Proving Insurance Fraud

Proving
INSURANCE FRAUD
Steven P. Del Mauro
McElroy, Deutsch, Mulvaney & Carpenter, LLP
Newark, New Jersey

Robert R. Pohls
Pohls & Associates
Los Angeles, California

International Claim Association – 2010 Annual Education Conference – Austin, Texas – October 4, 2010

Proving RESCISSION CLAIM LITIGATION TRIAL
INSURANCE FRAUD AGENDA QUESTIONS
CHECKLIST STRATEGIES STRATEGIES STRATEGIES

1. Rescission Checklist

2. Real Case Study

a. Claim Strategies

b. Litigation Strategies

c. Trial Strategies

3. Questions
2



Purpose Developed to train young associate lawyers as a guide
and to assist in issue spotting.
Goals - To provide a thorough, complete and fair review of
each claim.
- To eliminate or greatly reduce the company’s liability
and exposure to extra-contractual liability/bad-faith.
- “Tee-up” the case – achieve rescission while
substantially reducing attorney fees and costs.

NO SURPRISES!
3



4



1. Do I have the complete file?

- All coverage(s) with the company.

- Correct policy forms with all riders.

- All signed application forms, especially the delivery
requirements.

- Conditional receipt form.

- Applicable underwriting guidelines.

5



1. Do I have the complete file?

- Recording of inspection report/telephone verification.

- Premium/Billing information.

- Outstanding or incomplete investigation.

- Medical record requests (time period).

- Inspect original application documents to assess the
appearance of alteration – different handwriting or color ink.

6



2. Governing Law – contractual rights

- New Jersey vs. Arizona.

- ERISA – DOL claim guidelines?

- Within 2 years of issuance or beyond.

- Review the language of the incontestable clause.
- except for fraudulent misstatements.
- tolling/accordion.
- strict two years.
7



2. Governing Law – contractual rights
- Legal Fraud.
- Equitable Fraud.
- Does jurisdiction require proof that misrepresented or
concealed medical condition is cause of loss?
- If policy is not contestable, are you in a jurisdiction where
you still have recourse?
- ex., New Jersey Insurance Fraud Prevention Act.
- ex., Waiver of premium rider/life insurance
- Alternate basis to adjudicate claim?
- ex., Pre-existing condition limitation provision.
8



3. Misrepresentation/Concealment

- Misrepresentation/concealment on the application(s).
- Misrepresentation and concealment of a material change
in health during underwriting.
- Or both.

- Any medical information we developed during the claim
which reflects medical consultation, diagnosis and/or
treatment during underwriting of the policy.

9



- Conditional Receipt
- When did we get the money?
- Generally two types providing different contractual rights:
1) Simply provides coverage if conditions are met,
with a beginning and end date.
2) Fixes a date for determining insurability, if
conditions are met. Changes in health occurring
thereafter are ignored in determining insurability.
- Negligent delay in underwriting the policy.
- Length of time to underwrite in comparison to
company standards.
- Cause of delay 10




- How was the policy delivered?
- Mail
- In person
- No conditional receipt coupled with change in health
– why?
- Was conditional receipt offered and refused?
- Negligence per se rules; Brill v. Guardian Life Insurance
Company of America.
- Underwriting Opinion.

11




- Misrepresentation/Concealment on Application
- All questions answered on application, including
related questions.
- Objective vs. subjective questions.
- ex.: “Have you ever received treatment for or been
diagnosed as having or had any of the following?”
- ex.: “Within the past 5 years have you had a
physical examination, medical consultation, X-ray or
laboratory study, or been a patient in a hospital or
other medical facility?”
12




- Misrepresentation/Concealment on Application

- Medical, financial, over-insurance, avocations.

- Incomplete answers – details.

- Half truths.

- Misrepresentation to broker, paramedical, or both? Was
it affirmed during inspection report?

13



4. Underwriting
- Company’s requirements for age and amount of
insurance applied for.
- Complied with or waived
- ex.: APS requirement; tax returns; financial statements.
- Sources of information available to underwriter.
- ex.: MIB
- Any information developed during underwriting which is
inconsistent with the representations made on the
application which may give rise to the duty to inquire.
- ex.: APS
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5. Underwriting Post-Loss

- Confirm the files reviewed by the underwriter.
- Were all grounds for rescission identified?
- Obtain and review underwriting guidelines that support
underwriters conclusion.
- Misrepresented fact must be “material.”
- black/white vs. exercise of discretion
- Conference with underwriter.
- Referral to medical director where applicable.

