Katrina Could Spawn Widespread Fraud

Hurricane Katrina will generate insurance "fraud on a scale never before imagined," an attorney who specializes in combating such catastrophe-linked activity warned investigators meeting here.

Guy E. Burnette of Tallahassee, Fla.–speaking at the annual seminar of the International Association of Special Investigative Units–noted that based on past documented activity from previous natural disasters, about 11 percent of claims have proven to be fraudulent. Using this percentage, he said, the four hurricanes to hit Florida last year will result in 286,000 fraudulent claims worth $1.4 billion.

Catastrophes, he said, bring out "the best and the worst in people," and with the federal government earmarking $52 billion for Katrina relief, "opportunistic individuals" will be scheming to get a slice of the pie.

He cited the case of a Homestead, Fla., woman who collected $24,755 from the Federal Emergency Management Agency, claiming Hurricane Frances damaged her home with backed-up sewage, omitting the fact that the backup occurred 20 weeks before the storm and that the house had been condemned before the hurricane arrived.

Mr. Burnette counseled his audience that when examining claims from a catastrophe, they should keep their eyes open, because there is an unlimited variety of insurance fraud–much of it perpetrated by those seeking to make up the cost of their insurance deductibles.

In viewing the televised coverage of New Orleans in the aftermath of Hurricane Katrina, Mr. Burnette said his wife asked what was causing the fires burning in buildings throughout the city. "The lack of flood coverage," he responded.

Mr. Burnette said that to prepare for the inevitable influx of fraudulent claims following a catastrophe, insurers should take a proactive approach and have a protocol for referrals to their special investigation units.

He said investigators can look forward to getting tips on fraud activity from neighbors, ex-spouses and law enforcement agents, as well as honest contractors who have been approached to do repair work in exchange for kickbacks.

Besides homeowners and corrupt contractors, fraud after disasters is committed by "just about everybody"–including insurance agents and independent adjusters, Mr. Burnette warned.

Investigators, he advised, should be wary of insureds who seem too knowledgeable, those who seem in too big a hurry to settle, or those who submit claims that "ask for the moon."

Mr. Burnette said investigators could also expect people impersonating insureds showing up to collect a check, as well as some faking pipe breakage damage or contending that items were missing from their homes because they were looted or "blown away."

One insured, he related, claimed after a hurricane that 53 handguns were blown away from a shack on his property. However, next to the structure were a pile of shoes and a stack of newspapers that were untouched. "We were skeptical [of the claim]," Mr. Burnette observed.

Investigators get fraud tips from neighbors, ex-spouses, law enforcement agents and contractors offered kickbacks.