Transcript Fraud and Abuse for CNA Insurance Companies

Presented by
Dale K. Forsythe, Esq. – [email protected]
Scott W. Stephan, Esq. – [email protected]
1
Fraud by the Numbers
In 2007 alone, fraudulent and abusive auto injury claims added $4.8
billion to $6.8 billion in excess payments to auto injury claims.
Insurance Research Council, November 2008
2
Fraud by the Numbers
The U.S. spends more than $2 trillion on healthcare annually. At least
three percent of that spending — or $68 billion — is lost to fraud each
year.
National Health Care Anti-Fraud Association, 2008
3
Fraud by the Numbers
The number of employees misclassified by employers increased from
106,000 workers to more than 150,000 workers between 2000 and 2007.
This is a conservative figure because states generally audit less then two
percent of Employers a year.
(U.S. Government Accountability Office, 2009)
4
Fraud by the Numbers
Medicare and Medicaid made an estimated $23.7 billion in improper
payments in 2007. These included $10.8 billion for Medicare and $12.9
billion for Medicaid. Medicare’s fee-for-service reduced its error rate
from 4.4 percent to 3.9 percent.
(U.S. Office of Management and Budget, 2008)
5
Fraud by the Numbers
Arson and suspected arson account for nearly 500,000 fires a year, or
one of every four fires in the U.S.
Only 2 percent of arson or suspect arson fires result in convictions.
Arson and suspected arson are the largest causes of property damage in
the U.S.

