Fraud Awareness
Describe material change.
-The insured must promptly report any material change in the risk while the policy is in force. -It is a serious breach of a policy condition -In common-law provinces the contract may be void as to the part of it affected by the change; in QC the entire policy may be voided
Describe misrepresentation.
-The insurer may be entitled to void the contract; treated as if it never existed -To void a policy the misrepresentation must be material - it must affect how an insurer would have judged the risk
What are some premium red flags?
-cash payment made but for only minimum amount required -wants to buy insurance and cost not important -premium payment is late
Discuss coverage-related fraud indicators of particular interest to an adjuster.
-coverage arranged shortly before loss (1 or 2 months) -increased or added shortly before loss -property is heavily over-insured -shortly before policy expiration or cancellation date -many documents were destroyed in the fire except for the insurance policy -duplicate or multiple policies with different brokers -misrepresented or misleading facts in app -extensive claims record -called broker shortly before loss to check coverage
What are some application red flags?
-does not live or work nearby -has an address that is not consistent w/ employment or income -has a PO box as their address -lived at present address less than 6 months -only has a cell number -does not have drivers license or any other id -requires high limits of coverage inconsistent w/ income or lifestyle
What business factors may be signs of a fraudulent claim?
-economic recession -new highway has significantly reduced traffic to insd's retail store -ruthless competition -insd's product no longer competitive -insd wants to get out of business quickly b/c of disputes w/partners, labour probs, health probs, decision to emigrate -insd cannot fulful contracts b/c of -inadequate equip, materials -seasonal business
What are some appraisal report red flags?
-fee was calculated based on the valuation amount (a fee based on a % of the valuation would tempt the appraiser to increase item's value) -limiting conditions & basic assumptions are not stated -appraiser did not physically view or inspect the piece -valuation procedure is not described -valuation method is not stated -an effective date is not stated -the purpose of the statement is not stated
What type of documents requires the insured's permission to be released?
-financial -employment -medial
Financial problems create motive to commit fraud. Name some deceptive practices used to disguise the poor financial condition of a company.
-financial statements cannot be produced -fictitious invoices -sales made after fiscal year included in financial statements to show a stronger financial position -the year-end cut off is manipulated -expenses are understated -many creditors have not been paid -purchase invoices have been suppressed
What can a policyholder do if a claim is not paid within the mandated time period after submission of a proof of loss?
-for fire, payment must be made w/in 60 days after submission of proof of loss -insured has option after this period to launch a lawsuit against the insurer
What are some claimant background red flags?
-has no prior carrier -is new to the broker -is new to the area -is "walk-in" business -is not known to anyone at the brokerage -asks too many questions about claims process -is very knowledgeable about insurance terms or procedures
What are some property inspection red flags?
-housekeeping & cleanliness -storage & disposal of waste -storage of combustible material -obstructions on staircases & corridors -security systems -business operating from a home
What are "red flags"?
-indicators or signals -items of info known about fraudulent situations -are not proof
Why are photographs important to an investigation?
-inexpensive way to combat fraud -may show that no physical damage exists -demonstrate the type and quality of contents
What characteristics associated with receipts would be deemed to be suspicious?
-insd has no receipts or credit card slips -receipts are photocopied, handwritten, from the same store, consecutively numbered, in whole dollars, show no tax or incorrect tax -receipts are presented immediately after loss, very neatly -the store does not carry item on receipt -items stolen were just purchased
What were the details of D'amico v. General Accident Assurance Co. of Canada (1977)?
-insurer denied claim -insurer showed evidence of insd's dire financial situation to support motive; insd was not credible as a witness; and evidence shown to prove opportunity -insd deemed responsible for fire, ordered to repay insr
What are the basic functions of an adjuster?
-investigate -determine policy coverage -negotiate -adjust -settle
What policy timing pattern has been associated with fraudulent claims?
-just after policy inception -after an increase in coverage -just before policy expires
Why would a house that is listed for sale possibly be an arson red flag?
-may be listed with no offers or activity for an extended period -need to sell for money -may need of substantial maintenance
What red flags are associated with medical reports?
-medical report seems to be a template; all reports are very similar -tx for various claimants w/different injuries are the same
List some fire scene indicators.
