Elements of Fraud

Questionable Workers' Compensation claims can be a costly and frustrating experience for employers. Over our years managing CA Workers' Compensation claims, we've seen many instances where everybody knew that an employee was lying in order to obtain benefits. Unfortunately, trying to obtain a fraud conviction comes down to what you can prove, not what you know.

Keep the following eight elements in mind the next time you are working with your insurance carrier to build a Workers' Compensation Fraud case against a dishonest employee. They must be proven to ensure justice!

False representation

A false statement of fact (a lie) must be made directly by the injured worker. It can also be a false statement claiming no knowledge of a fact or issue.

Materiality

A "material misrepresentation" is one that would likely affect the actions of a reasonable employer or insurance adjuster in regard to a Workers' Compensation claim. Basically, does the lie really matter to the claim and the claimant's ability to receive benefits? An example of an immaterial (not material) lie is if the injured worker claims to not do illegal drugs but a post-injury drug test comes back positive. A positive drug test, by itself, is not a valid reason to deny a claim in California. As such, this lie is not material even if the claimant thought that it was.

The employee's knowledge of falsity

At the time the lie is told, the employee must have known that the representation was in fact false.

Intent that representation be acted upon

The intent of false representation must be to mislead the employer or insurance company.

Employer's or insurance company's ignorance of falsity

The person or people to whom the lie is told (the adjuster and/or employer) must not have known that the statement was false at the time. If the employer or adjuster knows (for a fact) the whole time that the claimant is lying, the court throws out the fraud charge because in this situation the employer and/or adjuster is seen as baiting the injured worker into fraud.

Reliance

The employer or insurance company must rely on the false statement made by the employee. An example of a reliance issue is if you could prove that the injured worker knowingly lied about his average weekly wage to the adjuster for the purpose of increasing his weekly benefit, yet his weekly Workers' Compensation disability payment (TTD rate) was based on a wage statment provided to the insurance company from the employer. Even though he lied with the purpose of increasing his benefits, this would not be a fraudulent situation because his payments were not based on his lie, but instead on the wage statement.

Employer's or insurance company's right to rely

The employer or insurance company must have a right to rely on the employee's lie. An example here is if an adjuster starts paying disability benefits because the claimant said that he couldn't work but the appropriate treating doctor has said that he can work. This lie would not be fraudulent because California law mandates that disability is determined by a doctor. The adjuster had no legal right to base the disability decision on the claimant's false statement.

Damages

There must be a loss due to the false representation. For a Workers' Compensation case this would mean that the employee received some benefit, disability or medical, as a result of the lie.

Do not despair if you are unable to prove each element as soon as you think an employee may have lied to receive Workers' Compensation benefits. Remember, we are not lawyers and sometimes real life doesn't fit so neatly into nice little categories. Speak with your insurance company and/or attorney as soon as possible if you believe Workers' Compensation fraud has taken place at your company.

This information is meant to be used as a guide so you know where your insurance carrier is coming from when presented with a questionable claim. You will also be able to make an informed decision if your insurance company is planning on pursuing a costly fraud investigation into an issue that is very unlikely to result in a conviction. Ask the tough questions and don't let your premiums go up in the future due to costly and sometimes unneccessary special investigations!

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Types of Workers' Compensation Fraud

Some people only think of a staged or fictitious injury on the part of an employee when the subject of workers compenstion fraud comes up. The following is a more complete picture of what work comp fraud can be.

Claimant (employee) Fraud:

This is the most common and most costly form of workers' compensation fraud. Make sure that you are aware of the following types of claimant fraud.

1. Malingering:

This is when a truly injured worker recovers from their injuries, but continues to receive benefits by exaggerating the lasting impact of the injuries.

2. Non-work related injury:

When an employee claims to have been injured at work but it actually occurred away from work. Be wary of Monday morning injuries

3. Multiple claims:

When multiple claims are filed for the same injury. This happens but it is very tough to prove because re-aggravations are so common for work place injuries.

4. Non-injury claim

When an employee fakes an injury to receive benefits. Be on the lookout if there is a plant closing announcement or rumor.

5. Working elsewhere while receiving disability benefits

This one is pretty self-explanatory. Always make sure you know if someone is moonlighting, this can be a great opportunity for surveillance.

Provider Fraud:

This type of fraud usually occurs when a medical provider either over-charges for a service or charges for a fictitious service. This type of fraud is more common that you might think and doctor's facilities can use very sophisticated tactics to over-charge. Provider fraud can include the following tactics, and more.

1. False billing:

When a medical provider charges for services that never took place.

2. Up-coding:

This is when a provider bills for treatment that is more expensive than the one actually performed.

3. Unbundling:

This occurs when a provider performs a single service yet bills it as a series of several services.

4. Kickbacks:

When a medical provider pays or receives compensation for referrals.

5. Self-referrals:

When a medical provider inappropriately refers patients to clinic or laboratory in which they have a financial interest.

Employer Fraud:

Employers can also commit Workers Compensation fraud. This involves lying on the policy in order to pay lower premiums. This type of fraud is closely monitored by insurance companies as seen by their annual policy audits.

Though the insurance company checks the policy regularly to confirm that the information given by employers is correct, they aren't checking to make sure that errors made by the insurance company are corrected. These errors can really add up and employers have a right to get past overpayments back!

