Chapter 8 – Automobile Claims
Vehicle theft fraud
Methods and motives for theft fraud
· Vehicles in need of repair – rather than scrap the vehicle or sell it for parts, there may be a temptation to make it disappear
· If the vehicle is not found, the insurer might be expected to pay the avg value of a vehicle of the same make, model and year
· The lucrative black market trade for luxury cars in certain parts of the world has motivated fraudulent theft claims
· Phantom or paper cars – the ownership for an unrepairable salvage vehicle is purchased and the non-existent vehicle is re-registered. The phantom vehicle is then reported stolen.
· Creating sensationalism is a ploy used to divert attention from an attempt to defraud. It may also evoke sympathy from the public. Example: insured claims car was stolen at gunpoint or insured was kidnapped w/ the car
· By analyzing all auto theft claims certain types of info are identified:
o Patterns usual to fraudulent activity may be identified
o Individual fraudsters who are in the business of making claims may surface
o Local or international theft rings may be identified
o Current info assists in the development of timely and effective strategies against fraud
· Organized theft rings have defrauded the public (eg page 3)
· The demand of the market and promise of high profits have spurred the black market trade of stolen vehicles
Investigation of fraudulent theft claims
· Resources must be allocated to the questionable losses
· The value of a vehicle may also determine how far the insurer takes the investigation
· The number of applicable fraud indicators may also help to decide on the parameters of an investigation
· The claimant’s insurance history (policy-related indicators), the vehicle background (vehicle-related indicators), the insured’s financial situation (insured-related indicators) should all be reviewed for clues
· Statements should provide info to help insurers decide on further action req’d
· Should the claim be settled, the vehicle o/ship must be transferred to the insurer so that if the vehicle is recovered the insurer will be notified
Recoveries
· Recovering the amounts spent on a claim should always be explored even when insurance fraud is involved
· Victims of insurance fraud can seek recovery from the courts
· Recovered stolen vehicles that are heavily damaged, considered a total loss and sold to salvors can also involve fraud (eg page 3)
· Mareva injunction – a civil procedure used to freeze known assets when strong evidence suggests proceeds of a crime have been converted. Legal proceedings must have already been commenced against the perpetrator of the fraud
Branding stolen and salvaged vehicles
· Adopting standard terminology w/ precise definitions in regard to stolen and recovered vehicles is the subject of an initiative being implemented by the Ministry of Transportation of Ontario
· The program is not mandatory and it relies on insurers to co-operate
· Irreparable vehicles – banned from public roads. They may be sold only for scrap
· Salvage vehicles – banned from public roads. The yare damaged beyond the cost of rendering them roadworthy
· Rebuilt vehicles – those that have previously been declared to be salvage. They have been repaired, inspected and approved for registration and operation on public roads
· Stolen vehicles – have been declared stolen by police. They have not been recovered (temporary flag). The stolen status may be assigned or removed only by police
Vehicle arson
· A severe fire may destroy evidence of poor maintenance or mechanical problems – a motive for arson
· There is no need to hide the vehicle or roll it into a lake and the fire can be arranged at a convenient time and place
· Gasoline is the most common accelerant used as traces of it is at the scene is not necessarily considered unusual or suspicious
Investigation of vehicle arson
· The first focus of enquiry in motor vehicle fire claim is he cause
· There must be evidence that the fire was set deliberately b4 it can be classified as arson, typically b4 motive and opportunity on the insured’s part become relevant issues
· Trace evidence of gasoline may be the result of spillage b4 the fire or its to set up a trailer
· Motor vehicle arson tends to occur at isolated locations where there are no witnesses, but such locations also preserves footprints and tire tracks – such evidence against the insured is incriminating
· There should be a physical inspection of the vehicle – other clues may be visible in the vehicle itself
· All other potential causes must be addressed and eliminated if a denial of coverage on the grounds of arson is to be successfully maintained
· The pre-loss condition of the vehicle is important to establish its value
