11/19/2013

Is There Fraud Hidden in Your Insured’s Receipts?

Insurance companies have seen a growing trend of insureds who are submitting fraudulent receipts to support their claims.

By Karen Karabinos

As some individuals struggle to pay their expenses and debts, they may look for “alternative sources” of income. One such source has been the filing of fraudulent insurance claims. Recently, however, insurance companies have seen a growing trend of insureds who are submitting fraudulent receipts to support their claims for recoverable depreciation or for additional living expenses in otherwise legitimate claims.

Insurance companies pay insureds for their additional living expenses (ALE) when a covered cause of loss, such as a fire, renders their residences or premises unfit to occupy. The amount paid for an insured’s ALE generally is for any necessary increase in living expenses incurred so that the insured’s household can maintain its normal standard of living. For example, in order to substantiate increased living expenses, an insured submits receipts to the insurer documenting the purchase of groceries or meals at restaurants while displaced due to the fire. As some insurers are learning, these receipts may be fraudulent.

One insured recently submitted receipts that documented not only purchases by individuals who were not members of the family but also purchases paid by more than 40 different credit and debit cards. Some of these receipts documented the name of the credit card holder who was not a member of the insured’s family, and many of the receipts failed to reflect the credit card holder’s name.

The insureds testified that they possessed only two debit cards associated with their two bank accounts. They claimed, however, that the 40 other cards consisted of prepaid debit cards that the family utilized to pay their living expenses. A careful review further revealed multiple receipts for dinners involving parties greater than the number in the insured’s immediate family. Receipts also were submitted for numerous transactions in a single day purportedly relating to eating out and grocery shopping by the family. The times and locations of the purchases as documented in the receipts, however, did not support the possibility that the insured and his family could have incurred them all.

For example, one day’s worth of receipts showed that, in just a little over an hour, the insured and his family reportedly ate twice at a local Italian restaurant, once at a fast-food restaurant, and once at a specialty shop. The receipts submitted also showed that the family purportedly had eaten on two other occasions at the same local restaurant earlier in the day. The insured had no explanation other than to claim that he had lost the receipts documenting his actual expenses and had obtained the other receipts from the restaurant manager to represent the “similar” amounts he and his family had incurred.

In addition to the issue of whether or not the insured or someone else had incurred the expenses reflected in the receipts, the insurer also found that the insured had altered the amount on the receipts submitted in support of his ALE claim. The insurer compared the amount of the receipts to the debit transactions documented in the insured’s bank records and found more than 100 instances in which the insured claimed an amount higher than the amount verified by the documented debit card transaction. Accordingly, in reviewing ALE receipts submitted by an insured, insurers should confirm that the receipts actually document the expenses and correct amounts incurred by the insured and his family.

Insurance companies also should verify receipts an insured submits in support of a claim for recoverable depreciation. If replacement cost coverage is provided under the terms of the policy, reimbursement typically begins with an upfront payment to the insured for the actual cash value (ACV) of the item. ACV represents the amount of an item’s replacement cost minus the depreciation value of the item based on the age and wear-and-tear of an item damaged or stolen at the time of the loss. If the insured replaces the damaged item, he can submit a claim for the recoverable depreciation within the time period set forth in the policy.

Some insureds are now filing fraudulent receipts in order to obtain the recoverable depreciation when they have not actually incurred the required replacement cost. For example, an insured recently submitted numerous receipts in order to obtain the recoverable deprecation for items damaged as a result of a fire. The adjuster immediately noticed that the receipts reflected nearly $100,000 of electronics replaced during a two-week period. One of the receipts submitted by the insured was for an online purchase totaling $34,265.13 of electronics. The insurer sought verification with the electronics store and learned that none of the items were ever delivered to the insured. In fact, the store advised that it had issued the insured a credit, refunding the entire amount of the purchases to the insured’s credit card six days later.

Not only did the insured purportedly make online purchases, he made numerous purchases on the same day and in various stores located within the same shopping center. In verifying the purchases with these stores, the insurance company found that the insured, either on the same day of the purchase or the next day, returned the items to the stores. Rather than receiving a refund or credit on his credit or debit card for the in-store purchases, the insured chose to receive cash back, probably to avoid any record of his return of the items. Months later, knowing that he had returned or canceled the purchase orders, the insured proceeded in filing a claim with the insurer for replacement costs. Based on its investigation that revealed the insured had not actually replaced the items, the insurer not only denied his replacement cost claim but also denied the entire claim and sought to recover the monies previously paid to the insured as a result of a fire loss.

In light of this recent trend, insurance companies must take a closer look at the receipts that insureds are submitting in order to verify that they are not attempting to defraud the insurer in an otherwise valid claim.   

 



Karen Karabinos is a partner with Drew Eckl & Farnham. She has been a CLM Member since 2010 and can be reached at KarabinosK@deflaw.com.

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