When All That Glitters is Non-Existent Gold

The sweet aroma of cotton candy and the sounds of the carnival midway filled the air at the county fair. The insured and his wife were volunteering in a United Fund booth. The insured was a student body president at a local community college and his wife an elementary school teacher. Leaving the fair for a few hours, he told her he had business to handle on campus and would return in a few hours. Later that evening when they arrived at their rental home, they discovered the kitchen door open and the house burglarized. They called the sheriff.

The insured promptly reported a loss on his new renter's policy, purchased just five weeks earlier. The amount claimed exceeded the contents limit by the amount of the deductible. Was this a red flag? Since the young couple split up following the burglary, separate statements were obtained. The insured reported he had been at the fair all day, but his estranged wife reported he left the fair to work at the college.

Detectives canvassed the neighborhood for witnesses and discovered the insured was seen along with another man loading a trailer with personal property the afternoon of the burglary. An informant, the man who helped the insured, provided information leading to seizure of the property. The insured was prosecuted for felony insurance fraud, paid a $1,000 fine and was put on three years' probation. The $10,000 claim was not paid.

This was an actual claim that was clearly a staged loss, one of two types of fraudulent burglary claims presented under homeowners and renters policies. The other type is the exaggerated loss.

Staged Burglaries
Dishonest individuals stage burglaries by making it appear a break-in has occurred. They break windows, jimmy doors and ransack the insured premises. In other cases, the fabrication is less elaborate so that only a door or window may be left ajar.

Look out for another type of manufactured loss: the perfect claim, in which the insured submits a claim, typically on a new renter's policy, for $3,000 to $5,000. Every item is fully described, many with model and serial numbers. Legitimate receipts are submitted as proof of purchase for most items. The claim is promptly filed within a few days of the initial report and the insured pushes for quick settlement. The insured is unusually claims savvy and may suggest what should be paid on first contact. A property insurance loss register (PILR) database report will often uncover undisclosed duplicate coverage and occasionally a black cloud claim history. Prior claims may list some or all of the property and include the same receipts used in the current claim in question.

Exaggerated Claims
An exaggerated claim is a type of opportunistic fraud. The insured may have sustained a small burglary loss but misrepresents his true loss by padding or overstating the amount and value of the property actually taken. He may also claim the theft of personal property that was not owned or never existed and commonly submits bogus receipts to document his purported loss. Both types of bogus burglaries occasionally include unscheduled and scheduled jewelry. For the dishonest individual, a burglary is not an unfortunate incident, but an opportunity to make some extra cash. This activity can also occur in connection with fire, either accidental or arson.

It is important to note that matters of opinion, mistakes in computation and other innocent or unintentional errors made in the presentation of the claim are not considered fraudulent claim activity. Whether a suspicious claim is deemed fraudulent can only be resolved by careful claims processing and a proper investigation into the insured's representations and claim documentation.

Red Flags
There are indicators or red flags that help identify suspect claims that need closer scrutiny and referral to the SIU and defense counsel. The National Insurance Crime Bureau (NICB) can provide a list of indicators associated with many types of insurance fraud. Larger claims involving long lists of property, including large, bulky items that need to be moved by vans should be given special attention in cases or burglary or theft. Any claim in which the insured refuses, sometimes angrily, to provide answers to routine and reasonable questions should cause concern. Claims professionals must be aware of the indicators but use good judgment about taking further action.

Fraud is Hidden in Generalities
The phrase or maxim, "fraud is hidden in generalities," may be considered a general principle that applies to all aspects of suspicious claims. The insured may provide vague, ambiguous, and inadequate information about the loss facts, description, age or date of purchase and the location of retailers. In addition, the insured may refuse to answer routine questions posed by the adjuster seeking more specific information.

In statements, the claims representative must require that the insured commit to and provide as much detail as possible about all loss facts and the items purportedly stolen. If the claims inventory only generally describes the items or pertinent information is missing, the inventory must be rejected in writing, stating exactly what is needed to handle the claim. It will also be difficult for the special investigator to verify acquisition and ownership without the most specific information.

Phony Receipts
Falsified receipts are frequently submitted in support of fraudulent claims. Authentic receipts may be changed to increase purchase prices or to add items not purchased to create completely new receipts. Bogus receipts can be produced by computer scanning and manipulation or the old -fashioned way, by cutting and pasting typed or printed material, or by using correction fluid, entering false information by typewriter or creative penmanship, then photocopying the counterfeit document.

Most bogus receipts are crude attempts at forgery that can be easily detected. Look for irregularities such as missing data about when and how items were purchased (by cash, check or credit card), broken lines on forms, different shades of ink and type sizes, to name a few. The insured may also submit a receipt or invoice he calls proof of purchase, which is an estimate only.

Initially, the adjuster can request originals of all receipts or other proof of purchase, preferably in writing. Most important, the retailer or vendor should be contacted to verify the purchase and to determine whether the item was returned for a refund. A legitimate receipt may have been copied before the merchandise was returned. Defense counsel can make a formal request for other books and records, such as check registers, bank checking account statements, credit card statements, and so on.

Referral to Defense Counsel
Suspicious claims should be referred to counsel for further investigation whenever the insured fails or refuses to provide information or documentation, or whenever fraudulent claim activity is detected. The attorney can request relevant books and records and conduct an in-depth examination into any aspect of the insurance and the claim. Experience indicates that in more than 50 percent of questionable claims scheduled for an examination under oath, the insured fails to appear and withdraws his claim.

Successful resolution of questionable burglary claims can be achieved with early recognition, careful documentation of the insured's claim and a thorough follow-up investigation.