· Info about where the vehicle was serviced and whether any maintenance records exist is significant to develop
Motive and opportunity in vehicle arson
· Once arson has been established it must be determined if the insured had motive and opportunity to set the fire
· The motive for motor vehicle arson is usually financial
· An insured may have his license suspended and may have been unable to sell the vehicle – the provides possible motivation for arson fraud
· The condition of the engine, transmission, and differential b4 the fire can often be determined even in cases of sever fire damage
· A motive to commit fraud exists when expensive maintenance work is necessary to keep the vehicle on the road
Fraud indicators in vehicle theft and arson claims
· Indicators are not proof that a fraud has occurred however it suggests that the claim should be investigated more closely
· Policy-related indicators:
o Claim reported shortly after policy inception
o Insured has no other auto, property, or business insurance w/ the company
o Comprehensive coverage added recently to the policy
o An endorsement limiting depreciation on a newer vehicle is about to expire
o Collision coverage not purchased even though vehicle is fairly new
· Vehicle-related indicators:
o Vehicle is an unpopular model (unfavourable safety reports, scarcity of parts, expensive to operate or maintain)
o VIN search by C.A.T.B. reveals the vehicle was stolen b4 or was in an accident
o VIN info is inconsistent w/ insured’s description of vehicle
o A pre-insurance inspection was carried out far from the insured’s home of office
o Insured is vague about equipment, colour, odometer reading, or service history
o Insured cannot produce a duplicate set of keys for the vehicle
o Vehicle equipment is of high value but the vehicle is of low value (expensive stereo system)
· Purchase-related indicators:
o Vehicle purchased from insurer, auto repair facility or salvage company (a phantom vehicle)
o Vehicle was a gift
o Vehicle was purchased shortly b4 theft
o Details of purchase unclear (vehicle bought for cash)
o Vehicle purchased a considerable distance from the insured’s home or outside the country
o The lienholder is a private individual
· Insured-related indicators:
o Other owned vehicles are insured by other carriers
o Insured works in an auto-related business
o Insured is vague or evasive about his business or occupation
o Insured is very knowledgeable about claims procedures
o Vehicle is too expensive for insured’s apparent income and lifestyle
o Insured has a post office box # for an address
o Insured can not be contacted by telephone
o Insured has a record of prior claims, particularly thefts
o Insured’s payments are in arrears
o Insured is very aggressive and threatens to complain to higher authority, involve a lawyer, or launch a lawsuit
· Theft-related indicators:
o Theft not reported to police, or not reported promptly
o Theft not reported promptly to insurer
o Police report differs from insured’s report
o Vehicle reported stolen while in the custody of someone who is not a family member
o Theft did not occur at insured’s home, business or usual venues
o Vehicle recovered in unusual circumstances
o Police not advised of recovery
o Expensive equipment claimed to be stolen
o Ownership certificate appears to be a photocopy of an altered document
Accident benefits fraud
· No-fault auto insurance has been legislated in certain jurisdictions primarily to reduce legal and other costs associated w/ the settlement of claims and to facilitate prompt insurance payments
· Overly generous benefits may lead to abuses of the system
· Well-informed fraudulent claimants use whatever tools that rules and regulation provide to hinder investigation knowing that insurers may face substantial penalties when benefits are not paid promptly
Operation of fraud rings
· Since lucrative weekly benefits and medical benefits may continue indefinitely under certain AB programs, AB fraud has become popular
· One such operation saw a recruiter gather a number of prospective AB claimants. Each pay a fee for a seat, in return for a set sum. Other buy a seat for a lesser sum not to be in the accident vehicle but to be shown as passengers on the accident report
· Accidents are typically staged at night, behind buildings or in other areas where there are no witnesses
· The vehicle (often a rental) may be driven into a wall at low speed, typically causing less than $500 damage. In certain jurisdictions police doe not attend the scene of minor accidents involving property damage only, rather vehicles are driven to collision reporting centers where an accident report is completed and the insurer notified
· Staged accidents may involve several vehicles – organized rear-end collision