-multiple points of origin -trailers -odor of flammable liquid, empty fuel containers -an explosion or series of explosions -timing devices near point of origin -contents removed from building prior to fire -signs of tampering w/ gas or sprinkler systems -unusually fast spread of fire -unusual coloured flames were observed -things out of place (ie. propane tank in kitchen)
What are the red flags associated with a wage verification check?
-named employer cannot be easily verified -employers business phone is an answering machine -employer is evasive -employment record is handwritten -claimant will not authorize access to employers records -clmt is self-employed or related to the employer -income is not consistent with occupation wage statement appears altered
Why is polygraph testing controversial?
-no agreement in scientific or legal circles as to the reliability -possibility of "false positives" where someone being truthful can be deemed lying -submitting to a polygraph is entirely voluntary
What factors in the insured's personal life may motivate a crime of arson?
-recently separated or divorced & disputes over property have arisen -alimony or child support obligations -employment probs - strike, layoff, business closing -gambling problem -bank threatening to foreclose on property -high debt load -other criminal activities (ie. extortion or drugs)
What red flags regarding lawyers?
-repeatedly associated with dubious or questionable claimants -lawsuit launched same day that person was injured -lawyer and doctor have paired up consistently -extensive legal action undertaken
What is a public adjuster?
-represent insureds for a fee (usually a % of the insureds settlement which may inflate claim) -subject to same licensing requirements as independent adjusters except they are restricted to certain types of claims
Why is it important to review claims history when a policy is being renewed?
-some ppl make a living through insurance fraud -u/w should review if claims rate is higher than average or if there is a pattern of claiming on multiple policies
What kinds of questions may arise regarding inventory?
-the inventory is obsolete -the inventory is over-valued -large stock purchases made in cash just before claim -new & better products available at comparable cost -low rate of turnover for inventory
What is a trailer?
-the link intentionally established to distribute fire from one area to another -elongated burn patterns may be visible afterwards between burn areas showing that a trailer was used -any type of ignitible material may be used as a trailer
What is a burn pattern?
-the shape of the charred areas -depending on the shape \/ or /\ could be normal or chemical burn
Define kinesiology.
-the study of human movement -multi-disciplinary science involving: anatomy, biomechanics, physiology, and psychomotor behaviour
What do independent adjusters require to legally operate?
-they are subject to provincial legislative -requirements -must be licensed to operate -completion of a number of Insurance -Institute of Canada courses oral examination
Define forensic.
-used with or connected to a court of law forensic experts must be prepared to -appear in court as witnesses
What are the 2 main categories of evidence that may be presented at trial?
1) Direct evidence: proves the fact w/out the need to infer or make presumptions (ie. a witness saw an arsonist) 2) Circumstantial evidence: based on making inferences from connected facts (ie. insd in financial trouble, only he had shop key, moved pets to another location prior)
What are the three purposes of the Canadian Coalition Against Insurance Fraud?
1. To coordinate efforts, share resources, and make efforts more effective 2. Formed as a framework to reduce and control insurance fraud 3. Created by the Canadian Task Force on Insurance Fraud
What are 7 red flags common to all types of claims?
1. clmt presses too strongly for quick settlement 2. too familiar w/ insurance terms & claims process 3. going through financial problems 4. willing to accept low settlement to avoid providing documentation 5. called the broker just before the loss to confirm coverage 6. was separated or divorced shortly before the loss 7. claims for very expensive items inconsistent w/their lifestyle or cash flow
What 3 key elements must evidence of a defense against arson show?
1. fire was set 2. insd had motive to set fire 3. insd had opportunity to set fire
How are premiums affected by fraud?
The cost of fraudulent claims are passed on to all insurance consumers as a component of premiums.
What parties are generally involved in a liability claim?
Third parties
What might a vee burn pattern indicate? an inverted vee pattern?
\/ = normal burn w/out accelerants /\ = usually chemicals used to accelerate fire Irregular burn patterns may also suggest that a chemical was used
Where are 'planned' accidents typically staged?
public places, such a mall, restaurant, store or supermarket
Define insurance fraud.
