Ethics and Insurance Fraud: Property Damage Fraud - Essay Example

Ethics and Insurance Fraud: Property Damage Fraud The case scenario: The Shady Grove Tree Company, owned by Bill Withers, specializes in storm damage clean up. They attend to trees after wind, rain, tornadoes, lightning storms, flash floods or any typical tree work in residential yards after any type of storm. They also take down trees in residential and commercial property and adjacent trees when the homeowners request it. They trim trees off of power lines and near homes to prevent any type of damage by fallen trees. During their slow season, when calls don’t normally come in for work, they sometimes have to go out and make contact with local residents and businesses, and ask if they have any work to be completed. Sometimes this consists of simply and safely taking down dead trees, or the clean up of fallen trees on residential and commercial properties. Most residential and commercial business owners know, they need to carry a good property casualty insurance policy, in case some type of unexpected incident occurs. Usually through wind, rain, tornadoes, lightning storms, flash floods or anything considered an act of nature that is uncontrollable. Shady Grove Tree Company approaches residential and commercial homeowners and businesses with a sales pitch geared toward those that are covered by insurance. Mary Brown who lives across the street from the owners of Shady Grove Tree Company has a problem with an old dead tree that was struck by lightning during a windstorm a few months ago. The tree is standing and leaning very close to her home, and she is afraid that the tree will eventually fall and damage her home. She has a full coverage homeowner’s policy that covers her home and property. She has owned and paid premiums on the policy for around 20 years and never filed a claim. Bill Withers approaches her and tells her that he can take that dead tree down for her. All Mary has to do is file it with her insurance, and it will not cost her a dime. Mary, who lives on a very limited income, is very receptive to Bills’ offer. It will get the dead tree off her property, and she will not have to worry about it falling and damaging her home. Bill tells her that he will write her an estimate that the tree has been struck by lightning and that it needs to be removed because it is a danger to her and her home. She can then give the estimate to her insurance company. During the conversation with Bill, Mary decides to check her homeowners’ policy to make sure she is covered for such damage. She reads her policy Declaration Page, and further into the details of the policy. She discovers that she has a deductible of $1000 on all claims up front. After Bill gives her the estimate, she tells him that her insurance policy has a deductible of $1000 per claim. She also tells him she does not have $1000 to spend on cutting down the tree. Bill says not to worry, he will just mark his estimate up to $1500 for the job and he will only charge her $500 to cut and dispose of the tree. Mary is delighted that she has such a good friend that will do that for her. She agrees and calls her insurance company to tell them that she has an old tree in her yard that was struck by lightning a couple of months ago and appears to be dead. The tree is close to the house and leaning in her direction, and she is afraid for her safety and her home. The claims representative checks her policy, and discovers that she is covered for such damage. The claims representative asked what the estimate is, and Mary tells her it is for $1500. She also asks Mary if she is aware that she has a $1000 deductible on her policy. Mary states, yes. The claims representative tells her that according to their records, that is a very fair estimate for cutting a tree in her area. She tells Mary that they will send a representative out to check the tree, and when he arrives she is to give him the estimate. Mary agrees. Bill Withers does this for many of his neighbors and friends during his slow season. Is this insurance fraud? Some people would call it doing a favor for a friend. It would really be a question of your values. It might be considered just good business. Mary Brown has paid premiums on the policy for a long time. In reality Bill Withers is the only person receiving compensation for the work. Otherwise Mary Brown would be paying him the $1000, the deductible amount, if the work were done by the stipulations of the policy. They are not abiding by the policy provisions. Homeowners insurance is a type of insurance that covers damage to a home from many difference sources. It could be natural, or caused by other people. It usually covers liability for personal injury due to negligence of the owner. Home insurance fraud is committed when the claimant, the homeowner, makes a false statement or misrepresentation to the insurance company with the intent of receiving benefits under the policy. Homeowners’ insurance also covers many different causes of damage to the home and its contents. It protects against damage from any type of storm or fire. Depending on where the home is located; it may cover snow and ice damage, flood damage, hurricane damage, wind damage, lightning, or