3/31/2015

Trust Occam’s Razor When It Comes To the “Quacking” Claims File

Sometimes the simplest path leads to the right answers in complex fraud investigations.

By Kathleen E. Simon

That ugly F-word—fraud—is everywhere. We hear constant news reports about fraud, waste, or misuse. Fraud statistics are mind-blowing, with annual financial cost estimates in the millions or even billions. Fortunately, those of us fighting the good fight have effective and varied resources to investigate and evaluate suspicious claims.

Public awareness and education campaigns about fraud are increasing, and government agencies have simplified fraud reporting by setting up fraud hotlines and websites. Insurers and law enforcement agencies often are able to work in concert to identify and prosecute criminals. Virtually every state has created an insurance fraud bureau, and more bills are pending in state legislatures to combat the insurance fraud epidemic.

In addition to our individual training and experience, there is a plethora of information available on the Internet to help us examine, analyze, and evaluate suspicious claims. Public sector and private industry reporting systems collect data and allow the sharing of information that enables the industry to recognize fraud, criminal trends, and patterns of behavior as well as to detect new scams. However, the Internet’s easy accessibility also presents a challenge. Much of the information is equally available to the nefarious, who learn what we have uncovered and then perpetrate the scams in their area, find a twist on an old scam, or come up with a new one.

Car thieves are no longer limited to smashing windows and hot-wiring ignitions. Auto theft fraud is now high-tech. Fraud rings stage auto accidents using tactics from “swoop and squat,” to “brake slam,” and fake witnesses are abundant. Most of these “accidents” occur outside the view of video cameras. What will they think of next? No matter how intricate the fraudster weaves his web of deception, the motivation is the same: “What’s in it for me?” Most often, it is monetary gain at another’s expense resulting in loss, inconvenience, increased premiums, trauma, injury, and even death.

While most claims are legitimate, some contain indicators or red flags that call the claim’s merit into question. The National Insurance Crime Bureau’s (NICB) indicators are an excellent tool for screening and identifying those claims that call for closer scrutiny. Each special investigation unit (SIU) investigation is a team effort. It is essential that all of those involved in the claim, from the initial contact through litigation specialist and defense counsel, be well versed on these red flags. While the presence of several indicators may raise suspicion and suggest fraud, this is not actual evidence or conclusive proof of fraud.

There are some intangibles you might want to consider for your toolbox, like Occam’s razor, which holds that it is best to opt for simplicity when constructing a theory. This problem-solving or logic principle devised by English Franciscan friar and philosopher William of Ockham states that the simplest explanation—the one with the fewest possible number of causes, factors, or variables—is usually the correct one. Some trace this back to Aristotle’s “perfection equals simplicity” premise, but the metaphor of Occam’s razor is a helpful reminder that one should discard unnecessary explanations. Until facts are developed to give greater weight to an alternative hypothesis, stick to the simplest hypothesis.

A version of this principle is used in medical schools with first-year students in diagnosing patients when they are told, “When you hear hoof beats, think horses not zebras.” In other words, it is more likely that a toddler with a runny nose has a cold than an exotic allergy or a rare disease. More humorous versions of this problem-solving method are “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck,” not to mention the KISS principle: “Keep it simple, stupid.”

Here are two examples that can easily be translated to fraud investigations:

You hear a crash and go into the living room to see your eight-year-old child, a broken table lamp, and a football. After vehement denials from the child, you are presented with these options:

  • A loud noise scared the cat, which jumped on the table in fright, hit the lamp, and caused it to fall to the floor and break.
  • A moving van went down the street, shook the house and table, and caused the lamp to crash to the floor.
  • Your precious child was throwing the ball in the house.

You come home from a long day and are met at the door by your excited but clearly guilty-looking dog. Your couch is torn to shreds. You ponder these scenarios:

  • Someone broke into the house, destroyed the couch, released the dog from the kennel to frame him, and sneaked away without a trace.
  • Fido, the dog, has been watching a cable TV show about Houdini and let himself out to wreak havoc.
  • You did not properly lock the dog’s kennel.

The least complex explanation with the fewest assumptions (ifs, buts, and maybes) is most likely the correct one. Therefore, the correct answer to both is the third choice because it’s the simplest explanation.

Of course, our mothers were right, so we need to use plain old common sense. A dictionary definition is not necessary for “common sense.” It is based on the knowledge and experiences that most (perhaps not all) people have and is an important quality for each juror at trial. The judge has the duty to educate the jury about the law that applies to the case by giving instructions or charges at the conclusion of the evidence at a trial. Counsel on both sides argue long and hard with the court in advance for the jury instructions that will be most favorable to their position. However, no juror is asked to check their common sense at the door of the deliberation room. A jury takes not only the evidence and the law with them, but also their life experiences and understanding of common sense.

So remember the value of your common sense and always keep Occam’s razor sharpened in your fraud detection toolbox. When you hear hoof beats and quacking, you are most likely going to see horses and ducks—unless, of course, you are at the zoo.  



Kathleen E. Simon is a partner at CLM Member Firm Porteous, Hainkel & Johnson in Covington, La. She has been a CLM member since 2011 and is an active member of the Insurance Fraud Committee. She may be reached at ksimon@phjlaw.com. www.phjlaw.com

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