Any act or omission with a view to illegally obtaining an insurance benefit
Who is involved in insurance fraud?
1. TP claimants 2. Insureds 3. Agent or brokers 4. Insurance company staff 5. Service suppliers
What does a typical non-waiver agreement include?
"it is agreed that the insurer may investigate circumstances of the claim, carry on negotiations, make a settlement, defend any actions brought against insured or insurer without prejudice"
What areas should be considered when reviewing renewals?
- economic downturn in the neighbourhood or insured's class of business - major personal changes such as divorce or job loss - policy has been cancelled several times for non-payment of premium - number of claims is higher than average - an increase in limits is requested - insurance is taken out on items that in the past did not warrant insurance
How may insurers possibly expose themselves to a bad faith claim?
- fail to properly investigate the event - intentionally offer an amount that is substantially & - drastically lower than would be considered reasonable - fail to settle in a reasonable period of time - unreasonably denying the claim - bringing unfounded allegations against an insured in a self-interested and callous manner - ignore plaintiff's evidence that adequately responds to issues in dispute Avoid bad faith lawsuits by: - treat insd's fairly & w/ dignity - conduct thorough investigation before taking action - consider any alternative methods to handle the claim - reassess positions as new evidence becomes available
What does the criminal code item that concerns arson for fraud cover?
-Arson is a crime against society -Disregard for human life: up to life in prison -Damage to property: up to 14 yrs -Own property: up to 14 yrs -For fraud purposes: up to 10 yrs -Negligence: up to 5 yrs -Possession of incendiary material: up to 5 yrs -Prevention Non-compliance: inferred by court -Insurance policy: inferred by court
Where are the 2 main areas in which good faith and bad faith claims arise?
-Disclosure by an insured when applying for insurance -Handling of claims
What are some other consumer attitude factors that contribute to fraud?
-Divergent attitudes -Age, gender and level of education also affect how people perceive things -Rising culture trend in N. America - loss of core values - "me" generation preoccupied with material values -Some consumers want tangible economic returns for their "investment" -Psychological justification; some think it's ok to increase amount of the claim to make up for premiums paid
Discuss aspects of establishing motive in an arson fraud.
-Financial problems (business & inventory indicators) -Opportunity (insd has only key to premises -Credibility of Witnesses
Describe termination
-Important distinction between a voided policy and a cancelled policy. -Only part of the premium (a pro rata amount) is returned to the insd when policy is cancelled. -The entire premium must be returned when policy is voided ab initio (from the beginning)
What are some red flags that underwriters must take note of?
-Moral hazards: insd's character -Morale hazards: careless attitudes towards security & loss prevention -Type of risk more susceptible - ie. large public company less risk of arson than small business w/owner as only employee -Loss history - u/w should verify by calling previous insurer -Numbered company
What was decided about access in Regina v. Ouida (1996)?
-Ontario fire marshal needed a search warrant to enter the scene b/c it was believed that the owner was engaged in arson. A search warrant was not obtained and as a result, incriminating items discovered were not admitted into evidence. -The law provides that process is important when evidence is gathered - the ends do not justify the means -The rights of private citizens must be protected whether or not fraud is suspected
What are some red flags associated with injury claims?
-Witness is very eager to provide info to help clmt -Property does not appear to be recently damaged or is inconsistent w/ the accident -injury is difficult to measure as only subjective complaints are raised -medial tx appears inappropriate or excessive -out-of-pocket expenses were not incurred even though the injury claimed is a serious one -the recovery period is unusually long for the type of injury claimed
What is a reservation of rights letter?
-a unilateral notice by the insurer asserting that it is preserving its options and waiving none of its rights -does not bind the insured or acknowledge coverage -confirms that all rights will be retained under the policy while claim is investigated -could also draw attention to insurd's duties and obligations -if insured refuses to sign the non-waiver agreement, this letter may be sent
Define aggravated damages
-aim to compensate -take full account of intangible injuries (such as distress, loss of dignity, and humiliation caused by the defendant's behaviour)
What are some financial red flags?
-applicant is deeply in debt -significant decreasing sales -significant decreasing profits -prior bankruptcy
What are some contact pattern red flags?