15



6. Agent Misconduct

- Ascertain the producer’s relationship with the company
and with insured.

- Obtain agent statement.

- Obtain agent’s files.

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7. Confront Insured

Did we provide the insured with an opportunity to explain the
apparent inconsistency between the information represented
on the insurance applications and that developed during the
investigation of the claim?

17



8. Rescission of a Reinstated Policy
- Was there a valid lapse of the policy without value?

- Alternate basis for claim adjudication.

- ex.: The reinstated policy will only cover disabilities
due to injury occurring after the date of reinstatement,
and due to sickness beginning more than 10 days after
that date.

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9. Estoppel/Waiver During Claim Handling

Inconsistent positions are to be avoided like the plague.

19



10. Claim Determination
- Appropriate tone.
- Correctly cites all applicable policy provisions.
- Factually accurate.
- All basis for decision, including alternate grounds.
- Tender premium refund.
- Reserves all rights.
- Supervisor approval.
- Compliance with internal company procedures
20



Real Case Study: Cynthia’s Kids v. Insurer and Agent
Proposed Insured: Stacey
Applicant/Owner: Cynthia
Proposed Beneficiaries: Cynthia’s 3 children (all minors)
Application:
· Completed in agent’s office (Los Angeles)
· Dated: March 17, 2004
· Physical Description: 32 years old
5’1” and 120 lbs.
· No Adverse Medical History
· No History of Tobacco Use
· Occupation: Unemployed
21



Face Amount Applied For: $50,000
Monthly Premium: Less than $20/month
Cash With Application: First month’s premium
Signatures:

Cynthia (Applicant/Owner) Stacey
(Proposed Insured)

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· No paramedical examination
· Oral specimen
· Collected at time of application
· Processed on March 24, 2004
· Negative results
· reported to insurer on March 26, 2004
· received by underwriter on April 27, 2004
· Paper application received April 27, 2004
· Additional underwriting requirements satisfied on May 3, 2004
· Underwriter approved application: 4:48 p.m. on May 5, 2004

23



· Pronounced dead at 6:20 a.m. on May 6, 2004

· Reported to agent (and insurer) on May 8, 2004

· Agent indicated he was told Stacey died of a heart attack.

· Agent informed Cynthia that insurer will conduct an
investigation because Stacey’s death occurred in the
contestable period.

· Claim kit sent on May 10, 2004
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Telephone Interview of Cynthia -- June 3, 2004

· Stacey had “never been ill and didn’t have a family
physician.”

· Stacey had gone to Houston to visit their mom and
became ill.

· Stacey was taken to “the largest trauma center in
Houston,” which is where she died.

· Cause of death is not yet known.
25



Telephone Interview of Stacey’s Mom -- June 9, 2004
· Stacey died of a “massive heart attack.”
· Stacey had been “physically healthy.”
· Stacey was mentally ill.
· Diagnosed with schizophrenia 10 years earlier
· Many “mental doctors” and medications.
· Stacey had been living in a nursing home in Southern CA.
· Had “breathing problems” in March 2004.
· Was moved to a Southern CA hospital for 4-5 days,
then transferred to hospital in Houston “to be
closer.”
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My mama always said:
“IF YOU TELL ONE LIE, YOU’LL
HAVE TO TELL ANOTHER.”

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Claim Strategy Number 1:

Give ’em some rope.

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· Stacey had been “in and out of mental type institutes.”

· Someone asked her if she had insurance “in case
something happened to” Stacey.

· Picked Stacey up from a nursing home one day to go
shopping with two friends, then to agent’s office to sign the
application.

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· Did not remember any application questions being read
to her.

· Just “signed the application” where “she was told to.”

· Told the agent that “if something happened to her and her
sister, she wanted her [Cynthia’s] kids to be the
beneficiaries.”

