and injury from it. Can you prove they didn't? You can't pressure defendants to recant, because they're in bed with the criminal enterprise. They've got the money and face jail time if they confess.

“In small claims court, insurance companies have no chance,” said Borloff. “A claims adjuster can come and represent the company, but if it happened, it happened. If you say you have pain, I have pain, we have a medical bill, and you have to pay toward this. I have a limit of $5,000, and each defendant can ask about this amount of money. And what does this situation get insurance companies? Nothing but a lot of trouble, and more trouble. The adjuster doesn't want this problem. His supervisor doesn't want this problem.” The fraud enterprise wins.

Let's have a reality check here. The insurance industry will never stop this. People are going to try to scheme our insurance system as long as the system we have in place today exists, and ours is one of the best in the world. It takes care of consumers when they get in trouble. But with that, you will always have people thinking of ways to scam the money. Change the system, and they come up with a new scheme. This is just what people do.

How One Investigative Team Won

The fight against insurance fraud may be a never-ending war, but there are still skirmishes to be won. I led a five-year undercover investigation of a large and sophisticated organized crime ring in Southern California — Borloff's, in fact — and won.

We started with 63 suspected fraudulent claims that were on file in the San Diego office of the Department of Insurance. There were quite a few interesting outliers in those claims. For one, everybody was of Russian descent. These were all rear-end collisions, sudden stops. Now, we all know that sudden stop rear-end collision is a quick pay. It's pretty easy to determine at-fault in these collisions — a couple hundred of them happen every day in Southern California. It's not that big a deal.

Then an individual in custody for an unrelated matter came forward and offered information that made these claims look particularly interesting — even named two primary players. A formal task force was established with the equivalent of a joint powers authority between federal, state and municipal law enforcement. An undercover officer was introduced into the San Diego community to try to identify the ring leaders and learn how they were recruiting others into the organization and conducting business.

I didn't want to chase stuffed passengers or street offenders at the lower level. I wanted to go deeper into the organization — to identify the stagers, attorneys and physicians who facilitated those claims. And it worked.

A Collaborative Effort
The undercover operation was a joint effort of the California Department of Insurance's Fraud Division, the FBI, the San Diego Police Department, the Immigration and Naturalization Service (INS), and the National Insurance Crime Bureau (NICB). Undercover agents came from the California Department of Insurance, the San Diego Police Department, the California Department of Health Services, and the Bureau of Narcotics Enforcement.

Seven major insurance companies cooperated by providing pretext policies set up solely for the purposes of the investigation. Only the companies' regional vice presidents of claims and Special Investigations Unit directors knew about the investigation. They agreed to have the claims legitimately paid, so the money could be tracked and there would be no suspicion of law enforcement involvement.

A lot of thought and effort went into this to backstop the identities of the undercover people. If a private investigator or lawyer ran these people, they would show up as true legitimate people with valid Social Security numbers, credit histories, houses, vehicles — it was backstopped to the hilt. You'd have no idea that it was law enforcement.

Working From The Inside
We successfully infiltrated this ring for more than 18 months and were staging collisions in San Diego, Los Angeles and San Francisco. Borloff was identified in the very first staged collision, and then the lead undercover detective partnered with Borloff to stage more collisions and car thefts. Borloff gave instructions to his new business partner about how to get involved in this game. For every car and policy he provided, the undercover officer received $2,500 – a total of $75,000 over the course of the investigation.

Little did Borloff know these cars were coming from the NICB salvage pool, and every move was being recorded. During the five-year period, Borloff was responsible for staging more than 100 automobile collisions, exposing the insurance industry to an estimated $2 million in fraud losses.

Five Years To Success
It was kind of dicey. The [cooperating] insurance companies paid out more than $230,000 in claims into this. However, everybody had the bigger picture in mind — the potential economic loss prevented (PELP), an FBI metric that forecasts the money that would have been lost if the criminals continued their activities unabated.

When it was time to strike, the United States Attorney's office in San Diego handled federal prosecution and the Los Angeles County District Attorney's office handled the state prosecution. This was a seminal case that eliminated the issue of double jeopardy. In the State of California, you can arrest and convict someone in federal court for mail and wire fraud with a scheme of insurance fraud, and then charge them at the state level with insurance fraud, and it's not double jeopardy.

I brought the investigation from cradle to grave. I started as the supervising agent in the San Diego Fraud Division of!ce, and by the time the investigation was over, I was captain of that office. The investigation netted attorneys, physicians and chiropractors along with their office staff, eight cappers and 44 claimants — and effectively shut down one of the largest such rings in Southern California.