National Fire Protection Association (1998)
6
Fraud by the Numbers
Insurance fraud steals at least $80 billion every year.
With $80 billion, you could pay...
• salaries of 2.2 million American workers for a year.
• all personal income taxes for 7.4 million Americans for a year.
• tuition for nearly 15.6 million students at America's four–year public
universities for a year.
• healthcare costs for nearly two out of every three seniors aged 65 and
over for a year.
• every CEO of America's 500 largest companies for the next 16 years.
Coalition Against Insurance Fraud, 2014
7
Fraud by the Numbers
 Victims: financial costs. Insurance buyers pay billions of dollars in higher premiums
annually by absorbing fraud costs. Fraud, for instance, can add several hundred dollars to
a family’s annual auto premium in some states. Insurance schemes also cost victims their
life savings. Swindled businesses also can be weakened and even bankrupted, and may
have to freeze salaries or lay off employees.
 Victims: personal costs. Thousands of fraud victims pay a steep personal price. People
die and are injured by swindles. They also suffer humiliation, despair, depression, lost
productivity and lower earning capacity. Families are broken up when convicted
fraudsters go to jail.
 Victims: societal costs. Fraud steadily drains America’s economic vitality. Swindles also
erode our social order and sense of justice, reinforcing a crime-pays mentality that
encourages insurance fraud to become an accepted way of moving up in life. This
encourages more people to commit fraud, thus threatening a costly upward fraud spiral.
Millions of young people and recent immigrants, who are looking for role models of
behavior, are especially at risk.
Coalition Against Insurance Fraud, December 2006
8
What is Fraud
Elements of common law fraud:
1.
2.
3.
4.
A misrepresentation;
A fraudulent utterance thereof;
An intention by the maker that the recipient will thereby be
induced to act
Damage to the recipient as the proximate result
Scaife Co. v. Rockwell-Standard Corp., 285 A.2d 451 (1971), cert. den. 407 U.S. 920, quoting Newman v. Corn
Exchange Nat. B&T Co., 51 A.2d at 763; See e.g., Edelson v. Bernstein, 115 A.2d 382 (1955); Gerfin v. Colonial Smeltin,
97 A.2d 71 (1953).
9
What is Fraud
Fraud consists of anything calculated to deceive, whether by single act or combination, or by
suppression of truth, or suggestion of what is false, whether it be by direct falsehood or by
innuendo, by speech or silence, word of mouth, or look or gesture.
Frowen v. Blank, 425 A. 2d 412 (Pa. 1981).
To be actionable, the misrepresentation need not be in the form of a positive assertion.
Shane v. Hoffman, 324 A. 2d 532 (Pa.Super. 1974).
It is any artifice by which a person is deceived to his disadvantage.
McLellan’s Estate, 75 A.2d 595 (Pa.1950).
10
Insurance Fraud By Statute
Pennsylvania
§4117. Insurance Fraud.
(a) Offense defined.—A person commits an offense if the person does any of
the following:
(1) Knowingly and with the intent to defraud a State or
local
government agency files, presents or causes to be filed with or presented to
the government agency a document that contains false, incomplete or
misleading information concerning any fact or thing material to the
agency's determination in approving or disapproving a motor vehicle
insurance rate filing, a motor vehicle insurance transaction or other motor
vehicle insurance action which is required or filed in response to an
agency's request.
11
Insurance Fraud By Statute
Pennsylvania
(2) Knowingly and with the intent to defraud any insurer or
self-insured, presents or causes to be presented to any insurer
or self-insured any statement forming a part of, or in support
of, a claim that contains any false, incomplete or misleading
information concerning any fact or thing material to the
claim.
12
Insurance Fraud By Statute
Pennsylvania
(3) Knowingly and with the intent to defraud any insurer or selfinsured, assists, abets, solicits or conspires with another to prepare or
make any statement that is intended to be presented to any insurer or
self-insured in connection with, or in support of, a claim that contains
any false, incomplete or misleading information concerning any fact or
thing material to the claim, including information which documents or
supports an amount claimed in excess of the actual loss sustained by the
claimant.
……………
13
Insurance Fraud By Statute
Pennsylvania
(5)Knowingly benefits, directly or indirectly, from the proceeds
derived from a violation of this section due to the assistance,
conspiracy or urging of any person.
(6)Is the owner, administrator or employee of any health care
facility and knowingly allows the use of such facility by any
person in furtherance of a scheme or conspiracy to violate any
of the provisions of this section.
(7)Borrows or uses another person's financial responsibility or
other insurance identification card or permits his financial
responsibility or other insurance identification card to be used
by another, knowingly and with intent to present a fraudulent
claim to an insurer.
14
Insurance Fraud By Statute
Pennsylvania
(8) If, for pecuniary gain for himself or another, he directly or
indirectly solicits any person to engage, employ or retain
either himself or any other person to manage, adjust or
prosecute any claim or cause of action against any person for
damages for negligence or for pecuniary gain for himself or
another, directly or indirectly solicits other persons to bring
causes of action to recover damages for personal injuries or
death, provided, however, that this paragraph shall not apply
to any conduct otherwise permitted by law or by rule of the
Supreme Court.
15
Insurance Fraud By Statute
Pennsylvania (W.Comp.)
§1039.2. Offenses
A person, including, but not limited to, the employer, the employee,
the health care provider, the attorney, the insurer, the State
Workmen's Insurance Fund and self-insureds, commits an offense if
the person does any of the following:
(I) Knowingly and with the intent to defraud a State or local
government agency files, presents or causes to be filed with or
presented to the government agency a document that contains
false,
incomplete or misleading information concerning any fact or thing material to the
agency's determination in approving or disapproving a workers' compensation
insurance
