My introduction to Premium Fraud:

When I first started my job as a Workers Comp Claims adjuster, I was assigned a very puzzling claim file.  First, I noticed the worker’s injury had occurred a year before the claim was reported to the insurer.  Secondly, the worker (let’s call him Bill Watson) had suffered a nearly catastrophic injury.  Bill had been working as a roofer.  He was walking with a long pole on his shoulders with two buckets of hot tar balanced on each end.  Bill stumbled and was severely burned over most of his body  when the buckets of hot tar poured over him. 

Bill already had two surgeries before the claim was reported to the insurer (my employer).  Bill’s employer, the roofing company insured by my carrier, had not reported the claim.  Bill’s attorney had reported it to us, over a year after the injury.

 

As a new claims adjuster, I was puzzled—Why had our employer failed to report this very serious injury?  At the time, I had not heard the term “Premium Fraud” , but I was about to get some “on the job” training. 

I called our policyholder (let’s call them LCS Roofing, owned by Larry and Cassie Smith) to ask them about the injury.  I made several phone calls to the Smiths and left semi-frantic voice mails.

Later, I received a call from an attorney who said he was representing Mr. and Ms. Smith.  The attorney  said I was to stop calling Mr and Ms Smith and communicate only with him.  I was flabbergasted.  I told the attorney,I am the assigned claims adjuster for the Smith’s.  If they refuse to cooperate with the claims investigation, we will cancel their policy.  Of course, the attorney replied that the Smiths are not refusing to cooperate, but they did not want to speak with me directly. This attorney said the Smith wanted me to deny the claim because Bill Watson was not their employee.

During the phone call, I finally realized something was wrong.  I called a Senior Payroll Auditor named Jane and asked her opinion of the situation.  I heard Jane gasp on her end of the line.  “The Smith’s have never reported any payroll for the past ten years they have been insured with us.”  Obviously, they had employees.  There was Bill Watson.  Also, in the emergency room report, they noted that two co-workers had driven Bill to the ER.  So that sounded like three employees, and the Smith’s had not reported payroll for any of them.

Business owners commit Premium Fraud when they give misleading information to their workers comp insurer in order to pay a lower premium amount than they should.  Insurers calculate the premium for the employers based on three primary factors—their gross amount of payroll, the type of work their employees due (as defined by the class codes for each profession) and their loss experience.

After speaking with Jane, I understood why the Smiths did not report Bill’s injury and did not want to speak to me now.  They had not reported any payroll, so they could not admit they had a work who had been injured.

At that point, I contacted our Special Investigation Unit (SIU) about the claim.   An SIU investigator named Doris was assigned to investigate the situation.  Doris worked with Jane in Audit and our Legal Department to complete the investigation.   Our attorney deposed Bill Watson and got his side of the story:

Bill worked for the Smith’s as a roofer for about two years before the accident.  As Bill was in the hospital recovering from the burn injury and the first skin graft surgery, Larry Smith told Bill he had no workers compensation insurance and that Larry would pay for his medical treatment out of pocket.  This was a lie.  The Smith’s were insured for workers comp with my company at the time Bill was injured.

As Bill recovered, Larry Smith paid Bill his regular wages in addition to the medical costs.  After three months, Bill’s doctors recommended a second skin graft surgery.  Larry Smith continued to pay Bill’s wages and for the medical treatment.  After nine months, Bill’s doctors said he needed a third surgery.  At that point, Larry Smith said he could no longer afford to pay for the wages and medical care and he cut Bill off. 

Bill was left on his own, unable to work due to his continuing pain and unable to pay for the medical treatment he needed.  Bill went to an attorney for help.   He chose a Personal Injury attorney because Larry Smith had told him he had no workers comp insurance.  However, the PI attorney checked with the Workers Comp Insurance Rating Bureau and found the Smith’s were insured with my employer.  Then the PI attorney filed the claim which landed on my desk.