The Information Imperative

“The main problem for insurance companies is they don't have enough information,” said Borloff. “When the adjuster discusses the case, he knows nothing. He knows just this is the car, this is the car damage, these are the people. He can check the records — see these people didn't have an accident for two years, three years and think they sound like nice people. But he's still suspicious, he pursues it all the way, and still he gets nothing, because it's still trouble, still problems.”

In order to detect suspicious claim activity, insurance companies need access to transaction information and supporting detail that typically resides in different systems. Transactions viewed in isolation could appear normal, but they might look quite different if you could correlate those transactions across related entities. However, a unified view based on multiple internal data sources is rare. Rarer still is the organization that has augmented that view with external data as well.

As part of an 18-month Command College program of graduate study, I designed a virtual office environment for a law enforcement environment. After graduation, that work led to an assignment to design a fusion center to promote information-sharing among federal, state and local entities. The fusion center I designed was the first in the nation to incorporate law enforcement data and financial data, which led to new discoveries. For example, we threw the system up for a test run, and investigators in the San Francisco Bay Area were playing with it. From working with the data and social networking analysis, we found two chop shops in Dallas that the local police department didn't know about.

Smarter integration and analysis of data will be a strong defense to the growing fraud problem, as well as a way to meet the pressures to achieve more with less. The data being gathered through the claims process is growing bigger and bigger, so you need to start looking at things differently and working smarter, and that means leveraging your data together. A number of statistical approaches can be created to build a solid predictive solution. For instance, when you combine business rules, anomaly detection (finding outliers), and social media analysis, you can identify suspicious claims even if there is no prior claim history.

Getting a handle on the fraud problem is not about processing more cases. It is all about working the right cases to make an impact to reduce fraud. If you do not identify the true cost drivers in fraud — the licensed professionals, administrators, cappers, stagers and other individuals controlling the criminal enterprises — you will never truly reduce the amount of insurance fraud in our communities. But when you apply best practices and analytics together, you create a powerful tool and business model to reduce fraud and provide great ROI for anti-fraud programs.

This series of articles is taken from the SAS white paper of the same name. © 2013, SAS Institute Inc. Used by permission.

An Inside Perspective On Automobile Insurance Fraud, Part 1

This is Part 1 in a two-part series on automobile insurance fraud. Part 2 in the series can be found here.

Introduction

Traffic engineers would love to unblock the clogged arteries of Southern California's freeway system, where rush hour is anything but “rush” — more like gridlock.

But in a land where one's car is one's empire, one's freedom and personal statement, carpooling is a tough sell. The high-occupancy vehicle (HOV) lanes have scant occupancy.

In fact, cars carrying multiple passengers are such a rarity that this scenario alone raises red flags for auto insurance claims adjusters.

Operating under the radar is a fast-growing segment of the so-called “underground economy” — organized criminal enterprises that stage automobile collisions with the intent to defraud insurance companies of medical payments. In some cases, the entire incident is created on paper, with fictitious vehicles and false identities. In other cases, the perpetrators take real vehicles with legitimate insurance policies out to vacant lots or remote fields to crash them and then fill out a counter report. The most compelling cases are the ones where participants intentionally ram vehicles together on city streets — often a rear-end collision in a left turn lane — then dial 911 and wait for police and emergency medical services (EMS) to arrive. This approach triggers a police report and EMS records, which lend an air of legitimacy to the event. It really happened.

Based on instructions from a stager, the driver and two or three passengers — who are known as “stuffed passengers” — report neck and back injuries. The passengers later visit a physician or chiropractor who is in collusion with the criminal ring. The patients sign in and leave without receiving any treatment. If the insurance company balks at paying the specious claim, the claimant enlists the help of an attorney who is also party to the scheme. The attorney is tenacious, willing to go to court, generally able to bluff until the insurance company backs down and settles.

In the process, everybody except the insurance company gets easy money. Property damage to the vehicle is paid to the owner of the vehicle, while multiple players split the proceeds of the settlement for medical payments. In a typical case where the insurance company settles for, say, $6,000, each vehicle occupant might get $1,000, the lawyers and doctors collect their fees, and the enterprise leader retains 50 percent of the professional services fees plus the balance of the claimants' settlement, if any. If the enterprise leader successfully stages dozens of such incidents a month, it's a lucrative business.

This practice exploded in Southern California in the mid-1990s. If you are a Special Investigations Unit investigator, you are dealing with this every day. The average caseload for an adjuster or claims representative might be 150 or 200 a day, depending on the size of the company. At least 25 percent of that is some flavor of fraud. It's either a false claim or an embellishment to it. People are doing it. Even people who think of themselves as law-abiding are doing it, because they don't think of insurance companies as victims. This type of activity is so prevalent that our undercover investigators would hear paramedics on the scene saying, “Okay, which one of you is going to the hospital this time?”

