(Note: This Guest Blog is by Robert Reynolds, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the thirteenth of a thirteen part series he is writing on examination under oath).
“You know the insurance company is going to cut the estimate in half, so you have to pump it up.”
I can’t tell you how many public adjusters have expounded this philosophy to me. As I tell them all: do not go down that road, as it is a slippery slope. First, if the estimate is significantly higher than the carrier’s evaluation of the claim, SIU (Special Investigative Unit, the fraud division) becomes involved. This will now offer your client the unique opportunity to undergo a fraud investigation. What will this entail? Well, the policyholder is guaranteed to be asked to sit for examination under oath and all of the fun that goes along with that endeavor. So, this begs the question: what may the policyholder expect at the EUO of a suspected inflated claim?
Once SIU is implicated the entire tenor of the claim-handling changes. That is, the policyholders will be looked upon as fraud perpetrators. They can expect investigators to be dispatched by the insurer to question the policyholder’s neighbors and associates concerning the claim and circumstances of the insured’s life. After which the information garnered will then be used at the EUO, if possible, against the policyholder. Next, in conjunction with the EUO, the policyholder will be asked for reams of documentation, which can include financial records, records of repairs, records of renovations, records of prior insurance claims, records of prior lawsuits, etc. The carrier will use these documents, the facts garnered through investigating the claim, and responses in the EUO in trying to narrow the perceived fraud down to one of three explanations: outright over-inflation of the claim in scope or pricing, a failure to mitigate causing damage to worsen, or the policyholder trying to include areas with uncovered damages or areas where the insured is renovating the home.
If the carrier believes the claim to be black-letter fraud their questions will focus on several areas, including the insured’s finances. You can expect them to ask for tax returns, monthly debt invoices, loan documents, credit card account summaries, and like items. Rest assured, a good fraud attorney will ask the policyholder to outline their monthly/yearly income as compared to their debts, with a deficit showing financial distress, hence a motive to commit insurance fraud.
The carrier will also ask questions about prior insurance claims in order to see if there were areas of damage from a previous claim which were not completely repaired and for which the insured is seeking double recovery. In this situation, if the policyholder does not have proof of the prior repairs this presents a serious problem, as it really bolsters the carrier’s position. Further, the carrier will ask questions and seek documents about all previous insurance claims filed by the insured. As likely as it is that any good person may suffer a covered loss, it is substantially unlikely that one good person will suffer multiple insurance losses. Believe it or not, there are people out there who are serial insurance claim frauds who look upon policies as contracts for supplemental income. Similar to the serial claim frauds are the people who have a loss and attempt to expand its scope in order to renovate a kitchen or bathroom, for example. All public adjusters and attorneys should take a truly skeptical eye to a claim were the damage overlapped areas of renovation or where the scope of the loss appears overreaching. Policyholders should know that while some contractor may give them a wink and a nod about including an undamaged bathroom in the scope of his work with an eye toward the insurer subsidizing that work, at the end of the day it’s the policyholder on the hook for that fraud. Thus, all policyholders should be able to readily answer questions as to when renovations began, when completed, and proof of payments made in order not to fall under the jaundiced eye of fraud.
The final corral in to which the carrier may attempt to wrangle alleged fraud is through failure to mitigate. While a failure to mitigate is truly not fraud –unless the insured lied about making repairs or when the repairs were effectuated– it is certainly fraud’s ugly step-sister. That is, often when the carrier can not quite prove the fraud charge, it may diminish its liability by demonstrating that the insured failed to make proper temporary repairs in order to prevent the damage from worsening, which, of course, is a post-loss obligation of every property insurance policy. The insured will undoubtedly be asked questions about what repairs were made and when they were made, not to mention to produce receipts, invoices and proofs of payment to substantiate that the damage was addressed. With all of this being said, the better practice is to submit claims as accurately as possible, thus avoiding the specter of an SIU investigation.
As a final note to all you insurance fans, Happy Holidays and a prosperous New Year!