Menacing cars packed with passengers trolled neighborhoods around Queens, N.Y, hunting for innocent drivers who were just minding their own business. The passengers were paid about $1,000 apiece to pretend they were hurt so larcenous medical clinics could pepper insurers with fake injury claims. That’s the contention of prosecutors who have arrested at least 61 suspected members of a sprawling staged-accident ring that allegedly bilked New York auto insurers out of $1.6 million.
Staged-accident gangs like these have for years been ripping off insurers in many of the 12 states that require or offer no-fault auto coverage. Through trial and error, these loosely organized crime rings have learned how to effectively exploit loopholes and soft spots in the system. They are backed by crooked medical providers, lawyers and recruiters who mass-produce fake claims for phony crash injuries that steal thousands of dollars of insurance money at a time.
These rings operate mainly in urban areas and try to lure primarily lower-income immigrants to act as fake passengers in setup crashes. Sham medical clinics are erected in the operational locale, serving as hubs for bogus medical treatment.
There’s no single template for a fraudulent accident. Some gangs stage crashes with each other’s cars, while some maneuver innocent motorists into wrecks, make injury claims for accidents that happened only on paper, or try to recruit victims of real crashes for bogus treatment.
Fabricated injuries nearly always involve supposed soft-tissue trauma, such as whiplash. Diagnosing aching necks and backs—unlike cuts and broken bones—involves subjective medical judgment. Thus, insurers can have a hard time successfully challenging suspicious soft-tissue claims in the face of the no-fault dictum that reasonable claims must be paid.
Nobody knows exactly how much no-fault insurance money is stolen each year—thefts likely total hundreds of millions of dollars or more. Overall, about 20% of no-fault claim costs stem from fraud and abuse, says the Insurance Information Institute (I.I.I.) in an analysis of fraud in the system. The average no-fault claim soared nearly 60% to $8,862 between 2004 and 2009. Florida and New York led the nation in questionable claims involving staged accidents between 2007 and 2009, says the National Insurance Crime Bureau (NICB). The top four cities for questionable claims are located in no-fault states—New York City, Tampa, Miami and Orlando.
Profile: FloridaIn Florida, the Miami-Dade-Broward area has been the state's traditional locus of staged-crash rings. But illustrating their growing grip in the state, rings recently have increased operations upstate in cities such as Tampa, St. Petersburg, Jacksonville and Fort Myers.
Overall, no-fault arrests totaled 40% of the state fraud unit's busts in FY 2008/2009. Convictions formed more than a third of the load, that agency reports.
Hispanic, Caribbean and other immigrants play a large role in the fraud as fake victims as well as recruiters. Lawyers in league with the crash rings sue insurers over disputed claims, hoping to force large settlements. Large legal fees also are an incentive. Lawyers often file suits for unusually small amounts, just a few dollars. Some small-dollar suits involve legitimate crash injuries; the actions are abusive fee grabs but don't stem from no-fault cons. However, many low-dollar suits stem from bogus injuries involving sham clinics.
The legislature has passed varied anti-fraud laws to support the fraud bureau, law enforcement and insurers, including:
- Making it a specific crime to solicit crash victims and stage accidents as part of no-fault cons, and to present false auto insurance cards
- Stiffening penalties for auto-related crimes
- Increasing the mandatory minimum penalty for taking part in a setup no-fault crash
- Creating a reward program
- Funding more prosecutors and investigators.
Still, Florida has only seven prosecutors assigned to no-fault cases in court, which places the voluminous crash rings at an advantage. The fraud bureau also struggles for the budget and investigators to keep pace with the steadily expanding problem.
A fraud bill (H.B. 1447) that died this year could form a useful platform for a legislative push in 2011:
- Make it an act of insurance fraud to falsify information on the licenses of clinics that treat accident victims;
- Allow insurers to withhold payment of suspicious claims to investigate further; and
- Fund more fraud prosecutors for areas of Florida not currently staffed.