rate filing, a workers' compensation transaction or other
workers' compensation insurance action which is required or
filed in
response to an agency's request.
16
Insurance Fraud By Statute
Pennsylvania (W.Comp)
(2)Knowingly and with intent to defraud any insurer presents or causes
to be presented to any insurer any statement forming a part of or in support of
a workers' compensation insurance claim that contains any false, incomplete or
misleading information concerning any fact or thing material to the workers'
compensation insurance claim.
(3)Knowingly and with the intent to defraud any insurer assists, abets,
solicits or conspires with another to prepare or make any statement that is
intended to be presented to any insurer in connection with or in support of a
workers' compensation insurance claim that contains any false, incomplete or
misleading information concerning any fact or thing material to the workers'
compensation insurance claim.
17
Insurance Fraud By Statute
Pennsylvania (W. Comp)
(4)Engages in unlicensed agent or broker activity as defined by
the act of May / 7,1921 (EL. 789, No. 285), (FN1] known as "The
Insurance Department Act of 1921," knowingly and with the intent to
defraud an insurer or the public.
(5)Knowingly benefits, directly or indirectly, from the proceeds
derived from a violation of this section due to the assistance,
conspiracy or urging of any person.
(6)Is the owner, administrator or employee of any health care
facility and knowingly allows the use of such facility by any person in
furtherance of a scheme or conspiracy to violate any of the provisions of
this section.
18
Insurance Fraud By Statute
Pennsylvania (W.Comp.)
(7)Knowingly and with the intent to defraud assists, abets, solicits or
conspires with any person who engages in an unlawful act under this section.
(8)Makes or causes to be made any knowingly false or fraudulent statement
with regard to entitlement to benefits with the intent to discourage an injured
worker from claiming benefits or pursuing a claim.
(9)Knowingly and with the intent to defraud makes any false statement for
the purpose of avoiding or diminishing the amount of the payment in premiums to
an insurer or self-insurance fund.
19
Insurance Fraud By Statute
Pennsylvania (W.Comp.)
(10)Knowingly and with intent to defraud, fails to make the report required under
Section 311.1. [FN2]
(11)Knowingly and with intent to defraud, receives total disability benefits under
this act while employed or receiving wages.
(12)Knowingly and with intent to defraud, receives partial disability benefits in
excess ofthe amount permitted with respect to the wages received
.
20
Insurance Fraud By Statute
Oklahoma
Title 15. Contracts
Chapter 1 - Nature of Contracts
[J Section 58 - Definition of Actual Fraud]
Actual fraud, within the meaning of this chapter, consists in any of the following acts,
committed by a party to the contract, or with his connivance, with intent to deceive
another party thereto, or to induce him to enter into the contract:
(1)The suggestion, as a fact, of that which is not true, by one who does not believe
it to be true.
(2)The positive assertion in a manner not warranted by the information of the
person making it, of that which is not true, though he believe it to be true.
21
Insurance Fraud By Statute
Oklahoma
(3)The suppression of that which is true, by one having
knowledge or belief of the fact.
(4)A promise made without any intention of performing it; or,
(5)Any other act fitted to deceive.
22
Insurance Fraud By Statute
Florida
Title XLVI 2013 Florida Statutes
817.234 - False and Fraudulent Insurance Claims
1)(a) A person commits insurance fraud punishable as provided in subsection (11) if that
person, with the intent to injure, defraud, or deceive any insurer:1. Presents or causes to
be presented any written or oral statement as part of, or in support of, a claim for
payment or other benefit pursuant to an insurance policy or a health maintenance
organization subscriber or provider contract, knowing that such statement contains any
false, incomplete, or misleading information concerning any fact or thing material to
such claim;
23
Insurance Fraud By Statute
Florida
2. Prepares or makes any written or oral statement that is intended to be presented to
any insurer in connection with, or in support of, any claim for payment or other benefit
pursuant to an insurance policy or a health maintenance organization subscriber or
provider contract, knowing that such statement contains any false, incomplete, or
misleading information concerning any fact or thing material to such claim;
24
Insurance Fraud By Statute
Florida
3.
a. Knowingly presents, causes to be presented, or prepares or makes with
knowledge or belief that it will be presented to any insurer, purported insurer, servicing
corporation, insurance broker, or insurance agent, or any employee or agent thereof, any
false, incomplete, or misleading information or written or oral statement as part of, or in
support of, an application for the issuance of, or the rating of, any insurance policy, or a
health maintenance organization subscriber or provider contract; or
b. Knowingly conceals information concerning any fact material to such
application; or
25
Insurance Fraud By Statute
Florida
4. Knowingly presents, causes to be presented, or prepares or makes with
knowledge or belief that it will be presented to any insurer a claim for payment or
other benefit under a personal injury protection insurance policy if the person
knows that the payee knowingly submitted a false, misleading, or fraudulent
application or other document when applying for licensure as a health care clinic,
seeking an exemption from licensure as a health care clinic, or demonstrating
compliance with part X of chapter 400.
26
Insurance Fraud By Statute
California
California Insurance Code §1871.4
a) It is unlawful to do any of the following:
(1) Make or cause to be made a knowingly false or fraudulent material
statement or material representation for the purpose of obtaining or denying
any compensation, as defined in Section 3207 of the Labor Code.
(2) Present or cause to be presented a knowingly false or fraudulent
written or oral material statement in support of, or in opposition to, a claim for
compensation for the purpose of obtaining or denying any compensation, as
defined in Section 3207 of the Labor Code.
27