After the deposition of Bill Watson, our in house attorney recommended we accept Bill’s claim and pay for his third surgery (and all the other benefits he should have been getting all along). 

Doris, the SIU investigator, reported the case to the local District attorney and Department of Insurance offices.  The DA filed felony fraud charges against Mr. and Ms. Smith.   During the DA’s investigation, they had obtained information from the State Payroll Tax authority and found the Smith’s had continually reported their employee payroll taxes to the State and Federal government, even though they had reported no payroll to their workers comp insurance carrier.

When the DA investigator confronted the Smith’s with this information, Mr. Smith admitted that he had been advised by an attorney to report his payroll correctly to the State and Federal government while not reporting any to the workers comp carrier.  He said he was told, “You don’t want to risk getting caught cheating by the tax man, but the insurance company probably won’t catch you cheating them”.

This case was the first time I was called to testify for a Grand Jury.  Jane the auditor and Doris the SIU investigator were called to testify also.  The Smith’s entered a guilty plea and agreed to pay nearly $300,000 in restitution to the insurance carrier for the insurance premiums they should have been paying for years.  Jane the payroll auditor was able to calculate the amount of premium the Smith’s should have been paying us by using the payroll numbers they had reported to the State.

I will never forget how Ms. Smith looked as she and her husband stood before the judge sentenced them.  She seemed to be shaking with anger.  I wondered if she was angry at the judge, the DA’s prosecutor, the insurance company, or Bill Watson.  I think she was mad at her husband for letting the situation get so far out of hand.  

Bill Watson got his third surgery and back pay for temporary disability benefits.  Later, we gave him a Stipulated settlement to take care of his future medical needs.

The Smiths were allowed by the judge to pay the restitution in monthly payments.  They also asked  us to give them credit for Bill’s medical care they had paid for, but we declined.

My lesson learned---If a policyholder tells you a workers comp claimant is not their employee, take it with a grain of salt.  Start asking questions. There is probably more to the story than they want to tell you. 

                               

    

          

 

 

“The Exaggerator”

Bill Simms was a 37 year old warehouse worker who filed an injury claim after a forklift operator ran over his foot, spraining his ankle.  His clam was accepted and he was placed on TTD status by his primary treater.  Simms was given a Cam Walker boot to keep his ankle stabilized while he recovered.

After several treatments, the physical therapist noted in his report that Simm’s legs were tan, suggesting that he was frequently outside without the cam walker boot.  However, Simm’s told the PT that he “always” wore the boot, except when sleeping or taking a shower.  The claims adjuster recognized the red flag and contacted SIU.  I worked with the adjuster and we assigned sub-rosa, using an outside PI vendor.  The plan was to conduct surveillance of Simms before, during and after his next PT visit.

On the morning of the PT appointment, the PI vendor captured video of Simms washing his truck in the parking lot of his apartment building.  Simms was dressed in shorts and flip flops and he was not wearing the walker boot.  His movements seemed normal.  When Simms left home for his PT appointment, he was wearing the walker boot and he now had a crutch. 

The PI vendor parked near Simms in the PT’s parking lot.  The PI captured video of Simms walking very slowly into the PT office, using the crutch, and still wearing the boot. During the appointment, Simms reiterated that he “always” wore the cam walker boot and could not walk anywhere without it.   After the appointment. Simms walked out of the office, very slowly.  However, once he reached his truck, the video showed him taking off the cam walker boot and throwing it into the back of his truck, along with the crutch.

The PI followed Simms to a gas station, where Simms filled up his truck with gas, wearing flips flops and walking very differently than he just had at the PT’s office.  When we showed the video to Simms’s primary treater, he noted that Simm’s “demonstrative behavior” in using the crutch and boot was strikingly different from his demeanor before and after the PT appointment. 

Based on the video, the primary treater released Simms from care, with no permanent disability or need for future medical care.  The district attorney filed felony fraud charges against Simms based on the concept that Simms’s demonstrative behavior was a material misrepresentation that had enabled him to gain benefits that he was not entitle to. 

