Copyright held by The John Cooke Fraud Report. Reprint rights are granted with attribution to The John Cooke Fraud Report with a link to this website.
By Gary A. Turnberger, CFE, CIFI, SCL and Robin Duranik
Those of us involved in the business of claim handling have often heard insurance statistics which estimate that as many as 35 percent of marine losses, particularly pleasure craft losses, involve at least some element of fraud.
Fraud may take place through claims inflation or exaggeration (e.g., claims for property or equipment not on the vessel), may involve intentional losses (e.g,. the sinking or burning of the vessel) or can even be present in losses which have never occurred (e.g., vessel salvage scams involving the purported recent sinking of vessels long since destroyed and paid for by some other insurance carrier).
Most professional claims persons and marine surveyors subscribe to the adage that in all cases a legitimate claim will always prove itself to be so – through the evaluation of the circumstances and the timely and thorough accumulation and corroboration of documentation, evidence and statements.
The focus in this article on interviewing within a marine investigation outlines some perspectives on arriving at the truth through questioning the suspicious claim. Successful interviewing involves more than the ability to ask questions come statement time. It involves knowledge of the rights and entitlements of the insured and the carrier; timing, setting and preparation for the interview; a general understanding of the psychology of the fraudulent claimant; and numerous peripheral areas of investigation. The fundamental responsibility for each interviewer involves adequate questioning within the confines of good faith while adhering to legal investigative techniques.
Marine loss investigation may involve representatives from both the insurance and law enforcement communities, marine and environmental police officers, US Coast Guardsman, marine surveyors and insurance adjusters and investigators – just to name a few. As one might imagine, such occupational diversity also brings unique investigative requirements, responsibilities and mandates.
For those who watched the televised OJ Simpson trials, we have come to understand that there are clear distinctions and separate burdens and standards of proof in criminal vs. civil matters. But one of the common threads that links law enforcement and claims personnel in the search for the truth is cooperation.
In the claims context, it is not uncommon to find that there may not be enough evidence to charge a defendant criminally. However, during the process of working hand-in-hand with law enforcement (through the mutual exchange of sufficient and legally permissible information), an investigator may develop enough cause for the denial of a false claim or the mitigation of a questionable claim.
At a recent training seminar, three short black and white film clips from the 1940s to the 1960s were shown. The clips illustrated that nothing has changed over the years with regard to motive as it relates to the contemporary fraudulent claimant. It is simply a matter of the claim beneficiary providing false statements, information or documentation in support of his claim and of the various degrees of skill, or lack thereof, in the attempt to induce the carrier to part with something of value.
On the other hand, the rules governing fair claims practices, good faith claims handling, case law, etc., are an ever-evolving process for file handlers. Remember, it is the unchallenged ease of the scam that will always enable fraud to prosper.
One of the frustrations in handling marine losses is that on too many occasions the remains of the vessel may be either destroyed or unrecoverable. Thus our interviewing and investigative skills are essential.
In a burning or sinking situation, most often it will not be an insurance agent or claims person who gets the first notice of loss.Rather, it is more likely to be the Coast Guard or perhaps some other law enforcement entity. We must also remember that if the vessel’s communication systems had been cut off prior to the events that triggered the loss, then there may be other persons who may have immediate first- or even secondhand (but relevant) knowledge of the event. These persons may include disinterested witnesses, passersby on or off shore, or fellow navigators. Thus, they may be excellent sources of information – to determine what, if anything, these persons (as well as the insured and his witnesses) may have seen, heard or said to investigating authorities. These early statements will serve as the benchmark by which all later statements will be measured and compared.
There are many schools of thought on how best to conduct an interview. These include linguistic, kinesic, cognitive, proxemic, etc. and various combinations of each. Personal experience teaches that the only constants to be taken to the interview are training, education and experience (these are also the fundamental qualifications of an expert witness). Everything else has to be tailored to the situation.
Over the years, investigators learn that claims are like snowflakes – no two are ever exactly the same. And for that reason, it is seldom a good idea to employ one’s “favorite” interview technique at each and every interview.