Insurance Fraud By Statute
California
(3) Knowingly assist, abet, conspire with, or solicit a person in an
unlawful act under this section.
(4) Make or cause to be made a knowingly false or fraudulent statement
with regard to entitlement to benefits with the intent to discourage an injured
worker from claiming benefits or pursuing a claim.
For the purposes of this subdivision, "statement" includes, but is not limited to, a notice,
proof of injury, bill for services, payment for services, hospital or doctor records, X-ray,
test results, medical-legal expense as defined in Section 4620 of the Labor Code, other
evidence of loss, injury, or expense, or payment.
28
Insurance Fraud By Statute
California
(5) Make or cause to be made a knowingly false or fraudulent material
statement or material representation for the purpose of obtaining or denying
any of the benefits or reimbursement provided in the Return-to-Work Program
established under Section 139.48 of the Labor Code. (6) Make or cause to be
made a knowingly false or fraudulent material statement or material
representation for the purpose of discouraging an employer from claiming any
of the benefits or reimbursement provided in the Return-to-Work Program
established under Section 139.48 of the Labor Code.
29
Insurance Fraud By Statute
California
b) Every person who violates subdivision
(a) shall be punished by imprisonment in a county jail for one year,
or pursuant to subdivision (h) of Section 1170 of the Penal Code, for two,
three, or five years, or by a fine not exceeding one hundred fifty thousand
dollars ($150,000) or double the value of the fraud, whichever is greater, or
by both that imprisonment and fine. Restitution shall be ordered,
including restitution for any medical evaluation or treatment services
obtained or provided. The court shall determine the amount of restitution
and the person or persons to whom the restitution shall be paid. A person
convicted under this section may be charged the costs of investigation at
the discretion of the court.
30
Insurance Fraud By Statute
California
(c) A person who violates subdivision (a) and who has a prior felony
conviction of that subdivision, of former Section 556, of former Section
1871.1, or of Section 548 or 550 of the Penal Code, shall receive a twoyear enhancement for each prior conviction in addition to the sentence
provided in subdivision (b).
31
Insurance Fraud – Penalties
 Insurance fraud accounts for billions of lost taxpayer dollars and results in
increasingly high insurance rates for everyone. The penalties are significant and
typically stepped to reflect the serious of the fraudulent claim and the number of
claims in the particular charge. Often, each act of fraud is treated as a separate
count, increasing the penalties even on a first arrest.
 Possible Penalties Include
 Jail Time
 Significant Fines
 Probation
 Parole
 Restitution
 Community Service
See http://criminaldefenselawyer.com/crime-penalties/federal/Insurance-Fraud.htm.
32
Insurance Fraud - Penalties
Sampling of state-by-state penalties:
Fine
PA. $10,000 – $200,000
Avg. Jail
Avg. Prob.
Other
5-7 yrs
3 yrs
community
FL. $0 – $25,000
10 yrs
service
case by case
licenses taken
IL. $5,000-$50,000
1-5 yrs
3-7 yrs
LA. $1,000-$5,000
1 yr
case by case
NC. Up to $2,500
up to 2 yrs
case by case
general fine
33
Insurance Fraud – Penalties
Sampling of state-by-state penalties:
Fine
Avg. Jail
Avg. Prob.
NH $2,500- $10,.000
1.5-15yrs
5 yrs
NY up to $15,000
case by case
case by case
OK $2,500-$10,000
up to 5 yrs
up to 2 yrs
TX dep. on val. of
fraud
Other
community serv.
possible rest’n
<$20g - <5yrs case by case comm. serv.
>$20g – case by case
34
Types of Fraud
A. Fraud in the Application
An attempt by an applicant to procure insurance on false terms
(i.e. an attempt to prejudice the insurer in assessing the risk).
Elements a. a false application statement;
b. on a subject material to the risk to be insured against;
and,
c. the applicant’s knowledge that the statement was
made in bad faith or was untrue
35
Types of Fraud
A. Fraud in the Application
Ramifications
– policy void ab initio (premium must
be returned)
note: Evidence must be clear and convincing
36
Types of Fraud
A. Fraud in the Application
Indicators –
a. unsolicited new, walk-in business, not referred by existing
policyholder
b. applicant walks into agent’s office at the end of the day
c. applicant neither works nor resides near agency
d. applicant gives post office box as address
e. applicant pays premium in cash and pays minimal amount etc.
37
Types of Fraud
A. Fraud in the Application
note: Line representative is at the mercy of the
agent – most likely won’t detect fraud in the
application unless there are other fraud indicators
present during the investigation of the claim
38
Types of Fraud
B. Fraud in the Claims/Investigation Process
An attempt by the insured to recover the benefits on false
pretenses.
Elements
a. a representation by the insured which was false
b. the representation was made in bad faith or with knowledge of
its falsity
c. material to the risk being insured
39
Types of Fraud
B. Fraud in the Claims/Investigation Process
note - Issue of materialism – in the investigations
process materiality is met if the false statement is relevant
and germane to the insurer’s investigation (i.e. would a
reasonable insurer, in determining its course of action
attach importance to the fact misrepresented
note - Proven by a preponderance of the evidence
40
Types of Fraud
B. Fraud in the Claims/Investigation Process
Indicators
a. insured overly pushy for a quick settlement
b. financial hardship at the time of loss
c. insured has had multiple insurance claims
d. inconsistencies in loss scenario or basic facts
41
Types of Fraud
B. Fraud in the Claims/Investigation Process
Indicators
e. recently purchased insured item
f. recently increased the insurance limits
g. criminal background
42
Types of Fraud
B. Fraud in the Claims/Investigation Process
note - Too many indicators present - an internal company
decision should be made to transfer to SIU.
43
Personal Injury Insurance Fraud
Any act intended to cause a carrier to pay on a non-existent,
exaggerated or on un-related/non-covered injury
Soft/Opportunistic
Hard
44
Malingers – Hard to Spot
 Less long-term patient-physician relationships
 Mental conditions mimicking the appearance of malingering
 Faking symptoms is easy