any other natural damage. Some cover riots and break-ins by burglars. Policies can also cover liability for the owner due to negligence of property causing injury to a third party who is invited as a guest onto the property. The policy normally covers legal cost, damages for medical costs, pain and suffering, and lost wages. Insurance fraud has several different methods of detection, normally based on the type of fraud being attempted. Some fraud is detected when an application is filled out, such as life insurance. Property insurance, however, is generally committed once the policy has been in force for a long period of time, by damaging, destroying or stealing the insured property. This type of fraud is usually detected by post-loss investigation. Insurance fraud and detection is so prevalent by the fact that hundred of billions of dollars are paid out annually for fraudulent claims. If it were eliminated, our premiums would decline drastically. On the other side of the scale, in Nov 2010 “Rep. Pete Stark, chairman of the House Ways and Means Health Subcommittee has sent a letter to the top ten for-profit health insurance companies demanding they pass their excessive profits on to their customers by lowering premiums.” Stark also reported, “that the collective $9.3 billion in profits for the first nine months of 2010 is up an average of 41 percent over the same period last year.” Where is the fraud in this scenario? Bill Withers, the owner of the Shady Grove Tree Company, or Mary Brown, the homeowner? Bill Withers is the one receiving the $500 payment, but Mary Brown owns the homeowners’ policy. To some it may not even seem like fraud at all because it’s so cleverly devised. It appears as part of Bill Withers’ business and he is doing a favor for these close friends. But other tree companies do the same thing during slow times. First of all, most insurance agents are paid on commission, so they have to be very attentive to the possibility of fraud when taking applications. Otherwise, something like this case would be detected after the fact by either a claims adjuster or investigator to double-check the claims. Many insurance companies use statistical analysis to identify suspicious claims. A simple comparison is done of fraudulent and non-fraudulent claims to detect wrong doing in the past. Fraudulent claims can only be one of two kinds, legitimate claims that are exaggerated or false claims in which damages claimed never actually occurred. In this scenario: Bill Withers and Mary Brown would be guilty of legitimate claims that are exaggerated or false. Now considering a fraud-busting system. Since this is a business scenario and considering how business is conducted in today’s business environment, would any of these cases be considered fraud in the business sense? Detection would be the main key. Case I, the Colorado Ski Resort, would be worth pursuing legally. The Colorado Ski Resort scammed the insurance company out of $150,000 in equipment and a new computer system. In Case II: There is no way to actually prove that there was a fraudulent act committed. It’s just the dentists’ word against the patient and insurance company. In most cases, that would be considered just conducting business. It would be far too costly to run these types of cases through any judicial system we have now, with the exception of Case I. When you consider business and the loose conception of fraud in our society; enormous insurance premiums also appear fraudulent. Since this is a business scenario, why not set up a private business to deal with this matter. It would be organized on the principle of a private investigations firm. When the insurance company or the private individual receives a complaint, they come to the company, XYZ Fraud Investigations. They pay a fee up front for the investigation. The fee is based on a percentage of the loss. The investigator does an undercover investigation and documents the file. Then it’s up to the claimant as to how the punishment is handled. The judicial system consists of a group of volunteer citizens, and he is given a choice of paying a fine, or community service. The fine goes to a charity in the local community where the wrong was committed. The business environment of this day and time allows the term “fraud” to be used very loosely. The public has come to accept certain unacceptable practices as good business, and some are not considered fraud or illegal at all. According to the stipulations of the contract in the homeowners’ policy, any claims not over $1000 should be paid up front by the homeowner. This is definitely in favor of the insurance company. However, Bill Withers and Mary Brown are forced to “bend the contract rules” in order to survive. Ethically, who has committed fraud? Entire Website Smith-Dewey, Chuck, “Insurance Profits up 41 Percent,” 15 November 2010. Web. 04 May 2011. “What’s Home Insurance Fraud?” wisegeek.com, n.d. Web. 04 May 2011. http://wisegeek.com/. “What’s the Different Methods of Insurance Fraud Detection?” wisegeek.com, n.d. Web. 04 May 2011. “What are the Best Tips for Reporting Insurance Fraud?” wisegeek.com, n.d. Web 04 May 2011. “Insurance Fraud.” Web 04 May 2011. http://en.wikipedia.org/. Read More