When phantom claims suspected, we ferret out fraud

man in front of judgeImagine you’re opening the mail after a long day at work. In one envelope, you find a survey from your insurance company asking about your recent auto glass claim.

“How nice of them to check in,” you think. “But what glass claim? My windshield is just fine.”

A scenario like that led to a recent insurance fraud case that put PEMCO, the Office of the Insurance Commissioner (OIC), and a now-discredited high-school coach and glass-shop owner in the news.

It’s just the latest example of how PEMCO’s adjusters and Special Investigations Unit (SIU) work with national agencies and the OIC to curb bogus insurance claims like these:

The glass repairs that weren’t
The case began last spring, when PEMCO received a call from a baffled policyholder who hadn’t had any glass repair or replacement, even though we’d paid a claim for it with a company called Alligator Auto Glass.

After digging, PEMCO investigators uncovered more than $6,500 in payments for 15 phantom Alligator Auto Glass claims. It appeared the glass-shop owner, in his afterhours job as a security guard and high-school coach, had gained access to personal information about students and staff. That included the insurance and vehicle information they submitted to get their school parking passes – everything he needed for a glass claim!

Following insurance-fraud protocol, PEMCO investigators turned over their information to the National Association of Insurance Companies (NAIC). The OIC took it from there.

Last month, Alligator’s owner pleaded guilty to first degree theft in King County Superior Court. He resigned his high-school post and was sentenced to 100 hours of community service. He’ll also pay $600 in court fees plus $6,569 in restitution to PEMCO.

The $33,000 tie guy
For all of us with JCPenney ties hanging in our closet, it’s hard to imagine a tie collection worth as much as a new car. But for the would-be fraudster who gained Internet fame as “Tie Guy,” the fashion accessory seemed like a perfect get-rich-quick scheme.

So flawless, in fact, he tried the same insurance scam three times in nine years!

In 2009, PEMCO received a claim saying that 212 silk ties had been stolen from a policyholder’s car when it was parked in a Mill Creek strip mall. He was on his way, the claimant said, to a shop in Bothell’s Country Village to have the ties sewn into a quilt for display. When he provided receipts from Nordstrom, Butch Blum, and other high-end retailers showing he had replaced the ties, PEMCO paid him their full value of $33,370.

several tiesThen, just six months later, PEMCO received another claim, saying those replacement ties had been stolen, too! This time, the policyholder said they had been swiped from his car during a move.

The coincidence put a knot in his adjuster’s stomach. (And definitely not a Windsor.)

In checking with retailers, PEMCO investigators learned that after the first incident, the policyholder had returned the “replacement” ties, some within minutes of buying them. Somehow, though, he managed to hang onto the receipts that he then passed on to PEMCO.

It appeared the ties, if they ever existed, hadn’t been replaced at all. PEMCO conducted an Examination Under Oath with the policyholder and his attorney. We denied the claim under our policy’s Concealment or Fraud provision. We then filed a report with NAIC. NAIC reported the case to the OIC, which referred it to the Snohomish County Prosecutor’s Office.

Eventually, PEMCO was reimbursed the $33,370 it had paid for the original claim. But the story wasn’t quite over. Investigators learned that in 2000, the man used the same tie scam with another insurer to receive a payout of $16,900.

The dear departed Internet kitty
Two years after a PEMCO customer rear-ended his car, a Tacoma man submitted a surprising claim – $20,000 for his beautiful white cat killed in the accident. Why the delay (after a minor accident)? He had been devastated by the loss, he said, overcome with grief and unable to function.

white cat Tom the cat, he said, was like a son to him. But no, he couldn’t produce evidence of the cat’s death. After the accident, he said, he took the motionless cat home, discovered it dead hours later, and threw its body in the trash.

Not much of a burial for a cherished “son,” but PEMCO offered a $50 check in payment for the cat, which the man accepted.

The next day, PEMCO received a letter from him including a picture of a striking white feline with crystal blue eyes and his request for $20,000. On a hunch, a PEMCO Claims representative Googled “white cat, blue eyes,” and up popped this picture of “Tom.”

PEMCO stopped payment immediately on the $50 check, took a statement from the man, and requested a second picture of the cat. He dutifully sent it. Only it was a different white cat – also found with a Google search – and, like the last one, not owned by the claimant.

PEMCO denied the claim, filed required reports, and the case reached the OIC. Turns out, the man was no stranger to pet mishaps. Just two years earlier, a wreck had claimed a beloved parrot that, he said, “was like a brother to me.” He’d requested a $25,000 payout from another insurance company using a picture of a dead parakeet.Parakeet

We don’t know if the man ever owned a cat or a bird. We do know, though, because of his history of insurance fraud, he was sentenced to 15 days in jail, 30 days of home monitoring, and fined $2,250.

Why do people do it?
Getting inside the head of any criminal is difficult. Understanding motivation for one who looks like the guy next door is even tougher.

Sometimes it’s pure desperation – a lost job, failed marriage, or substance abuse habit has put someone in financial distress. Insurance fraud seems like a “victimless” way to get out of a tight spot.

Other times, it’s arrogance and a sense of entitlement to see a “return” on premiums. Scammers often think they’re too smart to get caught, or they perceive insurance companies as large, faceless bureaucracies unlikely to spot the deception.

No matter the reason, PEMCO, like insurers across the nation, takes a tough stance on fraud. Nationally, the Insurance Information Institute estimates that fraud accounts for 10% of property-casualty incurred losses and loss-adjusting expenses. The FBI says insurance fraud costs the average family an extra $400 to $700 in insurance premiums each year.

by  Jon Osterberg

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