Published: March 23, 2008 01:31 am            

State agency works to catch those who swindle insurers

CHARLESTON — Patsy Sue Tawney of Elkview is part of a growing trend in West Virginia.

Last month, the 41-year-old woman was indicted for allegedly setting fire to the Elkview mobile home she shared with her husband and mother-in-law. According to a Kanawha County grand jury indictment, Tawney set the fire so she could collect an insurance claim for the damages. A June trial has been scheduled for Tawney, who is presumed innocent.

Tawney’s indictment was just one of dozens that have been handed up in recent months accusing people of filing false insurance claims for fires, auto accidents, medical ailments and business losses. The indictments allege the claims were filed by people hoping to capitalize on money coming back to them from their insurance providers.

To many people, insurance fraud may seem to be victimless crime if a crime at all. No one is getting hurt. No one — except maybe some rich insurance companies — are feeling any impact.

But law enforcement experts and insurance experts say nothing could be further from the truth. In this “victimless crime,” everyone is a victim, they say.

“Insurance fraud costs every homeowner in West Virginia $300 per year through higher premiums,” said Vickie Neal, regional director of the National Insurance Crime Bureau, a nationwide nonprofit organization that partners with law enforcement to detect and prosecute insurance fraud. “And that’s based on just what has been established to be fraudulent claims.”

Neal said insurance fraud impacts every automobile driver, every person who uses health care and every employer who has workers’ compensation insurance. And it happens more than people may realize.

According to the state Offices of the Insurance Commissioner’s Fraud Division, more than 80 referrals for potential insurance fraud came into the unit in just January and February of this year. The unit opened 23 “victim files” and launched 12 field investigations. Thirty-one indictment counts have been handed up by grand juries, 11 people have been arrested and, in just those two months, eight people were convicted of committing fraud.

Experts say those numbers will only increase as the year goes on.

“(Nationally) the numbers are significant, and they are only increasing as the economic constraints on people get tighter,” Neal said.

Cracking Down

The state wasn’t always so aggressive in its battle against insurance fraud.

Until a few years ago, the state was one of only 10 states in the nation that didn’t have some type of fraud investigation unit that could check into reports of fraudulent activity and check on trends to see whether certain people, businesses or entities were engaging in illegal activity.

That changed in 2004, when the state Legislature approved the creation of a insurance fraud task force within the state’s Offices of the Insurance Commissioner. The unit’s birth was part of a massive insurance reform bill, according to Insurance Commissioner Jane Cline.

Lawmakers agreed to create the unit because insurance providers were complaining that the issue was a major problem in West Virginia. It was especially critical considering the state was gearing up to change its workers’ compensation insurance system from a state-run monopoly to a system of competitive private carriers.

“You need to know the big picture,” said Greg Elam, associate counsel with the West Virginia Offices of the Insurance Commissioner who spends much of his time at work working with the fraud division. “Without the big picture, it’s harder to see the trends and put the pieces together.”

The first year of the task force’s life was spent mostly just setting the unit up — getting the job descriptions in place, hiring the right people and making sure everyone had training. The unit started out with just five employees, but when the state transitioned its workers’ compensation system to the private company BrickStreet Mutual Insurance Co., about 50 fraud investigators were transferred from the old Division of Workers’ Compensation to the new unit. Those investigators brought a lot of open workers’ compensation cases over to their new offices with them. And the first several months of the fraud unit’s life were spent investigating those workers’ comp cases, Cline said.

Arrests, Convictions

Going Up

Since then, the unit has been busy.

During 2006, the unit received 830 referrals and conducted 141 field investigations. Its investigators, working with other law enforcement agencies such as local police and sheriff’s departments, the West Virginia State Police, as well as investigators with public and private insurance providers, made 27 arrests, got indictments for 77 counts of insurance fraud and saw 19 people convicted.

Last year, the numbers grew. Cline said the unit received 796 referrals in 2007 and conducted 255 investigations. Thirty-nine people were arrested, and the number of indictment counts grew to 121. She said 28 people were convicted.

“These aren’t simple cases. These take months and months,” Elam said. “The arrests and indictments you’ve seen are the ones that are simpler. In the next few months, you’ll be seeing some cases that have taken 12 to 18 months to investigate.”

Elam and Cline said the numbers for 2006, 2007 and the current year include only criminal fraud cases and do not include any workers’ comp cases. Since 2006, BrickStreet’s fraud investigators have handled those cases.

Elam said insurance fraud isn’t just someone turning in a false claim on a homeowner’s or automobile policy. A lot of times, the insurance fraud is just one aspect of a bigger criminal endeavor a person is involved in. They might use the money from a bogus claim to buy drugs or use several different health care policies to go to different pharmacies to get large amounts of medications they then can sell on the street. Or they use the money from the claim to cover other expenses, such as bad business investments or embezzlement.

“A lot of this isn’t just insurance fraud; there are other crimes going on as well,” he said.

He said that’s why a statewide fraud unit is necessary — so people not involved with the day-to-day investigations of law enforcement can look at the big picture, notice trends and spot odd behaviors.