-applicant is never available to meet - only deals by phone -comes in at noon, at end of day, or on a Friday when staff may be rushed -is in a hurry to complete the app and interview -has never been insured before
What are some automobile red flags?
-applicant's income inconsistent w/ value of vehicle -applicant has not owned a vehicle for a while -age of applicant suggest that he likely owned a car before -no previous insurance carrier -full coverage requested for older car -older vehicle reported to have no existing damage
Describe the formal appraisal process for a claim.
-appraisals can be done by either the insurer or insured -the dispute is settled when the 2 appraisers agree with eachother, or when the umpire agrees w/ one of the appraisers
Why are statements useful?
-are a valuable and permanent record of an individual's recollection at a time when the incident is still fresh in the mind -can be used to damage credibility of the statement giver should any inconsistencies arise in the testimony -a person may refuse to sign a statement
Define punitive (or exemplary) damages.
-are meant to punish the defendant -when conduct is high-handed, oppressive, outrageous, wanton, or evil w/ malice towards the plaintiff
What are some location red flags?
-area has newer more attractive retail space available (building is in danger of losing income potential & arson-for-profit) -is isolated -not located close to a fire station -served by a volunteer or a part-time fire dept
What are some business operation red flags?
-business is less than fully active -has seasonal operations -has areas that are open to traffic but should be closed to the public -has a high staff turnover rate -has employee disputes over working conditions
What are 8 useful points to remember about the interview process?
1) Plan: know the file, prepare a checklist to be done 2) Listen: do not interrupt, let clmt ramble or vent 3) Do not use threatening language or gestures 4) Maintain composure: don't get upset, even if they are lying 5) Ask one question at a time: don't confuse them; wait for answer 6) Evaluate body language: a person in distress shows it 7) Ask for an explanation: if the answer is not clear; don't worry about looking foolish 8) Make notes: show them your notes after the interview, permit them to make initialed changes
Give 10 examples of types of experts.
1) origin & cause specialists 2) appraisers 3) electrical, mechanical or chemical engineers 4) accident reconstruction specialists 5) investigative specialists 6) surveillance specialists 7) photographers 8) doctors 9) accountants 10) lawyers
What are the 3 stages to a polygraph test?
1) pre-test interview 2) collection of data 3) analysis of data
What are 4 things/items that are considered privileged?
1. Communication between solicitor & insured 2. Settlement negotiations 3. Evidence collected for litigation 4. Reports from the ICPB (Insurance Crime Prevention Bureau)
For what type of activity would experts be hired? Name 5 main areas.
1. Determine how accident occurred 2. Preserve objects related to the event 3. Perform testing on objects 4. Produce or analyze medical reports 5. Conduct surveillance & interpret results
What are the effects of fraud?
1. Economic loss to individuals & their families through direct physical damage. 2. Economic loss to the community (Resources such as fire policy and ambulance are used unnecessarily) 3. Opportunities to do business are lost 4. Death and physical injury to the public. (Innocent victims, fire fighters, policy paramedics) 5. Consumers must pay higher premiums 6. Emotional and psychological effects
What are the 2 general categories used to classify fraud?
1. Opportunistic fraud: some form of dishonesty on a claim that has legitimately occurred (ie. exaggerate the amount claimed or claim for things that do not exist) 2. Planned fraud: fabricating a claim for the purpose of defrauding an insurer (ie. inventing a claim, arson, staged motor vehicle accident)
What 2 central techniques are used to control risk of fraud?
1. Prevent 2. Reduce
What are the 4 consumer attitudes?
1. REALISTS: low tolerance for fraud but realize it occurs; do not want strong punishment 2. CONFORMISTS: tolerant b/c they think many ppl do it; want moderate punishment 3. MORALISTS: least tolerance, no excuses, want severe punishment 4. CRITICS: very high tolerance, blame the ins industry b/c they think they are unfair, want little or no punishment
What are 6 types of evidence?
1. Sworn statements - most common 2. Expert evidence 3. Testimony given under oath - by witness 4. Documents - contracts, deeds, etc 5. Experiments - judge decides if allowable 6. Real evidence - photos, videos, physical objects
13 smaller techniques for combating fraud.
