BY MATT CHANDLER
mchandler@bizjournals.com | 716-541-1654

People who consider themselves law-abiding citizens do it all the time.

Whether they pad the deductions on income taxes a bit or inflate a claim on their auto or homeowners insurance, it's fraud - and lots of people commit fraud one way or another.

While many call it a "victimless" crime because they're not hurting anyone - they're simply getting a few extra dollars back from the government or the insurance company they paid all those premiums to for years - Earl Cantwell says it's still wrong.

Cantwell is an attorney with Hurwitz and Fine PC, and though his primary practice is business and commercial litigation, he has become an expert over the last decade in handling cases involving insurance fraud.

He recently discussed what businesses and individuals need to know to protect themselves from those who might be looking to cash in through bogus or inflated claims. The following is an edited version of that conversation.

BLJ: People may tend to see this issue as something that doesn't affect them directly. Does insurance fraud potentially touch everyone?

EC: Absolutely. The fraudulent claims are put into the claims mix, and some estimates say that the average household may pay $1,000 per year - between all of your types of insurance in additional premiums - to cover fraudulent claims. Between 10 and 15 percent of all dollars spent on insurance premiums may be expended on fraudulent claims, according to industry estimates.  

BLJ: In other areas of the law, we have seen the recession drive up bankruptcy claims and litigation of certain types. How has it affected fraudulent claims?

EC: Not only have there been more fraudulent claims since the recession, but they have become somewhat more organized. The recession has increased fraud and questionable claims by at least 15 perfect, and perhaps by as much as 25 percent. In particular, there have been certain industries and certain types of insurance that have seen the biggest uptick, including workers' compensation, automobile comp and collision and medical provider fraud. All of those get passed on to the employer, the company or a person's personal insurance to pay out those kinds of claims.

BLJ: To the issue of workers' compensation fraud, what are some of the signs? And what can employers do to protect themselves from becoming victims?

EC: There are a few things to look out for that might raise red flags for an employer. First, in a fraudulent claim, the accident is usually not witnessed by anyone. Another indicator is that where the accident occurs and how it occurs is not consistent with the employee's usual job duties. A major red flag for fraud is that the injury does occur near a time when the employee was facing a layoff or may have been undergoing some sort of disciplinary action at the company. These are recurring themes you see on reports of these cases.

BLJ: There must be cases of legitimate injury that have suspicious-looking elements. How do you go about investigating to determine which cases are fraudulent?

EC: Fraud is more than an unproven or denied claim; it requires conscious intent and action to create a false claim or inflate a loss. So there are times when a claim that might look suspicious is in fact legitimate, even if that claim is denied. Every questionable claim isn't fraudulent. When those claims are being investigated, it really has to cross that line into, really, a conscious intent and actions being taken to either manufacture this claim or inflate a legitimate loss. You have to look at the records, interview the claimant, as well as other people involved, and examine the environment of the claim. Just because there are questions doesn't mean there is fraud.

BLJ: If more fraudulent claims are filed when times get tough, conversely, are the insurance companies cracking down more than if the economy were robust?

EC: I think all of the companies, either on their own or in many cases by law, have set up special investigative units. And companies are looking at claims with more of an eye toward fraud. It affects their bottom line, it affects their pricing for premiums and so, yes, they are being more aggressive because not only is it in their best interest, but in many cases state insurance departments have made them become more aggressive in discovering fraud.

BLJ: In terms of "catching" fraud, has the job become easier as technology has advanced? Or is it still a matter of traditional investigating?

EC: There is no question some of the technology makes it easier to look for fraud. Whether it is computer programs or some types of photography, surveillance or other items that have come into play in the last five to 10 years, it is becoming easier. For example, the software can make it easier to cross-reference claims and search for fraud.

BLJ: Beyond any investigation by the insurance companies, do people who commit these types of fraud, especially the soft fraud, typically face criminal prosecution and jail time?

EC: There has always been some element of the soft fraud in the claims process, and for the most part, companies recognize that and it is priced a little bit into the insurance. Those cases will generally be handled by insurance-company disapproval of the claim or the company may eventually decide to drop that homeowner or that car owner as a customer.

Most of the prosecutions usually involve the hard fraud schemes that are operated by people who are organizing large-scale operations for auto theft, burglaries, medical-provider fraud and other intentional schemes.