97% of untrained people can identify symptoms of major depressive disorder

63% can identify at least 5 brain injury symptoms

Easy online access of symptom information

Doctor’s desire to be supportive
Dr. Stewart Patterson, AMA Guides Newsletter,
Cited at www.amednews/article/20120910/profession/309109942/4/.
.
45
Examples of Fraud
Creating a Claim
 Staged Auto Accidents






Waive On/Drive Down
Preexisting damage
Swoop & Squat
Sideswipe
False Reports - the Bad Samaritan
Phantom Victim / Passengers
46
Examples of Fraud
Creating a Claim
 Staged Slip and Falls
 Foreign Object in Food
 Staged Homeowner Accident
 Possible Personal Injury Schemes/Fraudulent Attorney
47
Examples of Fraud
Exaggerating a Claim
Exaggerating the injuries
Medical Mills
Providers Inflating Billing or Upcoding
48
Medicaid Fraud
What to look for:*
Upcoding
Providers bill Medicaid using a code that describes the
amount of time with patient
If provided bills Medicaid using a code that indicates
and hour long complex visit = UPCODING
Unbundling
Some codes are all inclusive, e.g., for Lipid Panel, which
has 3 component tests
If coded separately for higher reimbursement rate =
UNBUNDLING
*From http://ahca.myflorida.com/Executive/Inspector_General/complaints.shtml
49
Medicaid Fraud
Other common schemes
Billing for patients who did not receive services
Billing for service or equipment not provided
Overcharging
Concealing ownerships/relationships in companies
Kickbacks for referrals
Double billing for same service
Ordering tests/procedures not needed
Using false credentials
50
Handling claims / Investigation
A. Reservation of Rights - on all potential bases of
denial within policy
51
Handling claims / Investigation
B. Methods of Investigation
1. Authorizations for financial records, phone records (land lines
and cell), medical information, etc.
2. Third party search services (prior losses and financial
information)
3. Civil and criminal docket information
52
Handling claims / Investigation
C. Adjustment
Procure necessary adjustment service companies,
disaster relief companies and forensic experts (origin
and cause, forensic automotive, electrical engineer,
etc.)
53
Handling claims / Investigation
D. Recorded Statements
1. Conduct in person if possible to measure the demeanor of the
insured
2. Establish foundation of trust by explaining the process and
why the statement is necessary (i.e. there are certain questions about
the claim that must be resolved, and that you are attempting to find
evidence to exonerate the insured)
3. Do not conduct in the presence of any other insured or
potential witness
4. Company decision whether to confront insured with
inconsistencies or damaging evidence (forensic or other wise)
54
Handling claims / Investigation
E. Adjuster’s Log / Claim Handling Notes
1. Running notes of claims/investigation process
2. Enter notes as if you are an impartial reporter or observer to
AVOID BAD FAITH (i.e. never inject you feelings of the claim or
insured)
55
Handling claims / Investigation
F. Examination Under Oath
1. Importance of counsel involvement
2. Claim representative should attend to access demeanor)
3. Insureds’ Examinations should be taken separately (most likely
a right under the policy)
4. Company decision whether to confront insured with
inconsistencies or damaging evidence (forensic or other wise)
56
Handling claims / Investigation
G. Follow-up on new areas of investigation uncovered as
a result of the Examination process
57
Handling claims / Investigation
H. Claim Recommendation by Counsel
1. Should include a detailed summary of the facts of the
investigation
2. Should break down the elements of the fraud defense
a. Arson – Incendiarism, Motive, Preparation and
Opportunity
b. Auto – Motive, Preparation and Opportunity
(including findings of forensic automotive expert)
58
Handling claims / Investigation
I. Denial letter – include all potential bases for denial
J. Report any suspected fraudulent claim to the proper
authorities
1. Immunity Acts
2. Role of NICB
59
Fighting Back (Medical Fraud) – Know the Signs
Issues with Medical Treatment
Frequently changes physicians/providers
Requests change of physicians/second opinions
Reports not consistent with appearance or behavior
Pattern of missing provider appointment
60
Fighting Back (Medical Fraud) – Know the Signs
Issues with The Worker/Patient
Unstable work history
History of subjective injuries
Lack of cooperation
Recently terminated/demoted
61
Fighting Back (Medical Fraud) – Know the Signs
Issues with The Worker/Patient
In line for early retirement
Making excessive demands
Calls soon after injury/presses for quick settlement
62
Fighting Back (Medical Fraud)– Know the Signs
Issues with The Worker/Patient
Moves soon after the injury
Changes address to P.O. Box or relative
Seasonal worker /timing
63
Fighting Back (Medical Fraud) – Know the Signs
Issues with The Injury
No witnesses to injury
Subjective /hard to prove
Delay in reporting
Notice is from attorney or clinic
64
Fighting Back (Medical Fraud) – Know the Signs
Issues with The Injury
Widely differing medical opinions
No medical support/full recovery
Disability exceeds norm
Accident late Friday/early Monday
65
Fighting Back (Medical Fraud) – Know the Signs
Issues with The Injury
Accident at odd time / lunch
Unusual location
Not a typical job duty
Details vague/inconsistent with Notice of Injury
66