· Organized accidents may also involve innocent third parties
· (Examples on page 10)
· Studies have shown that individuals involved in AB fraud are often also involved in other criminal activities such as:
o Welfare fraud
o Worker’s compensation fraud
o Unemployment insurance fraud
o Government hospital insurance fraud
o Smuggling of illegal immigrants
o Illegal firearms
o Narcotics
o Credit card forgery
o Organized auto theft
o Home invasions
o Money laundering
o Organized shoplifting
o Prostitution
Indicators of staged accidents
· Timing:
o In the evening or after midnight
o Sunday afternoons
o Non-rush hour
· Location:
o Behind a building where a car is driven into a retaining wall
o On expressway guardrail ramps
o Places where there are not any independent witnesses
· Vehicle:
o Previously damaged vehicle or salvage vehicle
o Rental vehicle
o Someone else’s vehicle (someone else’s insurer)
o Targeted innocent victim’s vehicle frequently has a low ACV
· Passengers:
o Struck vehicle usually has several passengers
o No children
o All passengers are of the same ethnic origin
· Injury:
o One or more passengers has a history of AB or BI claims
o Vehicle damage is minimal, yet all passengers claim soft tissue injuries and possibly psychological injury
o Driver may not claim injury and involve his own insurance, whereas passengers will claim injury
· (Example on page 12)
Rehabilitation and medical service providers
· Billing practices of those who provide rehabilitation and medical services must be examined
· Instances of over billing, paper billing, and collusion w/ patients to increase insurance payments are ways insurers have been defrauded in the past
· Service provider billing indicators:
o Patterns for service are outside the provincial standards
o Services were never provided to the claimant
o Services are billed twice
o Services were billed outside normal business operating hours (eg on a Sunday)
o Treatments were not administered by licensed therapists
o Therapist is no longer employed by the firm but is shown as providing services
o Need for services misrepresented
· (Example of service provider fraud page 13)
Bodily injury fraud
· In jurisdictions w/out a no-fault system, actions in auto accidents continue to be based on traditional principles of tort liability
Bodily injury and accident benefit indicators
· Pre-existing conditions:
o Previous accidents
o Associated illnesses (medication)
o Substance abuse
o Heavy prior use of medical system
o Intermittent work activity
o Stressful life situations
o Previous prolonged recovery (longer than 3 months)
o Similar injury in the past
o Pregnancy
o Psycho social problems (incarceration, involvement of social agencies, family or other relationship problems)
· Pain issues
o Excessive number of complaints
o Complaints associated w/ pain increase w/ time
o Excessive reliance (after 4 wks) on rest, braces, collars
o Extravagant pain behaviour: moaning, sighing, rubbing the injured area (especially when talking about the injury)
· Excessive disability:
o Disability is inappropriate or inconsistent when compared to initial trauma
o Eagerness to display disability behaviour
o No progress to return to regular activities of daily living
· Emotional response dominates:
o Appears unduly upset, worried, emotional, angry
· Medical issues:
o Doctor shopping
o Excessive or increasing sue of medication
o Non-specific medication (pain, nerve)
o Frequent changes of medication
o Injury is whiplash, back strain, soft tissue
o Symptoms are vague or change
o Medical reports are vague
o Prognosis is guarded for minor injury
o Onset of new pain wks or months after the accident
o Frequently missed appointments
· Other issues:
o Claimant is not employed
o Return to work disincentives
o Physically demanding work
o Job not consistent w/ skills or experience
o Spotty work history
o Self-employed
o Financial disincentives
o Legal counsel involved
o Family member has moved into the claimant’s job
o Family member retired, receiving payments from worker compensation system, Canada Pension Plan, or welfare
o Language difficulties or cultural adjustments
· College of physicians and surgeons
o Each province operates its own College off Physicians and Surgeons
o There colleges investigate complaints about physicians and surgeons
o Patients must consent to the release of any medical file
o A person who is involved in a fraudulent scheme would probably not consent to having medical files released
o Colleges are bound by legislation to preserve secrecy
o Only when disciplinary proceedings are instituted will the case be made public
Sample Review Questions - Fraud Awareness and Prevention
1. The overseas black market trade of vehicles is a draw for fraudulent activity b/c of the demand and promise of high profits.