INTERVIEW – A meeting at which information is obtained from a person.
An interview can be made up of just one question or can consist of a series of questions. The intent of an interview is to provide a forum in which to obtain information and evaluate behavior revealed willingly by persons who have knowledge of the events in question. The interview is also the forum that provides the opportunity to search for the presence, absence or concealment of the truth.
In the context of insurance claims, there is a distinction between the interview and interrogation. Claims handlers should be aware of both processes and their differences.
Interrogation is the process a police officer utilizes to obtain information from an individual who is unwilling to give information about the event. Generally, the term applies to persons suspected of being responsible for that action under investigation and the attempt to secure an admission of guilt and obtain a legally admissible confession.
Thus, from a fair claims handling and good faith perspective, claims handlers can and should conduct interviews of insureds and witnesses. In that process, an admission of fraud, conspiracy or wrongdoing may potentially develop. Thus, the interview may become one of the factual bases under which the claim department will render its business decision with respect to the resolution of the claim.
Reporting language, whether by e-mail or by handwritten or computer notes, should be appropriate to the claims action taken. Language such as “interrogation” or “confession” can easily be taken out of context by an alert plaintiff attorney. Some claim file audits have shown characterizations of the insured as “scum” or comments such as “I’ll get him if it’s the last thing I do.” (comment – It might be!)
Another too-common type of notation is the “Before I deny his claim, I want to get his statement of EUO” memo or other record. Such terms denote predisposition on the part of the file handler and potentially pave the way to extracontractual damage claims. A basic rule of thumb … while it may be permissible to characterize a claim, it is never permissible to characterize the claimant.
Should the claim investigator make a determination of fraud or develop a strong suspicion of fraud (and depending on the jurisdiction, state immunity statute and company policy), law enforcement officials or the state insurance fraud bureau can be notified. The ensuing criminal investigation might encompass an interrogation or other investigative techniques.
Within the realm of a fraudulent insurance claim, arson for example, two separate and distinct issues emerge: 1) a break of the insurance contract, which is a claims issue, and (2) a violation of criminal law, which is a law enforcement issue. Remember, the insurer’s investigation must be conducted legally and in good faith and the appropriate legal precautions taken that the adjuster/surveyor must be viewed as having acted as an agent for the police.
The burden is on the insurer to send an investigator with the expertise and knowledge to enable him to recognize any breach of warranty or policy violation which would justify a denial of coverage. It is also critical for “independents” to remember that the conduct of the adjuster, surveyor or investigator is imputed to the insurer in cases where a potential coverage situation was observed but not reported to the insurer.
Investigations should not be limited to any one single issue. Failure to ask all of the questions, particularly in the prerepresentation phase, may perpetually limit the type and scope of questions that my arise in the future – those which we should have asked but previously neglected or forgot to ask.
Familiarity with all secondary issues and the ability to investigate each issue separately will enable the carrier to make the appropriate business decision or establish its separate defenses.
Some potential issues that may come into play when determining coverage, even if these particular issues have nothing to do with the action loss, are:
(1) Vessels insured as pleasure craft and operating as charter boats might potentially indicate premium avoidance;
(2) Insurable interest issues may surface when the vessel is titled in one name but insured in another;
(3) Increase of hazard can take many forms. (In one case, several 55 gallon drums of gasoline were found on board.)
(4) Unseaworthiness from deterioration may not be a covered loss, particularly when the insured claims that his anchor pierced the hull but the surveyor’s investigation reveals previously unrepaired rot as the actual cause of the sinking. Remember the application of the unseaworthiness exclusion places the burden of proof on the insurer and to prove knowledge by the ship owner;
(5) Subrogation and product liability issues may also mitigate the insurer’s exposure, e.g., determining the cause of the LP gas fire attributable to a faulty cook stove might allow the insurer to place the stove manufacturer on notice of the claim.
Knowledge of policy conditions/exclusions and policy sections dealing with Misrepresentation and Fraud will place the marine surveyor and claim handler in a superior position when evaluating the overall scope of the claim.
© Copyright 1999 Alikim Media