Fighting Back
Tools / Methods
Private Investigators/Surveillance
67
Fighting Back
Tools / Methods
Analyze the Claims History / Cross Checking
68
Fighting Back
Tools / Methods
Suspicious Loss Indicators from NICB
69
Fighting Back
Tools / Methods
Social Media
70
Importance of Effective Investigation
Conduct a prompt and thorough conference with the insured to obtain
the following information:
1. Information regarding the incident
a. Who was involved
b. How it happened
c. Where it occurred/surroundings
d. Conditions – weather, traffic,
lighting
e. Instrumentalities involved –
products, equipment, etc.
f. Why it occurred
71
Importance of Effective Investigation
2. Witnesses
a. Identify all the parties to the
accident itself
b. Identify passengers/relationships
c. Identify any third party witnesses
and/or disinterested
witnesses
d. Secure contact information
72
Importance of Effective Investigation
3. Document Investigation
A. Reports of incident
1. Secure official reports of
incident
a. Police accident report
b. Governmental agency
reports where applicable (OSHA, NTSA, etc.)
2. Secure accident and/or incident
reports prepared by store owner,
property owner, employer, etc.
73
Importance of Effective Investigation
B. Photos – Secure or take photos of:
1. accident scene / surroundings
2. vehicles involved in accident if motor
vehicle accident
3. road / skid marks if motor vehicle
accident
4. product or other instrumentalities
involved
5. videotape if warranted
74
Importance of Effective Investigation
C. Records
1. Medical Records / physician reports: secure
authorizations (HIPAA approved) for all hospitals, physicians or other
health care providers and secure records and itemized statements of
medical bills incurred
2. If appropriate, secure authorizations for and obtain:
a. Workers compensation claim file
b. Social security disability claim file
c. First Party claim file
d. Employment records
e. Federal and state tax returns
3. Determine if claimant involved in other accidents or has
pre-existing medical conditions – secure appropriate records for these
75
Importance of Effective Investigation
4. Surveillance
A. Determine if appropriate for case – where physical activities
do not appear to correlate with injuries claimed
B. Investigate claimant information to determine if surveillance
can be limited to most likely times / locations of physical activities
76
Importance of Effective Investigation
5. Effective Recorded Statements/Interviews of Witnesses*
Focus on Details
 Start with broad, open-ended question
 Look for obvious omissions
 Be wary of evasive answers
 Follow up
 Insist on specifics
*Acknowledgment for much of this material to CLM 2014 Bad Faith/Coverage/Fraud Mini-Conference,
2/28/14, Atlanta, GA.
77
Importance of Effective Investigation
Compare with Other Statements
 Other witnesses
 Insured
 Prior statements
 Subsequent Statements
78
Importance of Effective Investigation
Look for language clues
 foreign language issues
 tone and phraseology
 unique words and phrases
 deceptive language
 deceptive phrases
 nature of interaction
79
Reporting Fraud
Work with:
 SIU
 HCFA
 AHCA
 Insurance Department
80
Reporting Fraud
SIU – Special Investigation Units
81
Reporting Fraud
CMS/HCFA – Centers for Medicare and Medicaid Services
(formerly Health Care Financing Administration)
Federal Agency / part of Dept. of Health & Human Services
Administers Medicare Program
Administers Medicaid Program in partnership with state governments
Headquartered in Woodlawn, MD
82
Reporting Fraud
CMS/HCFA
10 Regional Offices
1. Boston
6. Dallas
2. New York City
7. Kansas
3. Philadelphia
8. Denver
4. Atlanta
9. San Francisco
5. Chicago
10. Seattle
83
Reporting Fraud
CMS/HCFA
State by State Fraud and Abuse Reporting Contact List / On CMS.gov.
http://www.cms.gov/Medicare-MedicaidCoordination/FraudPrevention/FraudAbuseforConsumers/Downloads/sm
afraudcontacts-october2013.pdf
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Reporting Fraud
AHCA – American Health Care Association
Non –profit federation of various affiliate state health organizations
Over 10,000 assisted living, nursing, developmentally disabled care facilities
Over 1.5 million elderly and disabled individuals
Fighting Medicaid Fraud
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Reporting Fraud
AHCA – American Health Care Association
 Pennsylvania Health Care Association / Center for Assisted Living Management
Stuart H. Shapiro, M.D.
315 N 2nd St
Harrisburg PA 17101
PH (717) 221-1800
FX (717) 221-8690
 Oklahoma Association of Health Care Providers
Rebecca A. Moore
200 NE 28th
Oklahoma City, OK 73105
PH (405) 524-8338
FX (405) 524-8354
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Reporting Fraud
AHCA – American Health Care Association
 Florida Health Care Association
J. Emmett Reed
PO Box 1459
Tallahassee FL 32302-1459
PH (850) 224-3907
FX 850 681-2075
 California Association of Health Facilities
James Gomez
2201 K Street
Sacramento, CA 95816-4922
PH (916) 441-6400
FX (916) 441-6441
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Reporting Fraud
State Insurance Departments
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Caution: Unfair Insurance Practices Act
 Pennsylvania (sample)
 40 P.S. 1171.1 – Unfair Insurance Practices Act
 Section 1171.5 defines “unfair methods of competition and
unfair or deceptive acts or practices”

