Fraudulent Workers' Comp Claims: Building a Case for Criminal Prosecution
By RANNEY PAGELER, vice president of the Fraud Investigations Department at workers' comp insurer EMPLOYERS
Fraudulent workers' compensation claims remain one of the insurance industry's biggest problems. To illustrate, the California Insurance Department's 2008 annual report identified and reported 4,973 suspected fraudulent workers' compensation claims during the 2007-2008 fiscal year alone. Out of the 1,319 cases of workers' compensation fraud that the California Fraud Division is investigating, 714 of the cases are for claimant fraud.
When discussing workers' compensation insurance
claims fraud, there are many reasons to stick to the criminal definition as defined in various workers' compensation fraud statutes. The elements of criminal workers' compensation fraud statutes are basic and forthright. Simply put, someone who "knowingly makes a material representation (a lie) in order to obtain a workers' compensation benefit" has violated the criminal statute, exposing themselves to potential criminal prosecution. Investigating a case of criminal workers' compensation claims fraud is no different than investigating any other property crime such as burglary, robbery, theft or embezzlement.
Law enforcement and prosecutorial resources exist in many states to investigate and prosecute workers' compensation and/or general insurance fraud. Most of these programs are already funded by insurance policy assessments. In areas where these resources are not available, workers' compensation fraud cases can be referred to local law enforcement agencies utilizing various "theft by trick, device or false pretense," or other general larceny and theft statutes.
Once insurance companies and/or agents have identified potential cases of workers' compensation claims fraud, they must begin the process of investigating the case in order to ultimately seek criminal prosecution.
BUILDING THE CASE
While investigating a potential fraudulent claim, investigators must look for material misrepresentations, and the first step is to document the claimant's "statements" or "representations." Investigators can achieve this documentation through notes, claims forms, deposition/testimony, telephone messages, hospital records and recorded statements made by the claimant to the claims examiner, a medical provider, a vocational rehabilitation counselor, co-workers, or neighbors or family members.
The next step is to document that the claimant's statements or representations are in fact misrepresentations. This can be accomplished through video, employment records, ISO or other public information records, witness testimony and Social Security records. It is important to note that material omissions are considered material misrepresentations.
The last step in building a fraud case against a claimant is to determine the total workers' compensation benefits the claimant would have received because of their misrepresentation. This information can be provided by an experienced claims examiner, a treating physician or anyone else who makes a "determination" based upon the claimant's representations.
One of the most effective ways to document a claimant's misrepresentation is through the use of surveillance evidence. Surveillance video should be coordinated with events in a claim that afford an opportunity to obtain statements from the claimant that, if untruthful, can be refuted by the video evidence.
In every case, the timing of the surveillance is critical. However, this widely used investigative tool is often ineffectively utilized, resulting in wonderful video of the claimant "shooting hoops" but having no relevance in documenting a lie. Additionally, surveillance investigations are expensive and its use is restricted in many jurisdictions, such as in the state of California.
In a recent Nevada claim, the claimant sought permanent and total disability benefits based on a representation that she hurt her back, shoulders, legs and hips while lifting paint cans. The claimant informed her physician that she could not drive, stand or sit for more than two minutes or lift more than five pounds. Based on her presentation and existing medical records, the physician opined that the claimant was permanently and totally disabled.
However, surveillance video proved otherwise. It showed the claimant performing all the activities in public that she had told the physician she was physically unable to do. Video also depicted her arriving at the doctor's office, followed by a sudden onset of "physical incapacitation."
When shown the surveillance video evidence, the physician drastically changed his opinion in a second report, and the claimant was later convicted of workers' compensation fraud. The claimant received a criminal sentence and forfeited all future workers' compensation benefits.
There are other low cost alternatives to using surveillance video, including field investigations such as activity checks or neighborhood canvases. These field investigations include contacting neighbors and observing the claimant's living conditions for signs of activities beyond the claimant's alleged limitations.
If a claimant is observed actively exceeding their representations of physical disability, video can be recorded. If it is discovered the claimant has been seen by neighbors leaving and returning home at fixed hours, other investigative resources can be directed to investigating the possibility that a claimant is potentially working while collecting benefits.
GETTING THE LAW INVOLVED
A case of suspected workers' compensation fraud should be referred to the appropriate law enforcement or prosecutorial agency in a format these agencies use for all criminal investigations. The report should provide the contact information for the carrier, investigator and suspect, as well as a synopsis of events and overt acts, and a detailed timeline including a narrative of the investigation.
The timeline narrative should include a list of all relevant events, witnesses and their potential testimony, and a complete list of the evidence. The report package should also address the issue of the statute of limitations (time allowed following the discovery of the fraud until a criminal complaint must be filed) and the issue of venue (identifying the jurisdictions where the criminal case can actually be prosecuted).
Pursuing suspected workers' compensation claims fraud through the criminal justice system has several major benefits. Similar to reporting a burglary or vehicle theft, the cost of the criminal investigation and prosecution is not born by the victim because government resources are utilized.
Additionally, many jurisdictions have statutes that make the fraudulent portion of the claim, or even the entire claim, "go away" upon criminal conviction. The media attention that can be generated in such cases also helps educate employers about how they can protect their businesses and serves as a deterrent to any would-be fraudulent claimants.
Workers' compensation claims fraud continues to be a problem for both the insurance industry and for the local business community. With the government and prosecutorial resources available to insurance companies and agents, it has become easier to create a case against a claimant for a fraudulent claim and help deter future fraudulent claims from being filed.
November 1, 2009
Copyright 2009© LRP Publications