Simms entered a guilty plea and received three years probation and an order to pay restitution to the insurer.

 The Total Fakers---

In my experience, the rarest Claimant fraud scenario is the one where the person completely fabricated a workplace injury.  Usually, the worker experienced some kind of injury and exaggerates the incident to get more workers comp benefits than they are entitled---usually staying off work longer than they need to.

The following two workers comp claimants stick out in my mind as “total fakers”.   Ted Wilson was working his second day on the job as a Grounds man for a tree trimming company.  Ted and his co-worker Randy were feeding debris into the big woodchipper machine.  Somehow, a long rope with a small hook on the end was mixed in with the debris.  When the rope entered the chipper, the end with the hook came whipping rapidly into the machine.  On its way in, Randy was stuck on the side of his torso by the hook and he fell to the ground in pain.  Ted also fell to the ground alongside Randy.  Ted was holding his head and shouting “I’ve been hit, I’ve been hit”.   The supervisor noted that Ted was making a bigger fuss than Randy, who had obviously suffered a severe injury.

The supervisor helped Randy and Ted off the ground.  He saw that Randy was bleeding from his side and in great pain.  Ted, however, did not seem to have a scratch on him, but he claimed his head was “killing him”.  The supervisor called an ambulance for Randy and was a little exasperated when Ted insisted on being transported for emergency medical care, too.

A claims adjuster named Tricia was assigned to handle both of the resulting workers comp claims.  Tricia immediately accepted Randy’s claim.  Due to the rope injury, the doctors removed Randy’s spleen and he was hospitalized for over a week.   Tricia put Ted’s claim on Delay in Decision (for 90 days) so that it could be investigated before it was accepted.  She contacted the Special Investigation Unit and I was assigned to the case.

To start my investigation, I spoke to the supervisor who was there at the time of the incident.  He said he did not believe Ted had really been injured.  He said it did not make sense to him because Randy had obviously been struck by the rope but Ted was standing at least six feet away.  The supervisor said he did not see any blood or obvious wound on Ted’s head.

 Next, I called the ER doctor who treated Ted when he was brought in by ambulance.  I noted the doctor had diagnosed Ted with a “contusion” to his head.  I asked the doctor if he had actually seen a contusion, and he said, “I did not really see anything, but the patient said he got hit in the head, so I wrote “contusion”.

Meanwhile, Ted obtained an attorney to represent him in the claim.  The attorney had Ted see a Qualified Medical Evaluator (QME).  Based on his exam of Ted, this MD diagnosed Ted with a head injury which was causing Ted to experience sever migraine headaches.  The MD said the injury was related to the rope incident.   Ted told the QME doctor he had never had migraine headaches prior to the incident.

Tricia, the adjuster, conferred with our Legal Department over whether the claim should be accepted, based on the QME’s medical report.  Our defense attorney recommended we depose Ted before we accept the claim.  We held Ted’s deposition a month before the 90 day deadline to accept or deny the case.

Ted revealed some interesting information  during the deposition-- Ted held a Masters Degree in Engineering.  Our attorney asked Ted why he had gotten a job doing landscaping for minimum wage when he had an advanced degree in the sciences.  Ted said he was new to the area and just needed some work until he found something in his chosen field.

Our attorney had Ted describe the facts of the incident step by step.  She also asked him about his ongoing symptoms—the severe migraine headaches.  Ted emphatically stated he had never had migraine headaches prior to the incident with the rope and woodchipper. 

After the deposition, Tricia was under pressure to make a decision on accepting or denying the claim.  On the one hand, the QME medical report said the injury was industrial.  On the other hand, the mechanism of the injury did not seem credible.

Tricia noted that Ted had mentioned seeing one local medical doctor prior to the incident.  She subpoenaed the doctor’s records.  The doctor’s records showed that he had seen Ted 3 weeks before the incident.  The doctor prescribed Ted medical marijuana.  The doctor listed the reason for the prescription as “chronic migraine headaches”.