Automobile insurance fraud is such easy money that the business is even creating unlikely bedfellows. For example, in South Central Los Angeles, the Bloods and Crips — gangs that have had an intense and bitter rivalry — are now cooperating with one another in organized insurance fraud, because it's more powerful and profitable to join forces.

Six Steps to a Successful Insurance Scam

Constantin Borloff (not his real name), the former leader of a successful and sophisticated fraud enterprise that operated in San Diego, Los Angeles and San Francisco, shares his top tips for making fraud pay. Having paid his debt to society, the ring leader now tells insurance companies how he was able to steal so much money from them, who does it and why it's so easy.

Go For The Med Pay Money
Borloff would insist that vehicle insurance policies have med pay coverage — coverage for reasonable expenses to treat accident-related bodily injury. Since this coverage follows the vehicle, passengers in a vehicle that has med pay coverage will likely be covered as well. Borloff gave vehicle owners a list of insurance companies who would freely provide these policies.

In theory, claimants are supposed to repay med pay money if they receive a settlement, but that doesn't happen according to Borloff. “For all history, maybe two times the insurance company asked for money back. If you say you don't have money and can't pay it back, they say, 'Okay, don't pay back the money.'”

Find the Inattentive Insurance Companies
Borloff also selected insurance companies with a reputation for laxity, the ones whose claims representatives didn't take a stand and ask the hard questions. “Big companies like State Farm or Farmers have millions of policies, good special investigation units and more experienced adjusters, so that's where you would see more problems. It's better to go to the smaller company or where it's not their main business. These companies usually pay more, while the big companies usually pay a little less.”

Insiders in the business share this information, so they know which companies to avoid and which ones would pay off like loose slot machines in Henderson, Nevada.

What would make an insurance company an unattractive target? “I don't know what will stop me,” said Borloff. “All insurance companies are bound by law to pay. So for us, the system is working perfectly. The insurance company can fight, and they have a lot of resources to fight, but eventually they have to pay something. Maybe more, maybe less, but eventually they have to pay something.”

Choose Participants Who Won't Raise Suspicion
In a perfect world, your participants are white American citizens with clean driving records and their own drivers' licenses. Judges and juries look most kindly upon this type of claimant, according to Borloff.

It is equally important that their behavior fits accepted patterns. For instance, policies would be active for four to eight months before the staged collision. Claims would be modest, usually no more than $5,000 or $6,000. Activities were choreographed to avoid triggering red flags. “I know insurance companies have about 25 red flags,” Borloff says. “What the claims adjusters know, the criminal enterprise knows twice. I knew about all these red flags, and I tried to avoid them.”

Distributing the cases is one way to avoid detection, said Borloff. “If the enterprise will do, say, 20 collisions a month, the claims will go to five different insurance companies, each to a different attorney — 10, 15 or 20 different attorneys — and any given adjuster will have at most two cases to a specific attorney. Will the adjuster be suspicious about it? I don't think so. It's very dif!cult for the insurance company to catch these people in this situation.”

Borloff tells of a fringe case where a woman, working against the advice of her stager, staged four accidents in a single week. She submitted claims to four different insurance agencies. All four claims were paid, but this pattern of activity could have exposed everybody in the fraud enterprise to scrutiny and discovery.

Pay More Than Lip Service To The Medical Treatment
When private investigators were first sent to wait outside medical clinics to observe and videotape (the comings and goings of visitors), the first people they caught were the ones who walked in, signed in and left within a minute. People quickly learned to stay longer inside the clinic and have follow-up visits at intervals that would seem appropriate for their injuries and type of care.

Keep Your Stories Straight
Cappers and stagers write notes for people so they can remember their stories when talking to claims representatives, and later on, if they meet with an attorney and go into depositions. Somehow, somewhere, there is a record of all this. If the ring is dealing in volume, there must be good notes, or they won't remember the details of a case, and that's how they get tripped up. Some stagers get tripped up simply by having these notes in their possession — in their offices or briefcases, waiting to be found during a routine traffic stop or search.

Insulate The Players From Each Other
These groups tend to function as classic cell networks. In an effective cell network, the claimant may or may not be exposed to the other people involved, or may be only exposed to the doctor but not to the attorney. That's how these people are protected from one another. Participants may not have a knowledge of what else the group is doing. When we arrested 72 people on a state level and brought them into interrogation rooms for 72 hours, it was pretty clear that they only knew their own activities or those of friends they had brought into the group. They had no knowledge of the bigger scheme. That's how you protect your enterprise.

The parties in these fraud rings learn never to admit to anybody that the accident was staged. Everybody in the enterprise knows it, but if you tell even one person, there's a point of vulnerability. It is especially important to insulate the medical and legal providers, because their professional licenses are critical to facilitate these claims. They take it all the way and never back down.