1. promoting fraud awareness in media 2. teamwork (insurers, brokers, adjusters, experts, lawyers, police, fire, courts, public, etc) 3. communication skills (be respectful & polite; delays may cause insd to seek "revenge" on insr) 4. consumer hotlines (Crime Stoppers) 5. detection strategies (red flags) 6. reward good customers (lower premiums) 7. train agents, adjusters, u/w's to investigate 8. verify info 9. data banks (created & shared) 10. evaluate service providers & experts 11. analyze scope & cost of repairs or treatments (only repairs or tx relevant to the claim to be paid) 12. security systems & practice 13. penalties for fraud (must be appropriate)
What role does a deductible play in reducing fraud?
A large deductible is an effective method of having insured maintain care for the property
What provides protection to an insurer w/out prejudicing its rights?
A non-waiver agreement permits adjuster to maintain contact w/ insd throughout the investigation without fear of creating an estoppel
What is an interrogation?
An investigative interview where the known facts are matched to a particular suspect for the purposes of obtaining a confession.
Define phantom vehicles
Do not exist or are already wrecked
What key tool is used raise awareness about fraud?
Education by providing information. Insurers must set up proper business practices to eliminate the opportunities.
Difference between Good Faith vs. Utmost Good Faith?
Good Faith: State of mind, fairness, fair conduct, reasonableness, decent behaviour Utmost Good Faith: legal principle that defines the standard of conduct involving insurance policy transactions. Carter v. Boehm (1766) acknowledged insurer's vulnerable position.
What are the insured's obligations to notify the police after a loss in QC?
Insured is required to promptly give notice to the police of any loss caused by criminal act. Requiring insureds to report crimes to police may deter insurance crime.
What difficulties may arise when the insured is a friend of the TP claimant?
Insured may be sympathetic and therefore tempted to enhance a TP's claim by accepting responsibility for the accident.
What may a judge order when sentencing an insured on an arson conviction?
May order the accused to make restitution (repay the insurance money to the insurer)
What type of business has the greatest risk?
New business
What right of access does the adjuster have to property?
Policy stat conditions allow access to the property but do not allow the insurer to exercise any control over the property
Define fiduciary duty.
Position of special trust & confidence that one who holds funds or items of value for another; impliesa strong duty of responsibility on behalf of the holder.
What type of symptoms are easy for a fraudster to feign?
Psychological, ie. major depressive disorder, post-traumatic stress disorder
Labelle v. Guardian
Punitive damages awarded to insured - refusal to believe insured
What does spoliation of evidence mean?
Refers to its destruction
Explain how fraud claims may arise out of a disaster.
The # of ppl involved in a disaster provides a screen for the fraudster who hopes that individual claims will not be looked at too closely.
If an arson fire is suspected who will the fire dept call to investigate the cause of fire?
The Fire Marshal's Office (FMO)
CE Heath v. Grey
Underwriters are subject to standard of utmost good faith
Carter v. Boehm
Utmost good faith expanded to acknowledge the insurer's vulnerable position
Difference between waiver vs. estoppel.
Waiver: the voluntary or intentional relinquishment of a known right; can be inferred through conduct (ie. an insurer knows certain facts that would deny insurance but continues to treat policy as though it is in force, cannot later avoid liability) Estoppel: principle where one part is not permitted to renege on its position when an innocent third party has relied on it. (ie. if an adjuster leads an insured to believe that a claim will be paid, estoppel prevents denial of coverage at some later date)
Why must insurers and brokers carefully evaluate any requests for increases in coverage?
When an insured requests increases in coverage or lowered deductibles for no apparent reason question whether loss has already occurred or is being planned.
How can economic conditions affect insurance fraud?
When policyholders are thriving economically, it is assumed that the risk of insurance fraud is low. Overall economic conditions in the country are significant The specific industry that the insd is in may be going through turbulence (ie. business needs new equipment but needs capital)
How would you complain formally about a medical doctor?
applicable colleges administer a public complaints process; legislated by province;
What is the special focus of liability claims investigation?
the insured & claimants, witnesses, statements, scene photographs, weather conditions
Why is surveillance important?
to establish how active the claimant is and provide evidence that the claimant has full range of movement
