Employers Charged with Insurance Fraud by Workers Compensation Insurance Carriers –

There’s no doubt that insurance fraud is a persistent, increasing problem. It costs insurance carriers a ton of money which translates to increased costs being passed down to consumers in the form of more expensive insurance products. Fraud is a problem that crosses many lines and encompasses all areas of workers compensation from claimants defrauding the insurance carrier by filing bogus or inflated claims to a more recent development where employers are charged with fraud for misclassification of employees. And that’s a bit disturbing. Let’s talk.

According to a 2015 article published by the Insurance Information Institute entitled “Insurance Fraud,” somewhere around $32 billion a year is lost by property/casualty insurance carriers to fraud. They go on to provide a good overview of this problem. Be sure to go check out their post if you get a chance. 

However, the focus of my post is how more and more employers are being charged or being threatened with fraud charges for their actions in cases involving misclassification of employees into lower rated workers comp class codes.

Depending on what article or blog you may read you’ll quickly discover that insurance fraud issues are typically broken down into two general types. Hard fraud is where a deliberate act of creating false accidents or claims is perpetuated on an insurance carrier or provider. Soft fraud may be characterized where someone who has a legitimate claim inflates the damages in order to be paid more than they should. Soft fraud also includes the situation where an employer lies about the type of work their employees do or where they lie or attempt to hide the employees true compensation in order to secure a cheaper rate on their workers compensation policy.

Premium fraud may take the path of misclassified workers, where employers hide what their employees really do; hidden payroll, where employers pay cash to workers to avoid paying workers compensation premium and audit scams, where the employer falsifies payroll records to keep the auditor from discovering these items.   

When discovered, insurance fraud can take two routes of resolution, criminal and/or civil.

Criminal charges may be levied. Many states have enacted some sort of insurance fraud legislation and you’ll find that individual state departments of insurance will work closely with their state prosecuting attorney to prosecute those accused of committing fraudulent acts. This typically happens when an insurance company discovers some type of fraudulent act being committed by an employer, claimant or provider, gathers the evidence and presents that evidence to the department of insurance and/or fraud bureau who in turn files a complaint with the prosecuting attorney. The last information I saw indicated that some 41 states have created dedicated fraud bureaus tasked with investigation  and referral for prosecution. 

Insurance carriers not only have criminal prosecution at their disposal but also have civil action available. Criminal prosecution requires a much higher standard of evidence while civil action may be based on a much lesser preponderance of evidence standard. It’s often easier for an insurance carrier to file a civil lawsuit against those committing the fraud.

Don’t fool yourself! Insurance carriers are actively looking for the signs of insurance fraud. As a matter of fact you’ll find that most insurance carriers have created some sort of internal special investigative unit whose sole purpose is to investigate suspected fraudulent activities against their insurance company. These units are often made up of retired police officers schooled in the methods of evidence discovery and presentation.  

We’ve worked several cases this year where insurance fraud has played a role. One case involved an employer seeking damages against their insurance company for mishandling claims. While this was proved, the case was seriously damaged because it was discovered that the employer had participated in covering up the proper classification of their employees. Another case involved the insurance carrier bringing suit against an employers insurance agent under the RICO Act alleging collusion and fraudulent activities only to discover none existed.

Here’s where the problem comes. While there’s no doubt that fraudulent activities exist and are perpetuated every day, that doesn’t mean that every case has merit or that the accusing party, be it a criminal or civil action, is in the right.  Most insurance carriers will pursue recovering damages they believe they’ve incurred. Insurance carriers, for the most part, are large financial organizations with deep resources who have the money to bring suit. But don’t forget about the David and Goliath Syndrome, you know, where a much smaller person or company defeats a much larger one, usually by surprise. 

It’s true that common mistakes are made by employers and insurance carriers all the time and they certainly include:

  • Misclassification of employees 
  • Inappropriate assignment of payroll

Disagreement as to proper classification or assignment of payroll is very common. Employers operations change and the methods used by their work force are modified over time. Changes in operations often create classification disputes. There are procedures in place to handle the situation when an employer disagrees with the insurance carrier about how their employee should be classified. Each state has it’s own appeal process where a review board made up of industry professionals will consider both sides of the argument and render a decision.

Workers compensation classification and payroll assignment is not really as simple as it seems. Honest mistakes do occur. Interpretations of meaning often lead to disagreements that require intervention and appeal. 

But it’s when these common mistakes turn into intentional acts that the line is crossed! 

Ok, I’m not an attorney so don’t take anything I’ve written as legal advise! If you need legal help make sure you seek out, contact and consult with an attorney in your state about your specific problem.

If you happen to be an attorney and need expert witness help with one of your clients experiencing a workers compensation problem, contact us, we might be able to help!

Hope this helps you out and thanks for reading!