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Catharine Zdon of Derry filed a claim with State Farm Fire and Casualty Company reporting her diamond ring stolen-it wasn't. Wellington Potter of Jefferson filed a claim with Vermont Mutual Insurance Company to replace items lost in a fire, but rather than replace the items he took the cash and filed phony receipts. Donald Rankin of Goshen claimed workers' compensation for an injury he said prevented him from doing his job as a truck driver.

However, Goshen found another truck driving job while still receiving compensation from MEMIC.

If you think those are unusual, they are not. Insurance fraud is on the rise in NH and nationally as people look for an easy source of cash in a tough economy. In fact, between the first half of 2008 and the first half of 2009, the number of questionable claims reported to the National Insurance Crime Bureau jumped 13 percent.

Suspected insurance fraud in the Granite State increased 28.3 percent from 2007 to 2008, the most of any New England State.

None of those statistics surprise Thomas F. Nickels, owner of Nickels Professional Investigations in Manchester, who explains that insurance fraud is the "bread and butter" of the private investigative industry. Worrying about job security? "Workers' compensation is better than unemployment" as it lasts longer, pays the medical bills and often leads to a settlement, he says. Is your business on the verge of bankruptcy? Funny, he says, "there are a lot more suspicious arsons these days."

But no one in the insurance industry is laughing.

Nationally, about $90 billion worth of fraudulent claims are filed annually, says Joe Zuromsky, manager of Liberty Mutual's Special Investigations Unit for agency markets, which covers personal and commercial policies, and business liability insurance.

An Easy Out?

While they say crime doesn't pay, fraudulent claims often do. Take the case of Donald Rankin and MEMIC.

After receiving workers' compensation for over a year, Rankin pled guilty to a Class A felony. He paid $2,279 restitution to MEMIC, wrote an apology letter and completed 200 hours of community service. That restitution pay, explains Matt Harmon, MEMIC's director of claims operations in Manchester, covered only the wage replacement Rankin received from MEMIC after it was determined he had gone back to work. "It's really a fraction of the overall claim," Harmon says. It did not cover medical bills or benefits paid to Rankin prior to the fraud investigation.

While having a felony on his record will undoubtedly hurt Rankin's job prospects, his conviction is not the norm. It is one of just 13 prosecutions in NH in fiscal years 2007 and 2008. The NH Insurance Department receives about 300 claims of suspected insurance fraud a year and resolves many outside court. The challenge, says Harmon of MEMIC, is proving fraud in court. Other options include going before a hearings officer at the NH Department of Labor to terminate benefits. At Liberty Mutual, Zuromsky estimates that about 2 percent of the claims filed in his unit are fraudulent. Of those, the firm's 113 investigators can prove fraud about 60 percent of the time. They do so by seeking out such red flags as a claim for a stolen car that is seven or eight years old, as older cars aren't likely to be stolen, or a reported theft of electronics where everything is neatly removed as thieves grab and go in haste, he says.
And it appears people are as unsteady as the economy. Zuromsky sees more slip and fall claims that have no witnesses. Liberty Mutual is also seeing a rise in suspicious claims of jewelry theft from homes.

It's not just individuals who are investigated for insurance fraud. All employers are required by law to carry workers' comp coverage. At the NH Department of Labor, Attorney Martin Jenkins says there is an increase in businesses misclassifying their employees to lower workers' comp rates or dropping coverage and then failing to get new coverage. In those cases, companies are fined more than it would have cost to maintain correct coverage. The department uncovers such practices through periodic wage and hour inspections of businesses. Jenkins says the department rarely has to investigate false claims as insurers are good at filtering those out and addressing them.

But not all cases of insurance fraud are for financial gain. At CIGNA, the majority of its NH cases involve prescription drug abuse where patients "doctor or pharmacy shop" to get additional medication, says Kenneth Faustine, director, special investigations, for CIGNA out of its Connecticut office. CIGNA combats the problem by limiting the number of drugs a patient can get at one time, and checking a patient's subscription history before a pharmacist fills a prescription. It also helps connect patients with health specialists to address any underlying addiction.