Therefore, Ted lied in his deposition when he said he had never had migraines before the chipper incident.

Tricia had very little time before the 90 deadline.  We delivered the marijuana doctor’s report to Ted’s QME and asked him to write a supplemental report.  In the new report, the QME stated the injury was non-industrial and Tricia was able to deny the claim on the 89^th day.

I referred Ted’s case to the local District Attorney’s office and the Department of Insurance Fraud Unit.  The DA’s office filed Felony insurance fraud charges against Ted.  He entered a guilty plea.

On the day of his sentencing, Ted was accompanied by members of his church who had raised $2000 for Ted to give as a “down payment” on the restitution he owed our insurance company.  The judge sentenced to 4 years of formal probation (instead of prison) because of the down payment.  The judge also ordered Ted to pay the remainder of his restitution ($8000) in monthly payments.

In the hallway outside the courtroom smiled at me and told me, “Don’t worry, I forgive you” while surrounded by the supported church members.

After the sentencing, Ted never made any restitution payments.  I found he had left the state and moved back east, violating his probation.  Unfortunately, the amount of his restitution was not enough to justify extraditing him back to California.  I doubt he ever re-paid the good hearted church members who helped him out.

My personal feeling about the case is that Ted intentionally caused the accident by putting the rope in the chipper.  I think he probably got the job with intent to fake the injury and file a workers comp claim.

If he did not cause the accident, he at least tried to take advantage of a situation where his co-worker, Randy, did suffer a severe injury.

In the end, we could not prove that he faked the injury.  But we did prove that he lied in his depo and to the QME doctor about his history of migraines, and that was good enough to get the conviction.   Even though he violated his probation by leaving the state and failing to pay his restitution, we avoided liability for a fraudulent workers comp claim, which would have negatively impacted our insured, the tree trimming company.  And if Ted ever returned to California, there is an arrest warrant waiting for him.

Here's a quick story about another “total faker”.  One of my fellow SIU investigators handled this one, and I think he did a great job with it.

Bob Wilson worked as an armed security guard.  He was assigned to the night shift.  He was given a company car which he used when driving to various locations he was assigned to guard at night.

Bob worked nights alone.  One morning, he reported an incident to his boss--- he had been the victim of a drive by shooting.  He said somebody had shot at him with a handgun, hitting the passenger side door of his vehicle.  At the time, Bob was parked in the parking lot of a strip mall he was assigned to guard that night.  He said when he heard the shots fired, he ducked down in the car. 

Bob told his boss he was not hit by the bullets but he wrenched his back while trying to avoid the gunfire.  Bob’s boss called the local police to investigate the shooting.  He also filed a workers comp claim for Bob who said he was in severe pain.

While getting treatment for his back pain, Bob maintained his story.  There were stories in the local media about the brave security guard who survived a drive by shooting.

During the Sheriff’s investigation, they examined Bob’s vehicle.  They removed the bullets from the passenger side door and did a ballistics test.

They found all the bullets had come from Bob’s own gun.

When the Sheriff’s Department interrogated Bob and confronted him with the evidence, he admitted he had shot his own car and concocted the story about the drive by.  He admitted he was hoping to get some time off work and to get paid for the workers comp claim.

The DA filed charges against Bob related to filing a false police report and insurance fraud.  Bob entered   a guilty plea to all the charges.  He was sentenced to a year in state prison.  When he got out, he paid his restitution payments to our insurance company.                 

               

                                                                

 

 

“The weekend warrior”—

One Monday morning, Gene Preston, a 24 year old apprentice roofer,  filed a workers comp as soon as he reported to work.  He claimed he fell off a ladder and broke his right ankle the preceding  Friday afternoon after the boss was gone for the weekend.  Preston said he suffered in horrible pain all weekend and had to literally drag himself into work on Monday to report the injury and seek medical care. 

His boss, Mick Mills, the owner of a small Southern California based roofer, immediately reported the injury to their workers compensation insurance carrier.  Mills also told the claims adjuster he was a little suspicious of the circumstances of the injury.

