Every insurance company worries about fraud in a post-catastrophe situation, whether it is paying for a previously damaged roof or an automobile that was not in a flood zone. But how can adjusters and investigators not only analyze for fraud but also ensure that claims are investigated and paid within the required state statutes—all while claimants’ lives have been sometimes literally turned upside down?
Here are several scenarios that adjusters and investigators face in catastrophe situations and strategies for helping them achieve some success in the fight against fraud.
Pre-Planning Strategies
Many insureds believe that after a catastrophe, the sheer volume of claims means that an insurance company will not investigate their particular fraudulent claim. SIU and claims adjusters can counter that belief by employing several strategies.
Communication with policyholders is key when working to cork the fraud genie in the bottle. Immediately notify the policyholder of the company’s policies regarding the investigation of a claim. Let them know that each claim is examined individually before being processed and that any instances of fraud will have detrimental effects on the payout and perhaps result in fines, penalties, and jail time.
It is also important to photograph the entire premises, even if all rooms are not damaged. This ensures that if supplemental claims are made, the adjuster or investigator has proof of the original conditions and will not have to worry about spoliation issues. Policyholders should be informed that photographing the entire house is done to ensure that nothing is missed and to expedite the payment process.
It’s also important to document all roofs and ceilings “top to down” for water. Make a complete list of items in each room and ask the insured to sign the list, including the values of the items. Make sure that prior damage that has already been paid for has been repaired. Compare old photographs from previous files and prior insurers to the new claim.
Ask for identification when meeting the claimants at the house inspection. The owners of the property have the insurable interest in the property. Investigation in one case revealed that the owner/named insured had passed away three years before the hurricane; it was his live-in partner who filed the claim on behalf of the damaged property. Research found the named insured’s obituary.
Many times, you may receive estimates for repair from the insured that appear to be very high. On several occasions, insureds have provided false documents to their insurance company that they had received from a legitimate contractor and later altered themselves. In one case, investigation revealed that the “$5300” loss estimate was later changed by the insured, who added a zero to make it read “$53000.” In order to forestall such an opportunity for deceit, request estimates directly from the contractors.
Publicly advise insureds of the best contact numbers or websites to use to report and monitor claims. Obtain as many telephone numbers, addresses (including email), and other forms of contact information as you can from the insured. Significant delays in following up or inspecting the property provide ample time for less-than-honest insureds to create fraudulent claims. Even though insurance representatives will make multiple attempts to reach them, insureds may blame the representatives if contact is not made, which can lead to allegations of bad faith.
Drawing the Flood Line
Many suspicious claims arise because insureds without flood insurance will try to turn a water claim into a wind claim. Experience has shown that after many flood claim denials, the insured property suffers another loss, such as arson, vandalization, or theft.
Confirm the alleged areas of flooding for homes and automobiles by using satellite imagery, which also can confirm roof damages caused by the storm compared to man-made roof damage that may arise several weeks later.
In one case, hurricane claimants alleged that the wind vanes and attic fans were knocked off because of a hurricane, and that the business sustained significant top to bottom rain and wind damage. Satellite imagery showed the roof of the business in which the entire wind vanes and “whirly birds” were present at the time the hurricane passed the state and several days thereafter. The satellite imagery confirmed that it was not until three weeks later that the wind vanes went missing, thus refuting the claim that the particular roof damage was caused by a hurricane.
Many times, an insured will claim that an automobile has been damaged during a flood event. For instance, in one case, satellite imagery showed a vehicle in a non-flooded area at the time of the highest watermark for flooding after a hurricane. Later investigation revealed that the water in the vehicle appeared to have been “treated” instead of consisting of “black” water. Additionally, the top carpeting was wet, but the cushion underneath was significantly drier. Experts, in a complete investigation, also found that there was no water line throughout the entire vehicle, which normally occurs in a flood.
Also, take the example of an insured who claimed that a storm surge swept her entire personal contents from the house out the back door. It was impossible, however, for the contents to fit through the back door. The insured was notified that there was no flood coverage on the residence or its contents. The insured later amended her claim, alleging that the personal property must have been stolen. An investigation, which included speaking with neighbors, confirmed that a large U-Haul truck was backed up to the residence twice and the personal property was removed from the premises prior to the storm surge and hurricane-force winds.
Toll tag and cell-phone tower records can be useful in proving fraud. One insured claimed that his vehicle was stolen when he evacuated for a hurricane and drove to Atlanta. The vehicle was subsequently totaled when the driver hit a telephone pole. DNA evidence from the blood samples and epithelial cells taken from the airbag confirmed that the driver was, in fact, the named insured.
Talking to neighbors can be a very effective way to verify an insured’s information. For example, one claimant was renovating a home with a builder’s risk policy. She alleged that her vinyl siding and windows were blown out by a hurricane. However, an investigator obtained a photograph from a neighbor that showed the windows and siding placed in the dumpster before the hurricane hit.
Public Perception
Insurers should attempt to educate the public on how insurance fraud affects them and encourage them to notify the insurers and the proper authorities. Good public perception of the insurance company helps if litigation results from a denied claim. It also helps to make claims representatives very visible.
Be aware of public perception and jury perception regarding insurers and their tolerance toward hard fraud versus soft fraud. Almost all jurors have friends who have been affected by a catastrophe and are less tolerant of insurance companies in general or insureds creating fraudulent claims.
Be wary of storm chasers who flock into an area for quick money. One such scenario arose after a claim was denied because it was determined that the majority of the damage was not hurricane related. Unhappy with this decision, the insured hired a public adjuster. A subsequent inspection of the premises revealed roof damage not previously present at the initial inspection. Plaintiff’s adjuster and hired attorney were both from outside the insured’s living area and were working together. Again, documenting the entire premises at the outset is key to deterring manufactured claims.
No matter what fraudulent claims may be filed, claimants attorneys will seek to discredit insurers to influence potential jurors. Encourage publicity regarding fraud arrests by referring criminal fraud for prosecution.
James W. Hailey III is a partner at the CLM member firm of Deutsch Kerrigan & Stiles, and founding secretary of the Southeast Louisiana Chapter. He is a member of the Insurance Fraud Committee and acts as an adjuster-training chair. He can be reached at jhailey@dkslaw.com, www.dkslaw.com.