Investigating Fraud

Investigating insurance fraud is dicey. While it may seem easy to trail a suspect, Nickels says that is the hardest part. Investigators can't trespass and they can be accused of stalking. And investigators tend to be unpopular, which is why Nickels purposely has no sign outside his office. Besides wits, tools of the trade include pinhole cameras that clip on shirts, low light cameras and everyday video cameras. Nickels looks for boats in people's yards and then videotapes the allegedly injured waterskiing. He once paid a person who filed a worker's comp claim, but ran a hunting business on the side, to take him on a hunting trip. Nickels videotaped the trip to prove the man's physical fitness. By paying for such services, he can prove a case without being accused of a setup.

Insurance companies are required by law to have antifraud units and those units often hire private investigators for surveillance, a time-intensive process that can last days per case and cost more than $1,000. Companies, as well as the individuals accused of fraud, also sometimes hire attorneys to represent their respective interests.

Despite the recession, there has only been a 2 percent increase nationally in workers' comp claims between the first half of 2008 and the same period in 2009. But, says Harmon of MEMIC, which covers more than 200 employers in NH with premiums totaling about $15 million, that sort of fraud can be difficult to prove. "What we're seeing is a select few people taking advantage of claims that start off as legitimate, but they have the desire to extend the length of the claim," he says. "I think the reason is there is reduced incentive to return to work when there is a likelihood of reduced hours, or, if while you were out, the company went out of business."

Once MEMIC suspects fraud-signs include lack of an objective finding by a doctor or an unusually long recovery for a basic sprain-it will decide whether to hire an investigator to prove its case. MEMIC also has an anonymous fraud hotline. Harmon says the company pays close attention to businesses that are going through financial difficulties or going out of a business, as people are more likely to file claims then to insure they will have some form of income coming to them.

David McGrath of McGrath Investigative Services in Seabrook spends most of his time on workers' compensation cases and says, "I've seen people get away with more than you think they should." McGrath says if he finds evidence of wrongdoing, like working for your brother the landscaper while you supposedly have numbing back pain, it's up to the insurers to prosecute. And it's McGrath's opinion that the cost/benefit analysis-once lawyers and other costs are factored in-makes it more trouble than it's worth to prosecute many cases. Harmon sees it differently. While he acknowledges his company "cherry picks" customers and will not work with businesses with high claim rates unless they are willing to pay appropriate rates, he says MEMIC investigates all cases fully. But having probable cause and proof of fraud-and being able to prove it in court-are two different things. That's why the company sometimes settles at a reduced rate rather than pursue a case it's likely to lose.

In some cases, investigations require technical know-how, not surveillance. Enter Judy Gosselin of J.A.G & Co. LLC Investigation in Manchester. She specializes in computer forensics, recovering data and e-mail from computers, even after a fire. She can go places virtually without being accused of stalking, for instance, catching someone setting up an online business after filing for worker's comp stating they can't do computer work due to carpal tunnel or eye strain.

Gosselin says she also sees a lot of dubious bookkeeping. For example, a medical provider might submit false Medicare and Medicaid claims, using fake social security numbers for services never provided. She looks for recurring names or locations or for charges to numerous members of a single family.

And Gosselin isn't the only person combating medical fraud. Insurers say patients are often the first line of defense. Calls to CIGNA's national 24-hour fraud hotline have increased 20 percent in the past year, says Faustine.

He says patients pay close attention to their bills and are quick to call if a bill lists a service not provided (called upcoding) or a visit that didn't happen. Those tips lead CIGNA to check for other misrepresentations by the same doctors-and if it's fraud, it is rarely limited to that one patient. "Investigators call doctors and usually get, ‘oh, it's a clerical error or a billing error,'" he says of cases of suspected insurance fraud.