For example, a police officer might be called out to investigate a car accident in which a person was injured. The officer would treat that as a single situation and write a single report. What that officer might not know, though, is that the same driver has filed dozens or hundreds of insurance claims for other accidents in recent years.

Neal recalled one case in West Virginia in which a vehicle owner filed more than 40 insurance claims in three years for separate accidents involving deer.

“We joked that he single-handedly wiped out the deer population in that county,” she said.

Fraud in West Virginia

So what are the most common types of insurance fraud in West Virginia?

Neal said the bulk of insurance fraud comes from three areas: People making up “fictitious losses,” faking accidents or injuries and workers’ compensation.

She said the fictitious losses are made up mostly of people who fake having a car stolen.

“The owner gives it up because he or she can no longer afford the payments or the vehicle has a mechanical problem they can’t afford or don’t want to fix,” she said. “They file a theft report, and later we’ll find it burned in a rural area. Upon closer examination, we’ll determine it wasn’t stolen at all.”

The clues are sometimes as obvious as the owner still having both sets of keys in his or her possession. Sometimes the clues are a little subtler, such as no sign of a fire starting from mechanical problems.

Examples of people faking wrecks and faking having their car stolen abound. Just last month, a Putnam County man pleaded guilty to one felony count of insurance fraud after admitting he pushed his wife’s minivan over a hill on Poplar Fork Road in January 2007, according to information from Cline’s office. The goal of the scheme was to collect a claim from Nationwide Insurance Co.

‘Making a Living’

Elam said sometimes a person and his or her friends will work together to create an accident and then file a report with the insurance company that shows several people injured in the accident — even people who were not passengers in either car at the time.

“There are people out there who make a living at this,” Cline said. “Some people say, ‘I want a new kitchen,’ so they start a kitchen fire and have the insurance company pay for the repairs. A lot of people don’t even think of that as fraud. They think, ‘Well, I paid my insurance premium. This is money they owe me.’ It doesn’t work that way.”

Cline said it’s not just consumers, though, who are cheating the system. She and Elam said some insurance agents also get involved in fraud. Sometimes those cases involve writing false or improper policies for clients and then pocketing the money or misusing a client’s premium payment to cover office or personal expenses.

“Some of the cases with agents we have to go through months and months of books,” Cline said. “To mine that information and put that data in a form that we can take to prosecutors takes a lot of time and work.”

Cline and Neal said workers’ compensation fraud still is a problem. And the fraud occurs at all levels from workers to health care providers to employers.

Last month, a West Hamlin business owner pleaded guilty to two counts of workers’ compensation fraud after being indicted in November by a Kanawha County grand jury. During his plea hearing, the business owner admitted to failing to file premium tax reports for the first and second quarters of 2001 and said he owed, among other things, $18,284.19 for unpaid workers’ compensation premiums. The business owner is expected to be sentenced April 16 before Kanawha County Circuit Court Judge Irene C. Berger.

“Workers’ compensation fraud is still a big issue,” Neal said. “From what we’ve seen, it is primarily done by workers and providers but sometimes by employers, too.”

State-By-State

Comparisons

Dennis Jay with the Coalition Against Insurance Fraud said there is still a perception among national experts that West Virginia has a problem with workers’ compensation fraud.

“That seems to be one area where there seems to be a little more fraudulent activity,” Jay said. “But that could be because when (West Virginia) formed the fraud unit they inherited a lot of the workers’ compensation investigations.”

Since West Virginia hasn’t had a fraud investigation unit for long, comparing the state’s investigation, arrest and conviction rate with national trends isn’t easy.

“West Virginia has been a little hard to get our hands around because your fraud division is still young,” said Jay, whose nonprofit group is expected to release a state-by-state comparison of insurance fraud investigation efforts later this year. “It usually takes three to four years of data to really see trends and be able to compare, so this year will be a telling year.”

He said when looking at the number of referrals on a per-capita basis, the state looks to be about average.

Neal agreed.

She said of the six states she oversees — West Virginia, Kentucky, Tennessee, Ohio, Michigan and Indiana — the Mountain State seems to have the lowest incidence rate of insurance fraud. And, she said, it has a low rate or car thefts.

“It’s still a significant problem when you look at it on a per-capita basis, but I’d say West Virginia is in the lower realm,” she said.

Jay said West Virginia comes nowhere close to having the amount of insurance fraud as some of the nation’s more populous states, such as New York, California and Florida. His yet-to-be-completed study shows the fraud units in those states are well-established, fairly hard-hitting and always busy.

Some fraud units in smaller, more rural states also have excellent reputations, he said.

“Utah and Idaho are smaller units, but they are very aggressive,” Jay said.

Other states — Alabama, Illinois, Maine, Michigan, Oregon, Vermont, Wisconsin and Wyoming — have no insurance fraud investigation units at all.

“Tennessee used to have one, but it’s been defunded,” he said.

Neal, Jay and Cline agreed that what the state needs to do now is launch an aggressive education and public outreach program to teach people about the effects of insurance fraud. People need to understand, they said, that the cost of the fraudulent claims isn’t just paid by insurance companies but by everyone.

“The core education is that people need to realize there is a cost to filing bad claims,” she said.

        

• Click to discuss this story with other readers on our forums.