A 71-year-old grandmother was driving to her daughter’s house when her car was intentionally hit from behind as part of a staged accident. She swerved, hit a tree and died, thus becoming an especially tragic victim of “no-fault fraud.”
While loss of life may be rare, the crime is rarely harmless. It’s a billion-dollar racket that bilks both insurers and the public.
Law enforcement and state legislatures are just starting to catch up with this crime in states where it’s at its worst, such as Florida and New York. “These states are a ‘field of dreams’ for fraudsters,” says Jim Whittle, chief claims counsel with the American Insurance Association.
In New York, state and federal investigations have resulted in arrests of 52 people, including 10 doctors and three lawyers. In Florida, the state senate – with the support of Gov. Rick Scott – just passed a comprehensive reform of its no-fault law.
No good deed goes unpunished
Unfortunately, no-fault insurance shows that no good deed goes unpunished. When a fender-bender occurs with minor injuries, there’s no reason why the driver’s own insurance shouldn’t pay a reasonable amount — up to $10,000 in most cases — to settle the matter and pay to treat the injured party or parties rather than going to court.
But some states have upped that ante. New York sets the bar at $50,000 per person, while Florida puts a deadline on when an insurer has to pay. If the deadline isn’t met, the price goes up.
Crash dummies and massage therapists
This pot of insurance cash tempts would-be criminals like the Russian mafia, and shady chiropractors, acupuncturists and owners of storefront medical clinics to create mayhem on the highways and rip off insurers. As reported on the “CBS Evening News,” these rings recruit illegal immigrants to act as crash dummies in staged accidents. The so-called victims then claim fake back and neck injuries, hire lawyers and get treatment from phony medical clinics to run up huge bills that insurers have to pay.
Florida’s new law curbs some of this abuse by setting a two-week deadline to start any treatment, disallowing care from massage therapists and giving insurers the right to put policyholders under oath when investigating fraud. Some would argue that Florida goes too far. One of the law’s proposals, which didn’t pass, would have capped attorney fees for these cases.
But it’s hard to argue that reform isn’t needed. In Florida alone, the cost of no-fault insurance rose by $500 million from 2010 to 2011. Insurance Commissioner Kevin McCarty, hardly an ally of the insurance industry, said the choice was between fixing no-fault and getting rid of it.
However, these rings are now so well-organized and well-funded that they can simply migrate to the approximately 20 other states that have no-fault laws. Insurers see Minnesota as a likely target, and one of the defendants recently rounded up in the federal probe is from this no-fault state. Another problem is that a fake medical clinic can also be used for other types of fraud, such as bilking Medicare and Medicaid with fake MRI, X-ray and orthopedic bills.
James Quiggle, spokesperson for the Coalition Against Insurance Fraud, said he’s already seen the “cockroaches migrate north” from Miami to Tampa and from New York City to Buffalo when big-city law enforcement puts the heat on. “We are fighting a battle of resources against gangs who can bilk with industrial-strength efficiency,” he warns.
It’s anyone’s guess who’ll win.