30



Telephone Call from Cynthia -- June 9, 2004
· Reported that she has “only a 5th grade reading/writing
level.”
· Claimed she went to the agent because the insurer
indicated its agents would “do everything” for her.
· Trusted the agent “with everything.”
· Told the agent that:
· Stacey “was in a nursing home for mental
problems.”
· Cynthia was supposed to be the beneficiary, not
her kids.
· Friends and family told her to “get a lawyer.”
31



Telephone Call to Cynthia -- June 23, 2004
· No one asked any questions at the time of application.
· Claimed she called the agent’s office in January 2004 and
left a message:
· Stacey is mentally ill with schizophrenia.
· Could she take out a policy on Stacey?
· Claimed she called again in February 2004 and was told to
come to the office to get a policy on Stacey.
· Only one friend – Michele – went shopping with Cynthia
and Stacey and was present at the time of the application.
32



Telephone Call from Cynthia -- July 22, 2004
· Claims agent came to her house 4 hours after learning of
Stacey’s death and told her to not file a claim:
· filled out some underwriting papers on his own.
· was afraid to lose his job.
· willing to pay money from own account if Cynthia
would not file a claim
· Claims agent made similar offer to Cynthia’s mother; agent
also called on Cynthia’s cell phone during Stacey’s funeral.
· Is “sure the agent is trying to trick her as she is sure the
agent forged her signature on the policy.”
33



Telephone Call to Cynthia – August 22, 2004
· Told the agent in January 2004 that Stacey was mentally ill
and living in a nursing home.
· One friend went with her and Stacey to the agent’s office to
sign the application on March 17, 2004 .
· “no questions were asked.”
· she and Stacey “both signed paperwork” where told.

34



Telephone Call to Cynthia – August 22, 2004
· Stacey left Los Angeles for Houston on April 22, 2004.
· Stacey “got away from” her mother, became delusional, and
was admitted to hospital involuntarily.
· Stacey was discharged, then re-admitted after a week or
two, just before she died.
· Stacey was 5’1” or 5’2” and weighed about 260 lbs.

35




Dig deep . . .
really deep.

36



Telephone Call to Agent -- June 9, 2004
· Only two people came to the office on the application date:
Cynthia and Stacey.
· All application questions were read aloud while displayed
on two computer monitors.
· Cynthia had no problem reading the questions.
· Cynthia had filled out forms for agent’s office
before and reportedly “prepared income taxes
for other people.”
· Stacey answered all the questions “No.”
37



Telephone Call to Agent -- June 9, 2004
· Cynthia specifically asked for her kids to be named as
primary beneficiaries.
· Cynthia and Stacey signed the application.
· Agent would not have taken the application if knew
Stacey was in a nursing home for mental problems.

38



Telephone Call to Agent – August 25, 2004
· Went to Cynthia’s house after learning of Stacey’s death
· Expressed condolences
· Explained claim process (contestable investigation)
· Denied offering any money to not make a claim

39



Telephone Call to Cynthia’s Mom – December 28, 2004
· Agent did call her after Stacey’s death
· Said did not think Cynthia could make a claim
· Offered money toward funeral expenses
· Agent also called Cynthia’s brother (Ernest)
· Said did not think Cynthia could make a claim
· Offered money toward funeral expenses

40



Telephone Call to Ernest – December 30, 2004
· Remembers agent calling after Stacey’s death
· Spoke only with Cynthia and Cynthia’s Mom
· Understood there might be a problem with policy
· Believes agent offered money toward funeral
expenses

41



Medical Records
(California) Medical Center 6/17/2003 - 10/31/2003
(California) Care Center 10/31/2003 - 1/23/2004
(California) Hospital 1/23/2004 - 1/27/2004
(California) Nursing Home 1/27/2004 - 3/5/2004
(California) Hospital 3/5/2004 - 3/11/2004
(Texas) Hospital 3/14/2004 - 4/8/2004*
(Texas) Hospital E.R. 4/11/2004 - 4/12/2004
(Texas) Psych Ward 4/12/2004 - 5/6/2004

42



Autopsy Report
Death was the result of “[c]ardiomegaly associated with
hypertensive cardiovascular disease,” secondary to obesity.

43



Medical Records
· hypertension, with non-compliance regarding
treatment and abnormal EKG’s associated with the
hypertension;
· asthma, COPD and pulmonary hypertension;
· obesity;
· congestive heart failure and cardiomegaly; and
· ten year history of mental/nervous disorders, including
numerous medications and institutional stays.

