In courtrooms, attorneys tell jurors about the duty of insurers to protect consumers from higher premiums wrought by fraudulent claims. No matter what your background or perspective, that’s hard to disagree. I’ve just completed 32 years of legal practice, and often spoke those words to judges and juries. The “real world” of denying an insurance claim for fraud, however, is far different.
Insurers make mistakes, and should pay a fair price for missteps. Yet denying a claim — even for insurance fraud — is never the easy way out. Nor, do consumers or insurers often truly “save” money. Denying a claim almost guarantees a lawsuit. In most states, the plaintiff seeks damages for both breach of the insurance contract and bad faith. The latter is a tort that can open the door to unlimited monetary damages.
Insurers thus are risk-adverse. Denying a claim for fraud often is much-riskier than simply paying the claim. Some multi-million-dollar fraudulent claims are denied, yet the vast majority of claim denials involve suspicious lower-value thefts, injuries and smaller residential arsons.
Rarely do insurance-fraud cases, even if they are “victories" cover an insurer’s attorney fees, depositions, expert testimony and litigation expenses. So from a purely financial standpoint, it can be cheaper for an insurer to pay a suspicious claim than challenge and deny coverage.
Good plaintiff attorneys represent their clients well. They diligently review the claim, and can show legitimate weaknesses in the insurer’s investigation and actions. Those claims rightly should be paid. Bad-faith damages also should be factored in, if warranted. However, too many of these cases are exceptions rather than the rule.
More often, even strong fraud cases die a slow death. One or more causes typically factor in: Plaintiff attorneys take on any case, even when blatant fraud is evident. … Defense lawyers simply go through the paces to rack up fees, then claim“new information” to justify a settlement. … Insurers start strong, then back off when costs mount or they face a possible jury trial with judges who force unfairly large settlements.
Fraudsters often are the biggest “winners” — they receive insurance money they don’t deserve. Lawyers on both sides also win with fees they’re paid. The clear losers are honest consumers who pay the price when legal fees, expenses and payments raise premiums. So are Insurers that invest personnel time and monies to investigate, deny and litigate the claim — then still end up paying a bogus claim.
So what’s the answer? Perhaps everyone in the fraud-fighting community should look in the mirror and ask ourselves, “What I can do better today?”
Matthew Smith is director of government affairs and general counsel for the Coalition Against Insurance Fraud.