Identifying key emerging trends impacting insurance fraudinvestigation is crucial. A court decision in one state may spark awave of change that soon sweeps over other jurisdictions — andthose who are unprepared.

Being “ahead of the curve” is key to success in fighting fraud.That's why PropertyCasualty360.com has launched the “Fraud LawWatch” column, which highlights how the law affects the battleagainst insurance fraud across our nation. Each quarter we willkeep you fully informed of — and prepared for — positive andnegative court actions.

The column will mainly review notable civil court decisions(state and federal). Yet all three branches of our governmentimpact fraud-fighting efforts. Thus we will apprise you of newjudicial, legislative and administrative actions of note aswell.

The Coalition Against Insurance Fraud (the Coalition),often in partnership with other respected groups such as theNational Insurance Crime Bureau (NICB) andInternationalAssociation of Special Investigation Units Inc. (IASIU), is aleader in filing amicus curiae briefs on key court casesacross the nation. These “friend of the court” briefs educate stateand federal courts about fraud issues, and insurance fraud's impacton American society. We invite you to let us know about casesimportant to fraud fighters. We can monitor them, and file anamicus brief when necessary.

Kentucky Supreme Court upholds EUOs

A recent amicus case illustrates the reason foralertness. The Kentucky Supreme Court correctly upheld an insurer'sright to conduct all-important Examinations UnderOath. The August decision was long-awaited after contentiouscourt battles.

The issue was whether auto insurers have the right to take EUOtestimony under Kentucky's mandatory PIP coverage.

Most insurers believe they have an absolute right under thepolicy contract. Yet that argument failed in Kentucky lower courts.Why?

Opposing attorneys successfully argued: The legislature did notspecifically include EUO rights in the state's PIP statute. Soinsurers could not take an EUO, even though the policy explicitlyrequired it. The EUO policy provision thus was void. Thelegislature possesses sole decision-making power over the PIPstatute. Once signed by the governor, only the statute controls PIPclaims.

Near-bedlam reigned in the state's largest county, JeffersonCounty, while this case wound through the courts. Questionable PIPclaims have exploded. Insurers found EUOs were crucial tools forgaining intelligence that could help dismantle staged-crashrings.

A lower court upheld EUOs. Another court denied the right unlessit was specifically referenced in the state's PIP law. Insurersmust petition the court every time they want an EUO, a third courtruled. Insurers and claimants had no clear decision nordirection.

Related: Property insurance policies: Sandy claims likely totest EUO provisions

Under Kentucky state low, insurers were unable to use EUOsas part of their investigation of an auto insurance claim. (Photo:Shutterstock)

Defending EUOs in court

The Coalition Against Insurance Fraud and NICB jointly filed anamicus brief with the Kentucky Supreme Court. The Justicesshould consider the need and importance of EUOs as a fraud-fightingtool, we urged. The majority opinion upheld EUOs, specificallyreferencing that point.

How state lawmakers write and pass legislation can have a directand dramatic impact on insurance policies and fraud investigations.State and federal judges are bound to follow the laws as drafted bythe legislature and signed by the executive branch, unless the lawis unconstitutional or otherwise unenforceable. The Adamsdecision illustrates clearly how all three branches of governmentinfluence how we fight fraud.

Equally, the Adams case is nationally important.Opponents of EUOs could have used an adverse decision to challengethis crime-fighting tool in other state courts.

Vigilance in state legislatures proved equally important indefending EUOs. A bill in Washington state sought to greatly limitinsurer use of EUOs earlier this year. The Coalition and insurancedepartment opposed the measure. It died under the weight of ouropposition. Had the bill become law in Washington, EUO opponentsmight have been emboldened to seek restrictive laws in otherstates.

The Adams decision and Washington outcomes mean we canwin crucial battles — and preempt future challenges — byworking through courts and with state legislatures for strongeranti-fraud protections.

In future columns, we will address notable court cases or legalissues. The Adams case and Washington outcome meritsingular attention because of their potentially far-reachingimpact. They show the need to stop a challenge in one state frombecoming a tsunami of bad laws across the nation.

Matthew J. Smith, Esq., ([email protected]) is transitioning fromhis role as founder and president of Smith, Rolfes & SkavdahlCompany, L.P.A. to his new career as associate director ofgovernment affairs for the Coalition Against Insurance Fraud.Smith welcomes your feedback and suggestions forfuture issues for thiscolumn.

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