Crooked windshield replacement shops have discovered a way to manipulate repair prices to stick auto insurers with millions in overcharges, investigators were told by a fraud expert.
The alert came from attorney Dennis Kass, with the Los Angeles office of Manning & Marder in a session Friday at the annual seminar of the International Association of Special Investigation Units.
Mr. Kass said, among the thousands of glass claims coming in, the outlaw shops were improperly adding $150 a claim and "carriers are bleeding."
He explained that under the National Auto Glass Specifications, retail rates are set for damaged vehicle window replacements and these are discounted according to geographic area.
Shops in more competitive urban areas are paid less, and those in remote rural areas "out in the tulles get the least discount," he said.
Mr. Kass said this has led shops in city locations to set up dummy operations with addresses in underpopulated areas. When they do a repair, they submit the bill to the carriers' third-party administrators using the rural address they have created and are paid accordingly.
The attorney said the bandit shops are averaging a 40 to 60 percent fraud on each claim.
He described how a San Francisco glass operation had claimed it had an operation in remote Mariposa, which turned out to be the site of some abandoned wooden warehouses.
Another fake location involved nothing more than a sign that was hung on a rural garage wall for which the glass shop paid $150 a month.
In a case brought by Farmers against Legacy Glass, he said that company was charged with making 1,000 false claims for an overpayment of $130,000. Mr. Kass said after the insurer took legal action it recovered $13 million in statutory damages.
He said he is currently working on a glass overcharge case involving over 18,000 false claims with excess charges of $150 to 160 per claim.
Mr. Kass recommended that insurers fight such activity by suing the shops and using Racketeering Influenced Corrupt Organization (RICO) statutes, which typically carry heavy financial penalties.
He also advised that insurers and their TPAs should require more evidence of a shop's location such as a property tax record, or consider having one price level.
Mr. Kass expressed some amazement at what he has found investigating auto glass repairs. In his experience combating insurance schemes, he remarked, "of all the strange areas this takes the cake."
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