44



Medical Records – (California) Hospital

3/5/2004 Admitted (SOB/aggressive behavior)
3/9/2004 “Cardiology assessment with COPD confirmed. . .
Discussed patient’s predicament last night by
phone with patient’s sister, Cynthia, and mother.
On learning of CHF, they agreed to permit . . .
development of appropriate Tx.”
3/11/2004 Discharged (to fly with Cynthia’s Mom to Texas)

45




Get them to
commit.

46



· Came to office on date application was completed
· Called just before coming
· No prior calls, messages or discussions about Stacey
Letters from Agent and Agent’s Assistant
· Application completed on March 17, 2004
Telephone Call to Cynthia – December 20, 2004
· One friend – Michele – was with Cynthia and Stacey when
the application was signed in the agent’s office.
· Michele “moves around a lot” and cannot be contacted.
47



· Cynthia specifically said she did not want to be named the
beneficiary.
· Cynthia gave no reason for not naming herself
Letters from Agent and Agent’s Assistant
· Cynthia asked that her three kids be named beneficiaries

48



· Cynthia signed the application when it was filled out

Claim Form – January 18, 2005
· Addendum:

49



· Stacey signed the HIV consent form on the date the
application was completed
· Application was mailed to Cynthia’s home for Stacey to sign

HIV Consent Form Application

50



Comparison of Signatures


51



Comparison of Signatures


52



Denial Letter – January 10, 2005
Our investigation indicates Stacey was confined in (Texas)
Hospital “in Houston, Texas from March 14, 2004 to April 8,
2004; therefore she could not have appeared in the agent’s
office in California to complete this application, as confirmed
by Cynthia in previous statements.”
In addition, “the application did not include information about the
insured’s history of schizophrenia, hypertension with non-
compliance regarding treatment, abnormal EKGs associated with
the hypertension, congestive heart failure, cardiomegaly, and
pulmonary hypertension during her confinement.”
53



Attorney’s Response – February 27, 2005
· “On March 17, 2004, Stacey, Cynthia and a friend”
(Michele) went to the agent’s office.
· No one asked them questions.
· Neither of them signed a document with medical
questions.
· Cynthia left the office with a Binding Receipt.
· As of March 17, 2004, Stacey “was residing in a nursing
home in Pasadena California. To the extent any medical
records show Stacey residing in Texas as of that date, they
are in error.”
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Litigation Strategy Number 1:

Don’t bite off more than you can chew!
Proving fraud requires evidence of:
• Representation of fact
• Falsity
• Knowledge of falsity
• Intent to deceive
• Actual reliance
• Reasonable reliance
• Damage

55



Basic Contract Principles
Every contract requires consenting parties. If there is mutual
assent to the subject matter of the agreement, a contract results.
However, it may be voidable when there is a harmful mistake as to
some basic or material fact that induced the aggrieved party to
enter it.
· If both parties are mistaken and neither is at fault (or both are
equally to blame), the mistake may prevent formation of a
contract.
· A contract formed when one party has made a unilateral
mistake is not voidable unless the other party had reason to
know of the mistake or his or her fault caused the mistake.
56



Insurance Laws
Ohio No answer to any interrogatory made by an applicant in his
application for a policy shall bar the right to recover upon
any policy issued thereon, or be used in evidence at any
trial to recover upon such policy, unless it is clearly proved
that such answer is willfully false, that it was fraudulently
made, that it is material, and that it induced the company to
issue the policy, that but for such answer the policy would
not have been issued, and that the agent or company had
no knowledge of the falsity or fraud of such answer.

Ohio Rev. Code §3911.06
See also, Ohio Rev. Code §3923.14

57



Insurance Laws
No. Carolina “All statements or descriptions in any application for a
policy of insurance, or in the policy itself, shall be
deemed representations and not warranties, and a
representation, unless material or fraudulent, will not
prevent a recovery on the policy.”
N.C. Gen. Stat. §58-3-10

Illinois “No such misrepresentation or false warranty shall
defeat or avoid the policy unless it shall have been
made with actual intent to deceive or materially affects
either the acceptance of the risk or the hazard
assumed by the company.” 215 ILCS 5/154

58



Insurance Laws
California “If a representation is false in a material point,
whether affirmative or promissory, the injured party
is entitled to rescind the contract from the time the
representation becomes false.”
Cal. Ins. Code §359

Whether the representation was intentionally or
unintentionally false does not alter the injured party's
right to rescind the policy.
. Telford v. New York Life Ins. Co., 9 Cal.2d 103, 105 (1937)

59



Contract Language
Application Agreement:
“Coverage will be effective as of the policy date if the
following conditions are met:
· the first premium is paid when the policy is
delivered;
· the Proposed Insureds are living on the delivery
date; and
· on the delivery date, the information given to the
Company is true and complete without material
changes.