Make sure to see how WCassist.com can help you to recover your lost profits due to policy errors made by the insurance companies. Click here now!

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Tips for Finding and Preventing Work Comp Fraud

1. Learn as much as possible about employees before you hire them.
   
   Check credentials and references closely and go beyond those given to you by the employee. If someone has a tendency to exaggerate or you get a funny feeling that there is lying going on from beginning, don't hire them!
2. Do not wait to call your insurer.
   
   We've seen this many times working in claims departments. Many businesses feel that if they report the claim their premiums will go up but the fact is that the best investigations are done in the first 48 hours after a claim is filed. Without a full investigation you may miss an opportunity to deny a questionable claim, possibly resulting in a more expensive claim and higher premiums. Remember that in California you only have 90 days from employer knowledge of the injury or claim to investigate and deny. If you miss the 90 day window it's accepted, no matter what!
3. Maintain a positive relationship with the injured worker.
   
   Make the employee feel nurtured and cared for, especially if you are suspicious. If you are running surveillance on an injured worker you do not want his guard to be up, be his best friend and confidant until the time he's placed in handcuffs.
4. Keep your eyes and ears open for potential fraud.
   
   Make sure you or someone on your staff keeps tabs on the rumor mill and that you follow up if there is talk of workers' compensation fraud. In my experience the best information comes when a person gets divorced or has a nasty break-up after a suspicious claim is filed. If possible, put the ex in contact with your insurance company. Also, make sure you get the ex's information in writing or on tape. It's amazing how quickly people forget details when they get back together!
5. Provide claimant information.
   
   Every detail should be discussed with your insurance company from a physical description of the employee to their behavioral problems and disciplinary actions. If the adjuster does not ask for every detail, give them anyway and follow up regularly to make sure that action is taken on questionable facts.
6. Increase claims prevention methods.
   
   Pay attention to ergonomics, have regular safety training and make sure to require that safety equipment be used at all times. A certain percentage of all claims become fraudulent at some point in the process. Cut down on fraudulent claims by cutting down on your total number of claims. Some dishonest people are always on the lookout for an opportunity to take advantage of someone. Don't give them this opportunity at work!
7. Agree to an investigation plan of action with your carrier and make sure they stick to it.
   
   Nearly all the adjusters we've worked with have been very good at what they do and they have a passion for routing out fraud. The problem is that they are also usually heavily over-worked. The fact is that the insurance business is very competitive with low profit margins so staffing is kept at a minimum to stay competitive. You have to be the squeaky wheel to make sure your questionable claim doesn't end up buried in the adjuster’s desk.

Fraud Investigation Strategies

So you know that workers compensation fraud has taken place, now you just have to prove it. Different situations require a specialized strategy, your adjuster and your attorney are the best sources for strategic plans, but keep the following ideas in mind when planning your attack.

1. Surveillance before and after doctor's appointments.
   
   The key is to catch them in a lie so get their actions before and after appointments on tape and compare those to their functional abilities listed in the report that day. This works best when there is a comprehensive Medical-Legal (AME or QME in California) evaluation scheduled. Ask your adjuster if you are unfamiliar with Medical-Legal evaluations.
2. Do your surveillance shortly after the claimant's deposition.
   
   Recorded statements from the claimant are useful but the fact is that they are not usually admissible in court. A deposition is where you really lock a person down in regard to their story and the testimony is 99.9% admissible in court (I would say 100% but check with your attorney to make sure). If you have suspicion regarding fraudulent activity, make sure a deposition takes place as soon as possible. Be sure to direct the attorney to get the claimant's story a clear as possible regarding the suspicious activity (doing side work, active in sports, the extent of their physical or emotional injuries). You will then need to follow up with targeted surveillance within a week of the deposition to catch them in a lie.
3. Use slighted friends and/or lovers against your fraudulent employee.
   
   Criminals tend not to be great people (surprise, surprise) and make enemies out of friends and lovers quickly. They also tend to brag about their exploits, so even if you can't get any good surveillance, check in on their friends or coworkers from time to time. If you are able to get some information, get their written, recorded or video-taped statement quickly before they make up with claimant (involve your adjuster in this process). This is where employers can really be helpful to fraud investigations as insurance companies and lawyers just don't have the intimate knowledge and close relationships that employers can have.
4. Avoid the "good day" argument.
   
   The bane of the passionate adjuster's existence is the "good day" argument. In this instance, you caught your employee in a flat out lie by getting him on tape playing tackle football in the park while out of work with a bad back. You think you have slam dunk until the day of the trial when the applicant attorney confidently informs the court, "Yes, that is my client but you should have seen him the day and weeks after that, he couldn't move! He just wanted one more game of football with his young son, and he paid dearly. I assure you that this was the only incident that he attempted outside of his restrictions, can you prove otherwise?" This does happen so you have to make sure that if you get one day of good surveillance, you must follow up with successive days to avoid this argument. Make sure you are using a good investigation company to do the video tape and that your adjuster is aware of the "good day" argument.

Before embarking on a special investigation, make sure that you have reviewed the elements of fraud with your insurance adjuster and good luck getting your conviction!

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