How often would a criminal enterprise walk away from a case because an insurance company's Special Investigations Unit got involved? “I would not walk away, but I would accept lower settlement, for sure,” said Borloff. “One time one of my colleagues made a terrible mistake, and sent 63 cases to Allstate — one attorney, same office. They came to me and said, 'What should we do now, SIU is after us?' I said, 'Don't give up, try to fight,' but they decided to give up. It was the biggest red flag. They lost money. It upset people.” Giving up is tantamount to an admission of wrongdoing.

This series of articles is taken from the SAS white paper of the same name. © 2013, SAS Institute Inc. Used by permission.

He Who Sits On His Rights Loses Them

Never Ignore the Statute of Limitations
The Wisconsin Court of Appeal was called upon to resolve a dispute over the application of a statute of limitations in a suit against American Family Mutual Insurance Company, Gage Creighbaum, Sherry Lagios, and Dimitrios Lagios (the “defendants”) who appealed an order denying their motion to dismiss. The trial court held that the defendants waived their statute of limitations defense by not raising it prior to filing their notice of appearance and serving their request for admissions in response to Maas’ amended complaint. In Justin M. Maas v. American Family Mutual Insurance Company, Gage M., No. 2011AP1661 (Wis.App. 08/01/2012) the Wisconsin Court of Appeal resolved the issue.

Background
On August 20, 2007, Creighbaum crashed his vehicle into a vehicle operated by Maas, resulting in personal injury to Maas. On August 18, 2010, two days before the end of the three-year statute of limitations period, Maas filed a summons and complaint against the defendants related to his injuries. Maas failed to serve any of the defendants with the summons and complaint.

Maas filed an amended summons and complaint on February 15, 2011, which he served on the defendants. The amended summons and complaint contained the same cause of action and named the same defendants as the original summons and complaint. The defendants filed an answer to Maas’ amended summons and complaint alleging Maas failed to obtain proper service of process on Creighbaum and the Lagioses and the court therefore lacked personal jurisdiction over them and alleged that Maas’ claim was barred by the statute of limitations.

The trial court denied the motion, concluding that the defendants’ failure to raise their jurisdictional objection prior to filing the notice of appearance and serving the request for admissions constituted a waiver of their statute of limitations objection. The court further held that Maas’ action was properly commenced and that the amended complaint related back to the original complaint.

Analysis
On appeal, the defendants argued that even though Maas filed his original summons and complaint two days prior to the running of the three-year statute of limitations period, his claim is barred because he failed to serve any of the defendants with the summons and complaint within ninety days of the filing as required by Wisconsin statutes.

The Wisconsin Court of Appeal concluded that the statutes are clear. An action to recover damages for personal injuries shall be commenced within 3 years or be barred. An action is commenced as to any defendant when a summons and a complaint naming the person as defendant are filed with the court, provided service of an authenticated copy of the summons and of the complaint is made upon the defendant within 90 days after filing. Thus, if service is not made within ninety days of the filing of the summons and complaint, the action is not commenced. If not commenced within the three-year statute of limitations period, the action is barred.

It was undisputed that Maas failed to serve any of the defendants with the original summons and complaint within ninety days of filing. Wisconsin procedure requires, therefore, that the court conclude his action was never commenced prior to the running of the limitation period and is therefore barred.

Maas’ failure to serve the defendants with the original summons and complaint within ninety days was a fundamental defect which deprived the trial court of personal jurisdiction over the defendants and rendered the original pleading a legal nullity. The trial court conclusion that the defendants waived their jurisdictional objection by failing to raise the objection when they filed their notice of appearance and served their requests for admissions in response to Maas’ amended pleading fails since there was nothing for the defendants to waive.

Conclusion
Maas’ failure to serve the defendants with the original summons and complaint within ninety days resulted in the three-year statute of limitations period expiring without an action having been commenced. The failure was a fundamental defect which rendered the pleading a legal nullity and could not be remedied by the subsequent filing of an amended pleading after the statute of limitations period expired.

Statutes of limitation were designed to protect people against stale claims because, if suit is not filed promptly, memories fade and witnesses can move away from the jurisdiction. Parties and lawyers that wait until the last moment to sue are taking a chance of losing those rights because of their sloth. Mr. Maas is not without a remedy, however, because his lawyer’s failure to serve the defendants within the 90 days allowed by statute might allow for a case against the lawyer for failing to act within the custom and practice of lawyers in his community.

Although the waiver argument was original and successful in the trial court it did not stand up to scrutiny since no one can waive a nullity nor can a cause of action be created by waiver.