60



Contract Language
Binding Receipt:
· “There is no coverage under this Receipt if the application
contains any material misrepresentation.”

· “No death benefit is provided by this Receipt unless death
results from an accident that occurs or an illness that first
manifests itself after the Application Date.”

· “Coverage under this Receipt will end when the first of the
following occurs: (a) The application is approved; (b)
Notice of disapproval of the application is given; (c) 60 days
have expired starting with the Application Date.”
61



Litigation Strategy Number 2:

Be ready to herd some cats.

62



Letter from Attorney
“I have reviewed the underwriting and claim files. . . It
appears the initial meeting with the agent was probably in February
2004, at which time Cynthia was given a binding receipt post-dated
to March 17, 2004 (the date Cynthia would have premium funds
available).”
Cynthia: Went shopping before going to agent’s office
because had just received a tax refund.
Agent: No way to post-date binding receipt, and no
reason to do so.
Binding
Receipt: No coverage if application date is more than
60 days before death.
63



Cynthia’s Testimony
“I applied for the policy because the nursing home told us
that all patients have to have life insurance to be admitted. I
needed it so Stacey could get the care she needed.”

· Nursing home has no such policy and denies any such
discussion.
· Stacey was in a locked facility between January 27, 2004
and March 5, 2004 and only left on one date: a Saturday in
February.
· Agent’s office is closed on Saturdays.

64



“I told the agent that Stacey was in a nursing home, had
schizophrenia, was depressed and had hallucinations.”

· Agent would not have taken application if knew any of
those facts.
· If the underwriter had known of those facts, no further
inquiries would have been made: the application would
have been denied.
· An applicant who communicates some (but not all) facts
which are material to the risk he or she is trying to insure is
not excused from his or her failure to communicate other
facts which are material to that risk. Cal. Ins. Code §332.
65



“No one asked us any medical questions. The agent must
have filled out the application.”
· Agent had never met, talked to, or talked with anyone
about Stacey
· Address
· Date of Birth
· Social Security Number
· Agent had never met, talked to, or talked with anyone
about Cynthia’s kids
· all 3 are named in application
· all 3 have a different last name than Cynthia
66



“Stacey never signed anything. The agent told me he signed
Stacey’s name to the application.”

· Cynthia previously admitted she and Stacey “signed where
told.”
· Agent clarified that application was mailed to Cynthia for
Stacey to sign.
· No dispute that signature on application was not genuine.
· Cynthia claims agent forged it.
· Agent though was genuine.
· Insurer contends it was signed by an imposter.
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“I never signed the application.”

· Cynthia previously admitted she and Stacey “signed where
told.”
· Both handwriting experts agree that signature is genuine.
· Without a signature on the application, there is no
application and neither a binding receipt nor a policy.

68



Trial Strategy Number 1:

Keep the
stories
straight.

69



Underwriter’s Perspective
· 32 year old non-smoker
· 5’1” and 120 lbs.
· No adverse medical/psychiatric history
Claim Handlers’ Perspective
· 32 year old smoker
· “about” 260 lbs.
· Significant undisclosed medical/psychiatric history
· Imposter at point of sale
Jury’s Perspective
· 309 lbs.
· Cynthia and her mother were told she was dying
· Could not have been in agent’s office on either date
70




Let the facts speak for
themselves.
If they are enough
to prove fraud,
jurors will
see it.

71




Remember the
“simple” truth.

72



73



QUESTIONS?

Steven P. Del Mauro Robert R. Pohls
McElroy, Deutsch, Mulvaney Pohls & Associates
& Carpenter, LLP Los Angeles, California
Newark, New Jersey Phone: 310.694.3092
Phone: 973.622.7711 Email: rpohls@califehealth.com
Email: sdelmauro@mdmc-law.com
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