The Cost of Fraud

Both insurers and investigators say many people believe insurance fraud is a victimless crime. In fact, according to a 2008 study by the Coalition Against Insurance Fraud, one in five adults (or about 45 million Americans) consider it acceptable to defraud insurance companies under certain conditions.

Zuromsky says that perception may be changing as people become aware of the costs involved. Faustine of CIGNA estimates his company nationally prevents $100 million worth of fraudulent claims a year. The savings can be staggering for an individual company, especially a self-insured company that pays its own claims, but uses CIGNA as a manager. If CIGNA stops a $45,000 claim that should have been $15,000, that's $30,000 the employer doesn't have to pay, Faustine says.

When it comes to workers' compensation, having a high number of claims is costly. Harmon says companies with low loss histories can have rates 30 to 40 percent below average, while those with higher losses can have rates 100 percent above average. Nickels says premiums can go up $3,000 to $4,000 per person when a company has a hike in claims. That high cost is why companies call in people like Sebastian Grasso, president and CEO of Windham Group. His company works with businesses and insurers to manage and prevent workers' compensation claims by assessing workspaces and suggesting ways to prevent injuries. But vigilance against fraud can make things harder on people with legitimate claims, he says.
His company has seen a slight decline in business this year as he says fewer people are filing for workers' compensation. The reason, Grasso says, is fear. Older workers who may have a legitimate injury don't want to risk filing a claim and losing their job in a tough market when they are just four years from retirement and have lost money in their 401k. Younger workers also worry about losing their jobs. "If they lose their jobs, there are fewer jobs to get," he says. And it could be a legitimate fear. According to the NH Department of Labor, "There are no job security laws in New Hampshire, but the employer may be required to reinstate you if you are released by your treating physician within 18 months of the date of injury."

Soft tissue or repetitive stress injuries, says Grasso, are subjective and challenging to prove. In those cases, private investigations can sometimes result in cutting off legitimate claims. As an example, Nickels points to a situation where an injured person may have doctor's orders not to lift more than five pounds. If investigators see the person carrying heavy grocery bags, he or she could lose their workers' compensation.

"But what choice do you have? You need the groceries," Nickels says. Zuromsky says abusers often seek the path of least resistance, and historically that path has been insurance fraud. "If you're a citizen in hard economic times, would you rob a 7-Eleven and risk going to jail for seven years or steal thousands from insurance and get slapped on the wrist?" he asks.

That is changing, however. The death of a 65-year grandmother in a staged car crash in Lawrence, Mass. led the Bay State to step up its anti-fraud efforts. Since then, automobile insurance in Lawrence has dropped 24 percent, according to Insurancefraud.org. But rather than giving up commiting crimes, Zuromsky says criminals head to Northern New England. Suspected insurance fraud jumped only 4.3 percent in Massachusetts between 2007 and 2008 (the lowest in New England), while Maine, NH and Vermont all increased more than 20 percent, according to the National Insurance Crime Bureau.

Future Claims

Investigators and insurers fear fraudulent claims will increase if employers continue closing or laying off employees.

Barbara Richardson heads the four-person fraud investigation unit at The NH Insurance Department. Richardson says cases reported to her department have increased about 15 percent in the last 18 months, and she depends on the Labor Department and the Attorney General's office to help investigate and prosecute them.

"In this economy, many people are having problems and they're turning to insurance," she says.

That wasn't how it used to be. When Jenkins started with the NH Department of Labor three years ago, he saw about 10 questionable claims a month. Now his department sees about 10 a week and half of those, as before, tend to be violations due to intentional fraud or negligence.

Insurers report similar numbers. When Zuromsky started at Liberty Mutual in 1991, he was researching four to six cases a month. His investigators now research 12 to 14 each month. And it's likely to get worse. Harmon says employees have two years to file claims after a company closes. "The speculation is these claims are coming, both fraudulent and legitimate," says Grasso. "They are in hibernation."