From the December 2011 issue of Claims Magazine • Subscribe!

Speaking Of: Fighting Fraud Through The Years

With Barry Zalma, Esq., Zalma Insurance Consultants

In the 44 years attorney Barry Zalma has been helping fight insurance fraud, he has seen just a few modifications to the same ole schemes. What has changed drastically, however, is the willingness of insurers to fight and take fraud cases to trial. In addition to practicing law, Zalma has been publishing an e-newsletter, Zalma’s Insurance Fraud Letter, twice a month for more than 15 years. Claims Assistant Editor Melissa Stewart spoke with Zalma about his experiences battling fraud, and he provided suggestions about how insurers can successfully conquer their contenders.

What sparked your interest in insurance, specifically fraud?
I was an Army intelligence agent in the 1960s and wanted to continue acting as an investigator. Fireman’s Fund American hired me to work as an adjuster, and I quickly found that insurance fraud seemed to be a regular occurrence. Since I was an investigator before I was an adjuster, I gathered more facts than most and worked hard to establish a defense.

What is the most common type of insurance fraud you come across?
The most common types of insurance fraud are small and committed by honest people with a real claim who add something to their loss to cover their deductible. The state Departments of Insurance call these “soft” frauds, ignoring the fact that they are just as criminal as a staged accident.

With the economy down, people with leased vehicles who have exceeded the agreed mileage and can’t afford to pay the penalty are the most common types of fraud we see. The most expensive, on the other hand, are medical insurance, Medicare, and Medicaid fraud, where doctors, chiropractors, and fake medical clinics are collecting millions.

What resources and strategies will be the most beneficial to insurers in detecting and deterring fraud?
The most effective tools in detecting fraud are well-trained, educated, and experienced claims and SIU staff. It is essential that the claims staff is educated in recognizing potentially fraudulent claims and the obligation to refer a case to the SIU for further investigation. The SIU has the tools and access to the entire claims database and other databases that will assist it in completing a thorough fraud investigation and determine if it is necessary to report a loss to the local Department of Insurance Fraud Investigators.

Once the preponderance of evidence convinces the insurer that a fraud has been attempted, the company must be committed to rejecting the claim and defending any suit by the fraud perpetrator through trial and all appeals; never agreeing to a settlement. 

If the insurer determines there is a fraud ring, then it is also useful to bring suit against the ring of perpetrators if they have assets that can be seized after obtaining a judgment to take the profit motive out of the crime.

How has fraud changed during your years of experience?
I’ve been involved with insurance claims since 1967 and have found that generally insurance fraud hasn’t changed all that much. There are just some different variations on the usual schemes. People come up with new ideas and get greedy, but those are fairly easy to catch and defeat. If anything has changed, it is that insurers are more willing to fight, to take cases to trial and refuse to pay claims they believe are frauds. I also notice that the U.S. Department of Justice is working to prosecute more Medicare and Medicaid fraud perpetrators.

What are some tips for insurers for recovering from fraud perpetrators?
Do a thorough investigation; retain competent counsel; and sue them. If they are prosecuted and convicted, then appear in court and demand restitution.

What has been your most surprising or interesting fraud case?
They are uncountable, but the most interesting is a reported decision that established the grounds for rescission of an insurance policy in California, Imperial Casualty and Indemnity Co. versus Sogomonian, 198 Cal. App. 3d 169, 243 Cal. Rptr. 639 (Cal.App.Dist.2 02/04/1988). I did write an e-book with more than 80 of my favorite stories.

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