Litigating your fraud case with an eye toward criminal prosecution
Criminal and civil fraud cases may take concurrent or sequential tracks, but it is important for counsel and claims professionals involved in the civil litigation portion of a case to be mindful of the criminal prosecution aspect. That is because a successful criminal prosecution cannot be assured despite a successful civil case. An insurer defendant may be successful in a civil case simply by refuting the plaintiff’s or claimant’s allegations alluding to fraud or misrepresentations to void the policy, coverage, or simply to call into question the claimant’s credibility. Likewise, an insurer may be successful in an affirmative civil fraud action.
While it would certainly be helpful if the criminal prosecution was coordinated with efforts involving civil recovery, this is rarely possible because the criminal side is controlled by the local or federal prosecutor who does not work for the insurance company. Thus, when a criminal case proceeds in advance of a civil case, there may be very little planning and coordination that can be done. On the upside, if the target of the civil recovery is ultimately convicted of insurance fraud, given the higher burden of proof in criminal actions, success in the civil arena is all but assured.
For our purposes, this article is written from the perspective of the reverse situation in which the civil action is proceeding in advance of a potential criminal fraud prosecution. A fraud action may involve a first-party claim or a third-party claim. Given the lack of control over the decision to prosecute and the specific evidential requirements involved in a criminal case, the need for coordination and the resources involved in pursuing prosecution, the question arises: Why prosecute?
The FBI estimates insurance fraud excluding health care claims is in the range of $40 billion per year, while other estimates suggest it could be as much as $80 billion annually in the United States. Some estimates suggest that there is at least some element of fraud in one out of 10 claims, with the Coalition Against Insurance Fraud estimating it to be between five percent and 10 percent of claims in the U.S. and Canada. It further states that nearly one-third of insurers believe fraud accounts for as much as 20 percent of claim costs. Insurance fraud can be isolated or systemic. It can involve so-called white-collar crimes as well as violent crimes such as murder, arson, and elder abuse.
Claims professionals must use forward thinking. When available, use skilled, in-house special investigation unit staff. When situations necessitate the use of outside investigators, it’s important to conduct research before choosing one, since an overzealous or inexperienced investigator can cause problems that may compromise the civil and criminal litigation.
When fraud is suspected, a specialized outside investigator should be utilized who you can rely on both in the civil litigation to gather accurate facts and witness statements and, if necessary to fill in details or authenticate evidence in a criminal prosecution.
Consideration should also be given to a chain of custody and other authentication issues. The investigator must maintain objectivity both in reality and appearance by setting forth the facts and information discovered. An investigator, particularly an outside investigator, who is prone to making conclusions or accusations should be avoided.
Don’t sacrifice thoroughness for expediency, either. While the prosecutor’s office may rely upon an SIU and the evidence developed in the civil litigation in their case, claims professionals and outside counsel must not place undue reliance on law enforcement to assist in their civil cases. Sloppy or poorly documented claims files can also come back to hurt the company in both civil litigation and in a criminal prosecution. Claims personnel should leverage SIU resources, which include electronic databases as well as on-the-ground investigations.
When fraud is clear and the case is appropriate for criminal prosecution, it is important to engage law enforcement early. In some jurisdictions, there are time limits for reporting potential fraud to state agencies and, of course, there are statutes of limitation with respect to criminal prosecutions. Unlike civil cases where the insurer can decide whether to pursue an action or continue to defend in the civil arena, the decision whether to prosecute is at the discretion of the prosecutor’s office. The insurer may provide assistance in the form of its investigation, witnesses, and evidence. However, it will be the prosecutor’s office that decides whether to pursue an investigation or criminal charges.
When reviewing the claim materials, look for several sources of false statements. These include the insured’s own file materials, incident reports, injured worker statements, underwriting materials, and coverage applications. False statements also can be found in treating physician reports, physical therapy reports, claim forms, as well as statements or telephone calls between the claimant and claims professional or investigator.
Involving outside counsel early can often be helpful. Early coordination between SIU, law enforcement, and counsel at the earliest stage can help develop the best strategy for obtaining evidence. In addition to civil discovery tools such as subpoenas and depositions, pre-litigation tools such as Freedom of Information Act/Open Public Records Act requests, and examinations under oath (EUO) can also be helpful. When obtaining independent witness statements that are unsworn and records via public document request, it is necessary to consider admissibility issues as well as hearsay. A little extra effort in terms of getting sworn statements from witnesses and certifications from records custodians may save time and angst during both the civil and criminal litigation.
Defense counsel should be in tune and candid with claims staff regarding whether a successful defense of a denial of the claim is likely to result in a successful civil prosecution for fraud. Likewise, both claims personnel and outside counsel should be cognizant that a successful civil resolution may not necessarily result in a criminal prosecution, much less a conviction. Material misrepresentations may be sufficient when defending or pursuing civil litigation involving insurance fraud, but when looking to support or build a case for criminal prosecution, you must find the crime or crimes. Look for the statement, document, or the act that is the crime itself.
Generally in civil litigation, a preponderance of the evidence is sufficient to meet a plaintiff’s burden. Most jurisdictions require clear and convincing evidence to prove an affirmative fraud claim, however. Proof beyond a reasonable doubt is required in order to succeed in a criminal prosecution. While a claimant has an interest in providing a statement and an insured may be required to provide an EUO, those accused in criminal prosecutions have the right to remain silent. They may refuse to justify or explain their claims, and they can refuse to provide proof as to their innocence or in support of the loss. They neither need to submit to a deposition or EUO, nor do they need to testify at the time of trial. Thus, the prosecutor must prove the case without any testimony or assistance from the criminal defendant.
The prosecutor needs evidence of a specific person committing a specific crime on a reasonably specific date and a reasonably specific location. Prosecutors may have even fewer resources than claims professionals and—as shocking as this sounds—an even greater caseload. Unless a case is prepackaged with a high likelihood of success, the prosecutor is unlikely to be anxious to take a case or simply may not have the resources to take it to the next level.
General considerations including chain of custody, hearsay, and other evidentiary issues that are important in civil cases may be even more so in any criminal prosecutions. Although the efforts, procedures, and evidentiary burdens of civil fraud litigation differ significantly from criminal fraud prosecution, a little coordination and planning may be of great assistance down the road.