Subsection (10) provides that “any of the following acts if committed
or performed with such frequency as to indicate a business practice
shall constitute unfair claim settlement or compromise practices:
……….
 (ii) failing to acknowledge and act promptly upon written or oral
communications with respect to claims arising under insurance
policies;
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Caution: Unfair Insurance Practices Act
……….

(iv) refusing to pay claims without conducting a reasonable
investigation based upon all available information;
……….

(vi) not attempting in good faith to effectuate prompt, fair and
equitable settlements of claims in which the company’s liability
under the policy has become reasonably clear;
90
Caution: Unfair Insurance Practices Act

(vii) compelling persons to institute litigation to recover amounts
due under an insurance policy by offering substantially less than
the amounts due and ultimately recovered in actions brought by
such persons;

(viii) attempting to settle a claim for less than the amount to which
a reasonable man would have believed he was entitled by reference
to written or printed advertising material accompanying or made
part of an application;
…………
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Caution: Unfair Insurance Practices Act

(xi) making known to insureds or claimants a policy of appealing
from arbitration awards in favor of insureds or claimants to induce
or compel them to accept settlements or compromises less than the
amount awarded in arbitration;

(xii) delaying the investigation or payment of claims by requiring
the insured, claimant or the physician of either to submit a
preliminary claims report and then requiring the subsequent
submission of formal proof of loss forms, both of which
submissions contain substantially the same information;
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Caution: Unfair Insurance Practices Act

(xiii) failing to promptly settle claims, where liability has become
reasonably clear, under one portion of the insurance policy
coverage in order to influence settlements under other portions of
the insurance policy coverage or under other policies of insurance;