Regulations requiring that clinics must be licensed, owned and operated by doctors also must be tightened. Typically, swindlers are the actual owners of scam no-fault clinics, but they pay shady doctors to be paper owners in order to sidestep state rules.
Profile: New YorkIn New York, the average personal injury protection claim soared nearly 55% between 2004 and 2009. This far outstrips the combined 24.8% growth of claims in all other no-fault states, says PCI. Additionally, reports of suspected cons to the state fraud bureau grew by nearly a third between 2006 and 2009 after dropping for about five years, according to the Insurance Information Institute.
Most of the action comes in the densely populated New York City area, where diverse ethnic communities provide a steady supply of manpower to staged-accident rings. The Coalition Against Insurance Fraud and other fraud fighters support a solid list of reforms in the state, including:
- Making it a specific felony to hire recruiters (also called "runners") or to be a recruiter for staged-accident gangs. Penalties would be strong. A bill already in the state Senate (S.B. 1335) provides one workable vehicle.
- Allowing insurers to defend against fraudulent or abusive injury-treatment claims when they pay no-fault claims beyond 30 days of receipt. New York now requires payment within 30 days of receiving a claim, thus encouraging crooks to flood insurers with claims. But a notorious court decision (Presbyterian Hospital v. Maryland Casualty) forbids insurers to deny claims or assert any court defense if they pay after 30 days while investigating.
- Making it a specific crime to stage accidents (S.B. 6450).
- Strengthening current laws decertifying medical providers who are convicted of fraud (S.B. 3552).
Why No-Fault States Are So Attractive
The no-fault system was designed to simplify claims, speed medical payments, free up the courts and reduce often-high litigation costs. If policyholders are involved in an accident, their own insurers must promptly pay reasonable and necessary medical expenses plus lost wages of injured occupants of the crashed vehicle, no matter who causes the crash.
The insurer pays up to a dollar limit that varies with each no-fault state under the personal injury protection (PIP) portion of no-fault policies. Depending on the no-fault state, injured motorists generally can sue the negligent driver only if their medical bills exceed a certain dollar amount (called a monetary threshold) or if their injuries are severe enough (verbal threshold). In return for giving up some lawsuit rights, drivers are supposed to receive fast payment of their most-immediate medical expenses.
No-fault also requires prompt payment of claims, usually within 30 to 90 days after insurers receive the claims. But staged-accident rings have profitably gamed the claim pipeline and legal system. Fraudsters inundate insurers with piles of densely detailed medical bills from each setup crash, making it very difficult for insurers to find fraud in the large volumes of paperwork within the time limit.
Inflated injury claims can quickly exhaust a policyholder’s no-fault limits (though Michigan has no limits). At this juncture, some forms of no-fault allow policyholders or medical providers to sue the supposedly at-fault driver’s insurer for things such as pain and suffering, plus certain medical expenses—rehab, for instance. Crooked lawyers are ready and waiting to sue for these expenses.
Fraud fighters have had varying levels of success in confronting no-fault rings over the years despite continuous and often high-profile busts. Although one key measure of no-fault fraud’s impact—rising auto premiums—is elusive, it’s worth noting that, at least anecdotally, premiums in several hard-hit Massachusetts cities eventually began dropping, sometimes sharply, after strike forces began rolling up deeply entrenched crash rings in those cities in 2003.
Overall, though, it’s a tough row to hoe. The no-fault system’s vulnerabilities are too easy to exploit; there’s an unlimited supply of fake passengers willing to pretend they’re injured; and the insurance payouts are too attractive. Plus, prosecution lags because of staffing, resource and regulatory shortfalls on the side of the good guys.
Successfully combating this type of fraud requires a long-term commitment to gradually degrading the capabilities of schemers by instituting tough fraud laws and regulations, and bulking up fraud prosecutors, funding, force-multiplying task forces and other resources. Finding generic solutions won’t be the answer, either. Fraud-busting needs vary with the unique dynamics of each state. There is no silver bullet, but a lot of muscle could effectively break up the support structure of no-fault auto fraud.