2. Phantom or paper car – one that does not exist. The o/ship for a unrepairable salvage vehicle is purchased. The non-existent vehicle is re-registered. The new owner then reports the phantom vehicle stolen and submits a claim.
3. Kidnapping and car-jacking have figured in insurance fraud b/c it creates sensationalism as a ploy to divert attention from an attempt to defraud.
4. The information that can be identified by analyzing all auto theft claims are:
o Patterns usual to fraudulent activity may be identified
o Individual fraudsters who are in the business of making claims may surface
o Local or international theft rings may be identified
o Current info assists in the development of timely and effective strategies against fraud
5. A winning strategy used by organized theft rings to make stolen vehicles appear to be legitimate: 2 vehicles of the same make, model, colour and year are sought. One car is stolen and the other is broken into to copy the VIN. VIN plates with valid numbers are manufactured. Change of ownership documents were forged in order to buy insurance and obtain new registration. The stolen car is then sold for cash.
6. Mareva injunction – a civil procedure used to freeze known assets when strong evidence suggests proceeds of a crime have been converted.
7. The 4 branding categories of stolen or salvaged vehicles:
· Irreparable vehicles – banned from public roads. They may be sold only for scrap
· Salvage vehicles – banned from public roads. The yare damaged beyond the cost of rendering them roadworthy
· Rebuilt vehicles – those that have previously been declared to be salvage. They have been repaired, inspected and approved for registration and operation on public roads
· Stolen vehicles – have been declared stolen by police. They have not been recovered (temporary flag). The stolen status may be assigned or removed only by police
8. Motor vehicle arson tends to occur at isolated locations where there are no witnesses.
9. The pre-loss condition of the vehicle is important to establish its value. A finding that a vehicle needs expensive repairs could be motive to commit fraud. Info about where the vehicle was serviced and whether any maintenance records exist is significant to develop.
10. Two types of possible motives for an auto arson claim:
a. Financial – maintenance and operating costs may have become too onerous
b. License suspension – an insured may have had his license suspended and may have been unable to sell the vehicle which he is not permitted to drive
c. Vehicle condition – expensive maintenance work is necessary to keep the vehicle on the road
11. Four policy-related indicators of suspicious claims for an auto claim:
o Claim reported shortly after policy inception
o Insured has no other auto, property, or business insurance w/ the company
o Comprehensive coverage added recently to the policy
o An endorsement limiting depreciation on a newer vehicle is about to expire
o Collision coverage not purchased even though vehicle is fairly new
12. VIN searches are important b/c it can reveal if the vehicle was stolen b4 or if it was in an accident or if the VIN info is inconsistent w/ the insured’s description of the vehicle.
13. Purchase-related indicators:
o Vehicle purchased from insurer, auto repair facility or salvage company (a phantom vehicle)
o Vehicle was a gift
o Vehicle was purchased shortly b4 theft
o Details of purchase unclear (vehicle bought for cash)
o Vehicle purchased a considerable distance from the insured’s home or outside the country
o The lienholder is a private individual
14. The type of actions on the part of the insured that would suggest that the claim requires closer scrutiny:
o Other owned vehicles are insured by other carriers
o Insured works in an auto-related business
o Insured is vague or evasive about his business or occupation
o Insured is very knowledgeable about claims procedures
o Vehicle is too expensive for insured’s apparent income and lifestyle
o Insured has a post office box # for an address
o Insured can not be contacted by telephone
o Insured has a record of prior claims, particularly thefts
o Insured’s payments are in arrears
o Insured is very aggressive and threatens to complain to higher authority, involve a lawyer, or launch a lawsuit
15. Theft-related indicators:
o Theft not reported to police, or not reported promptly
o Theft not reported promptly to insurer
o Police report differs from insured’s report
o Vehicle reported stolen while in the custody of someone who is not a family member
o Theft did not occur at insured’s home, business or usual venues
o Vehicle recovered in unusual circumstances
o Police not advised of recovery
o Expensive equipment claimed to be stolen
o Ownership certificate appears to be a photocopy of an altered document
16. Accident benefits coverages sometimes generate fraudulent claims b/c they may be overly generous to accident victims which sets up an environment where returning to work may be an unappealing option – a situation conducive to encouraging fraud.