The claims adjuster put the claim on Delay in Decision status while it was investigated.  Preston received treatment at the industrial injury clinic.  The doctor verified Preston had a fracture in his ankle and put him in a cast.

The claims adjuster alerted the Special Investigation Unit and I was assigned to investigate.  The adjuster and I agreed to hire an outside private investigator to conduct the standard investigation interviews--- the PI spoke with the boss, Mr. Mills, and Preston’s father, Brian, who also worked for Mills.  Brian Preston was the only other person working with his son on that Friday afternoon.

In the workers comp investigations, we talk about the “Friday afternoon/Monday morning” injuries.  These are suspicious injuries that supposedly occur on Friday afternoon (after the boss has gone home for the weekend) and reported first thing Monday morning.  Gene Preston’s claim is a near perfect example of this fraud scenario.

Mike Mills told our PI Gene told him he had fallen off a ladder that Friday afternoon and landed wrong.  Gene told Mike he had been in extreme pain but he toughed it out the rest of the day and over the weekend.  When the PI spoke to Brian, the father, he said he did not see his son fall off a ladder and his son never mentioned it to him that day.  He said his son seemed absolutely fine.

The PI called Gene to take his statement about the injury but he declined to talk to him, because he said he was getting a workers comp attorney to represent him.   

Based on the statement of Gene’s father, the adjuster denied the claim on the basis that it did not appear to have occurred on the job. 

Gene retained a workers comp attorney and they eventually brought the case to trial at the Workers Compensation Appeals Board (WCAB).  During preparation for the trial,  the claims adjuster and our defense attorney continued the investigation, along with myself.  We knew Gene had a legitimate broken ankle on the Monday morning.  However, according to Gene’s dad, he was fine on Friday afternoon.  So, we asked the question-- what happened over that weekend?

 

We canvassed hospitals in the area where Gene lived and we got a hit.  We subpoenaed medical records from a local emergency room and found the rest of the story.   Gene went to the hospital on the Saturday before he reported the injury.  He told the ER doctor he had gotten very drunk on Friday night and fell down the stairs at his apartment, breaking his ankle.  Gene declined treatment at the time because he was uninsured.  He just wanted some painkillers. 

This account of the injury was obviously very different from the one of he gave Mike Mills on Monday morning.  The claims adjuster provided the ER records to the workers comp Qualified Medical Evaluator (QME) who opined that the injury was non- industrial, i.e. not related to his work.  In the WCAB trial, the judge reviewed the QME’s report and the ER records and heard testimony from Gene and his father.  The administrative judge did not believe Gene’s account of the injury and ruled against him.  The judge awarded a “Take Nothing” in favor of the workers comp carrier.  Gene was to receive no further workers comp benefits from this injury.

After the outstanding work of our claims adjuster and defense attorney, I referred the case to the local District Attorney and the Department of Insurance Fraud division.  They filed Felony fraud charges (Penal Code section 550(b)(c)) against Gene.  Even as a criminal defendant, Gene maintained his story that he had fallen off a ladder at work and he did not enter a guilty plea.

The D.A. took the case to trial in Superior Court.  Our claims adjuster and defense attorney were called to testify along with Gene and his father.  However, the jury returned a hung verdict—ten jurors voted “Guilty” but two others voted “Not Guilty”. Speaking with jurors afterwords, the two “not guilty” told the DA they knew Gene had lied, but they felt sorry for him.

Nevertheless, the DA refiled the case, based on the strong evidence that Gene had lied when he said he was injured at work.  This time, Gene entered a guilty plea to misdemeanor charges of fraud.  He was ordered to pay restitution to the insurance company for their expenses and served four years formal probation.

Lessons learned—The general public is usually not very sympathetic to insurance companies as victims of insurance fraud.  We have to explain how people who cheat the system hurt the people who play by the rules.   And even when the insurance companies win, the outcomes do not fully repay the losses.