…………
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Caution: Bad Faith Statute
Pennsylvania (sample)
42 Pa. C.S. Section 8371 provides as follows:
Section 8371. Actions on insurance policies.
In an action arising under an insurance policy, if the court finds that
the insurer has acted in bad faith toward the insured, the court may
take all of the following actions:
1. award interest on the amount of the claim from the date the
claim was made by the insured in an amount equal to the
prime rate of interest plus 3%;
2. award punitive damages against the insurer;
3. assess court costs and attorney fees against he insurer.
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Good Faith Audit Checklist
A. Claims Handler Level
Did you undertake a thorough investigation?
Did you avoid lulls or passive handling of the claim?
Does the file reflect consideration and reconsideration of key
facts as they develop and change during the investigation?
If a liability claim, did you report timely developments to both
the insurance company and the insured.
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Good Faith Audit Checklist
A.
Claims Handler Level (continued)
If a liability claim, did you advise the insured of all
settlement negotiations?
Did you obtain a second opinion to help evaluate the
case for liability and damages? Possible second opinion from:
- experiences lawyers
- retired judges and mediators; or
- focus groups and /or a mock trial
Did you take the initiative in mediation and / or
settlement?
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Good Faith Audit Checklist
A. Claims Handler Level (continued)
Did you consider the best time to try for settlement? Possible
times include:
- before filing
- right after filing and service and before answering the
discovery;
- after or during discovery;
- after or before mediation;
- during scheduling conference with the judge;
- during any motion in limine or motion for summary
judgment; or
- during trial
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Good Faith Audit Checklist
A
Claims Handler Level (continued)
Did you check as needed with local claims-handling guidelines?
Did you make an effort to ensure that any coverage positions were
consistent with other positions taken by the company on that issue?
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Good Faith Audit Checklist
B.
Supervisor’s Level
Did you ensure that the claims handler had the appropriate
amount of experience for the claim involved?
Did you ensure that the claims handler was aware of internal
company procedures and policies that might be
applicable to the claim?
Did you maintain a level of oversight that would permit you
to describe, at lease generally, the status of the claim at
any particular time?
Did you consider whether the claims handler’s procedures
and coverage positions were consistent with other
positions taken by the company that you are aware of?
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Good Faith Audit Checklist
C.
Company Level
Does the company maintain appropriate “best practices”
procedures for claims handling?
Do the “best practices” procedures require the claims handler to
be aware of, and conform to, all local claims handling
statutes and regulations?
Does the company maintain an archive of any changes to policy
forms, “best practices” guidelines, and training?
Does the company have a means of retaining important historical
information (“institutional memory”) beyond the
retirement of key individuals?
Has the company identified someone to oversee department
production and provide uniform responses to document
requests and electronic information requests?
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Disclaimer
 This material is prepared for information/educational purposes
only. It is not intended as legal advice, nor should it be construed
as or relied upon as legal advice. You should consult with counsel
before embarking on any course of conduct or refraining from any
activity that may entail legal consequences. Although the above
was prepared on the basis of the state of the law of Pennsylvania
or other states as noted, as of the date of preparation, the law is
subject to interpretation and may change in the future. Therefore,
absolutely no representations are made relative to any specific
legal situation or the application of law to any specific facts. NO
EXPRESS OR IMPLIED WARRANTIES ARE INTENDED OR MADE.
 The foregoing is not intended to be a complete and exhaustive
review of each and every reported or unreported decision issued
by Pennsylvania Courts, state and federal, on the issues presented.
Rather, the foregoing is intended as an overview of some of the
recent and significant decisions with respect to these issues.
101
Wayman, Irvin & McAuley, LLC

Founded in 1965, Wayman, Irvin & McAuley, LLC, has
earned its reputation for zealous representation of
clients in a diverse range of legal matters.
Concentrating in the area of insurance defense for over
45 years, the firm has represented insurance carriers
and their insureds in all state and federal courts in
Pennsylvania, Ohio and West Virginia. We
understand the insurance business and the unique
needs of the carrier, the broker and the risk manager.
Please visit our Web site, www.waymanlaw.com for a
more detailed look at the firm’s capabilities and staff as
well as a wealth of resource materials.
102
Wayman, Irvin & McAuley, LLC
401 Liberty Avenue
3 Gateway Center, Suite 1624
Pittsburgh, PA 15222
(412) 566-2970
Fax: (412) 391-1464
www.waymanlaw.com
103