17. Staged auto accident: a recruiter gathers a number of prospective accident benefits claimants. Each claimant pays a fee for a seat, in return for a set sum. Others buy a seat for a lesser sum not to be in the accident vehicle but to be shown as passengers on the accident report. The vehicle (often a rental) may be driven into a wall at low speed. In certain jurisdictions police do not attend the scene of a minor accident involving property damage only, rather vehicles are driven to collision reporting centers where an accident report is completed and the insurer is then notified. With copies of the accident report in hand, claimants contact the legal intermediary and are then referred to designated lawyers.
18. Organized accidents may also involve innocent third parties. Collisions with unconnected parties such as the intersection accident are more common as insurers take on a more aggressive approach to suspicious claims. These accidents appear genuine at first glance b/c the parties are clearly not in collusion, and b/c there appears to be a risk of more serious injury than a fraudulent claimant might be expected to assume.
19. Staged accidents typically occur at night, behind buildings or in other areas where there are no witnesses.
20. Staged accidents generally involved rental vehicles.
21. Characteristics often associated with passengers in staged accidents include involvement in other criminal activities such as:
o Welfare fraud
o Worker’s compensation fraud
o Unemployment insurance fraud
o Government hospital insurance fraud
o Smuggling of illegal immigrants
o Illegal firearms
o Narcotics
o Credit card forgery
o Organized auto theft
o Home invasions
o Money laundering
o Organized shoplifting
o Prostitution
22. Dishonest billing patterns associated with fraudulent medical service providers are:
o Patterns for service are outside the provincial standards
o Services were never provided to the claimant
o Services are billed twice
o Services were billed outside normal business operating hours (eg on a Sunday)
o Treatments were not administered by licensed therapists
o Therapist is no longer employed by the firm but is shown as providing services
o Need for services misrepresented
23. Pre-existing health conditions associated w/ fraudulent claims:
o Previous accidents
o Associated illnesses (medication)
o Substance abuse
o Heavy prior use of medical system
o Intermittent work activity
o Stressful life situations
o Previous prolonged recovery (longer than 3 months)
o Similar injury in the past
o Pregnancy
o Psycho social problems (incarceration, involvement of social agencies, family or other relationship problems)
24. Specific issues regarding pain that might suggest a fraudulent claim are:
o Excessive number of complaints
o Complaints associated w/ pain increase w/ time
o Excessive reliance (after 4 wks) on rest, braces, collars
o Extravagant pain behaviour: moaning, sighing, rubbing the injured area (especially when talking about the injury)
25. Medical issues often associated w/ fraudulent accident benefits claims are:
o Doctor shopping
o Excessive or increasing sue of medication
o Non-specific medication (pain, nerve)
o Frequent changes of medication
o Injury is whiplash, back strain, soft tissue
o Symptoms are vague or change
o Medical reports are vague
o Prognosis is guarded for minor injury
o Onset of new pain wks or months after the accident
o Frequently missed appointments
26. Things that would provide a motive for a claimant to not return to work are:
o Claimant is not employed
o Return to work disincentives
o Physically demanding work
o Job not consistent w/ skills or experience
o Spotty work history
o Self-employed
o Financial disincentives
o Legal counsel involved
o Family member has moved into the claimant’s job
o Family member retired, receiving payments from worker compensation system, Canada Pension Plan, or welfare
o Language difficulties or cultural adjustments
27. With respect to complaints about a doctor, the College of Physicians
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