The fraud squad
by admin on Jun.30, 2010, under Car insurance
MAKING THEM PAY: As the insurance fraud sector chief in the state attorney general’s office, Tom McCormick has the job of convincing judges and juries that a person who commits insurance fraud is a real criminal deserving of a real punishment.
While serving with American forces trying to stabilize post-Saddam Iraq, Tom McCormick prosecuted nearly 400 cases in that nation’s central criminal court against insurgents suspected of attacking U.S. or coalition personnel. His best-known case is the prosecution of an Iraqi family accused of ambushing and killing a group of U.S. Marine Corps snipers and then trying to move the bodies in a taxi.
These days, however, McCormick is the insurance fraud sector chief for Louisiana Attorney General Buddy Caldwell’s office, and part of his job is convincing judges and juries that a person who commits insurance fraud is a real criminal deserving of a real punishment. Because insurance companies are not readily considered sympathetic victims, a juror who is happy to see a purse-snatcher locked up might be inclined to go easy on someone guilty of thousands of dollars in false claims.
“You have to be able to explain why the impact is what it is, and who pays for that fraud if we let this person off,” he says. The answer to “Who pays?” is “everybody else who has insurance.”
Insurance fraud is the second-most costly white-collar crime behind tax evasion. Fraud makes up between 3% and 10% of the insurance industry’s losses, the costs of which the industry passes on to individuals and businesses that buy insurance. In Louisiana, fraud has an estimated annual price tag of about $2 billion.
The crime can be as mundane as an applicant lying about his or her driving record when buying auto insurance or as complex as a 20-person ring that stages car crashes. In 2000, the state established an official insurance fraud task force with representatives from the attorney general’s office, Louisiana State Police and the Department of Insurance. Fraud is “a significant driver of the cost of insurance,” Insurance Commissioner Jim Donelon says.
Louisiana’s high auto insurance rates, for example, are partly attributable to people’s falsely claiming injuries after accidents, he says. The costs of worker’s compensation, property and casualty, and health insurance are inflated by fraud, and Donelon’s department and State Police routinely advertise on billboards to emphasize the seriousness of the crime and encourage people to report fraud.
For Donelon’s department, a big part of the job is cracking down on agents who steal premiums from unwitting consumers by taking payments without buying policies—what Donelon says is often a misguided attempt to rob Peter to pay Paul and shore up the agent’s personal finances.
As a legislator, Donelon chaired the state House of Representatives’ insurance committee. He remembers meeting with representatives of the auto insurance industry who produced a chart showing that the rate of litigation following accidents closely tracked the unemployment rate.
“As the economy gets tougher on folks,” Donelon says, “they’re more prone to try to cash in on the opportunity presented by a minor automobile accident.”
In 2008, there were 1,423 suspected fraud reports to the department, says Paul Boudreaux, who directs the department’s insurance fraud section. In 2009, there were 1,970. Through May 2010, the department already had received 1,095 reports, putting it well on pace to break 2,000 before the end of the year.
Monetary crimes tend to increase when the economy is down, says Sgt. Markus Smith, a State Police spokesman who has worked with its fraud unit. A person who never would consider knocking over a convenience store might fake a slip-and-fall accident at a department or grocery store.
“It really amazes you, the lengths people go to,” he says, noting that forgery and theft charges often go along with insurance fraud. Smith has seen networks involving several dozen people, including attorneys, doctors, chiropractors and runners, who go into hospitals and solicit accident victims. Participants exaggerate claims, and everybody receives a kickback. Such cases can involve thousands if not millions of dollars. On the less sophisticated end is the person who mocks up a fake insurance card on his home computer.
“Some of them are almost as good as the real thing,” Smith says, “and some of them look like an 8-year-old made it.”
Boudreaux has six fraud investigators, which doesn’t sound like much for the entire state. He had eight investigators last year, but two left and weren’t replaced because of budget cuts.
“We don’t have a backlog,” he says. “You could say we’re treading water, but we get our work done.”
McCormick’s office has five attorneys. The local district attorney typically has original jurisdiction, although they’re often happy to hand off a case. Insurance fraud isn’t always a priority for local law enforcement, and prosecuting such cases can be politically touchy, depending on who’s involved.
“If we had more investigators, I guarantee they wouldn’t go unused,” McCormick says. “Our task force is doing a pretty good job with the resources that we do have. … We could always be doing more.”
He says the public also could be doing more. People often know of potential insurance fraud, but they don’t want to become involved. Perhaps they don’t want to feel like a snitch, or they fear reprisal, though Boudreaux says reports are confidential.
As a prosecutor, McCormick is frustrated that some jurisdictions don’t take insurance fraud as seriously as he does; East Baton Rouge Parish, where more than half of his cases are tried, is pretty tough, he says.
“Sometimes you might not get the particular end result that you thought would be necessary,” he says. “But you have to take it in stride and remember you have 975 other cases that you might be able to make an impact on.”
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