The Claimant Interview & Insurance Fraud

How to Investigate a Claim

The claimant interview is the most important part of a fraud investigation, whether the claim is being made by the insured for loss of property (a first party claim) or for the insured’s liability to another (third party claim). The investigator should, with the permission of the claimant, record the interview and attempt to confirm the truth of all of the representations made in the application for insurance and answer the who, what, why, where, when and how of the claim. The investigator must then cause to be prepared a transcript of the recorded statement, mail or otherwise deliver the transcript to the claimant and ask that the claimant read, correct, and sign the transcript. If state law allows the claimant can be asked to sign the transcript under penalty of perjury or under oath before a notary.

If recorded on audio tape the investigator may request that the insured sign and date the tape after the no-copy plugs are broken out so it cannot be changed or recorded over by accident. No attempt should be made to put the insured under oath while the examination is proceeding because (unless the investigator is a notary) he or she is not authorized to give an oath and, more importantly, because it will place the claimant on guard and reduce the effectiveness of the interview.

Verify Information

The investigator must verify every material fact provided by the claimant or insured. This will include, at a minimum:

  • the residence address;
  • the employment of the insured or claimant;
  • the accuracy of receipts, appraisals, affidavits, medical bills, and gifts.

In first party claims the investigator should visit each and every vendor from whom a receipt, invoice, or estimate has been presented in support of the claim.

When investigating a third party claim, the investigator:

  • visits the scene of the accident,
  • photographs and makes a diagram of the scene,
  • interviews neighbors and businesspeople in the area in order to find independent witnesses.
  • visits the doctor or clinic where a claimant is treated to verify that the facility is a true health care provider and
  • collect, with proper authorization, the medical records.

If investigating a crime against the insured a major auto accident where police responded, or a fire the police or fire-cause investigators must be interviewed in person to learn if any suspects have been identified, arrests made, or property recovered, or if the police investigators have issued any supplemental reports.

The California Supreme Court finds it an act of bad faith to require an examination under oath (EUO) while police investigation is pending and counsels insurers to defer their investigation until the criminal investigation is resolved. If the insured is exonerated criminally, the insurer may complete its investigation. If the insured is convicted, the investigation of the insurer is complete since the fraud is established beyond a reasonable doubt.

However, even if the insured is the target of a criminal investigation of suspected arson, the insured is still required to submit to an EUO. A failure to appear defeats a claim against the insurer.

A network of doctors and medical companies were allegedly involved in a scheme aimed to entice people from across the country to partake in unnecessary medical procedures to bill millions of dollars to the Blue Cross and Blue Shield insurance companies. While some of the defendants faced criminal prosecution, they had not been indicted and requested stays of the civil proceedings on Fifth Amendment grounds. The district court granted the stays without mentioning duration. The Ninth Circuit Court of Appeal sent the case back to the District Court because lengthy and indefinite stays place a plaintiff effectively out of court and there must exist an adequate rationale behind a district court’s decision to grant a stay. It concluded:

Where, as here, a district court does not explain its reasoning, we must remand to that court to reconsider its decision and to set forth its reasons for whatever decision it reaches, so that we can properly exercise our powers of review.

In exercising its discretion on retrial the district court was required to consider the distinctions between the corporate defendants and the individual defendants. The court was also instructed to consider the distinctions between the defendants that have been indicted and those that have not. The district court was also instructed to also consider the lengths of the stays requested by the various defendants and rule on what stay was reasonable in the circumstances.

Even if the insurer catches the insured or claimant in the attempt and refuses to pay the fraudulent part of the claim, the entire policy is void. An insured or claimant who commits fraud in part of his or her claim loses the entire claim and cannot collect for the honest part of his claim because, regardless of size, make the entire policy voidable.

Review All Information

Once all the witnesses have been interviewed and all documents collected and verified, the investigator objectively reviews the information gained to determine whether the claim is legitimate or whether further investigation is required to establish that a fraud is being attempted.

If fraud is still suspected, further investigation techniques, such as surveillance, can be used.

Surveillance

If the initial investigation suggests that a fraudulent claim has been made, surveillance may be useful. Investigators follow or watch the insured, often photographing, filming, or videotaping to establish whether the claim is valid. Most often this technique is used to investigate claims in fraudulent bodily injury and workers’ compensation cases to prove that the insured or claimant is not injured as he or she claims.

As with most investigative techniques, there are risks if the surveillance becomes overly aggressive. Unlimited or unreasonable surveillance may expose the insurer or investigator to a civil suit for invasion of privacy, trespass, or bad faith. An insurer once suspected a claims manager of fraud and set its SIU to follow the manager. The SIU followed too closely and rear-ended the manager’s vehicle. It ended up paying him for the injuries incurred and never found evidence that the manager was involved in fraudulent conduct.

Surveillance, however, should never be used to harass or embarrass the insured. The representatives of the insurer conducting surveillance must never attempt to coerce the insured into a compromise settlement. The following cases explain the danger of over-zealous surveillance and how to properly keep watch over a claimant.

If an investigator goes too far, however, a court might punish the insurer. The test of reasonableness is that stated in Restatement of the Law, Torts, 392, § 867. It is implicit in Souder v. Pendleton Detectives, 88 So. 2d 716, where the cause of action in a similar case was upheld because of allegations suggesting a violation of the Louisiana “Peeping Tom” criminal statutes. In Schultz v. Frankfort Marine Acci. &. Ins. Co., 151 Wis. 537 (139 NW 386), which alleged ‘rough shadowing’ on the part of the detectives for the purpose among others of intimidating the plaintiff from leaving town, the court held that, omitting the alleged acts of trespass and eavesdropping, threats, slander and alleged restraint of the plaintiff’s liberty, the open and repeated acts of surveillance were sufficient of themselves to publicly proclaim the plaintiff suspect and subject him to public disrepute so as to constitute “the analogue of libel.”

This petition does not limit the defendants’ acts to that reasonable and unobtrusive observation which would ordinarily be used to catch one in normal activities unaware, but sets out a course of conduct beyond what would be sufficient for the purpose intended, and certainly one which would disturb an ordinary person without hypersensitive reactions. (Emphasis added.)

Reasonable surveillance is recognized as a common method to obtain evidence to defend a lawsuit. It is only when such surveillance is conducted in a vicious or malicious manner not reasonably limited and designed to obtain information needed for the defense of a lawsuit or deliberately calculated to frighten or torment the plaintiff, that the courts will not countenance it.

Reasonable surveillance is recognized as a common method to obtain evidence to defend a lawsuit. It is only when such surveillance is conducted in a vicious or malicious manner not reasonably limited and designed to obtain information needed for the defense of a lawsuit or deliberately calculated to frighten or torment the plaintiff, that the courts will not countenance it.

This digest was adapted from Barry Zalma’s book, “Insurance Fraud and Weapons to Defeat Fraud” available at http://zalma.com/zalma-books/ and amazon.com.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Books from Full Court Press

Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.

California Insurance Law Deskbook: California has long led the way when it comes to insurance jurisprudence in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended to help law students, practitioners, insurance lawyers, professional claims personnel, insured persons, and anyone else involved in insurance. Similar to Barry Zalma’s general Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California appellate courts, as well as vital explanatory chapters and historical context.

Insurance Bad Faith and Punitive Damages Deskbook: Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person suing an insurance company in the United States could only recover contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insureds to sue insurers for both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

Mr. Zalma’s reports can be found on Tumbler at https://www.tumblr.com/search/bzalma  on Facebook at https://www.facebook.com/barry.zalma and you can follow him on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Share

About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.