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April 9, 2014

Recent Developments In Cybersecurity: What The Federal Trade Commission, Encryption Schemes, and Creative Thinking Have to Do With Your Business

classified-1432995-m.jpgThere are a few recent developments in the field of cybersecurity that businesses, individuals, and fraud investigators alike should take note of. One is a recent case which, if followed, could expand a business' liability for security breaches and the others are new tools businesses possibly could use to protect against that same liability.

Digital information, including how to protect it and prevent fraud, is always a fascinating topic. New advances in digital security go hand in hand with ingenuous ways to steal digital information. It is fun to follow, in the same way it is fun to watch Wile E. Coyote chase the Roadrunner: the chase never really ends, they always come back for more, and they use bigger and better gadgets every time.

Cybersecurity, though, is more than just a fun-read. It has real-world implications. According to a report published in the Wall Street Journal, Federal District Court Judge Esther Salas, on Monday, April 7, 2014, upheld the Federal Trade Commission's right to police corporate cybersecurity practices to ensure businesses take reasonable precautions to safeguard their customers' data. The FTC reportedly sued Wyndham Worldwide Corp. and three subsidiaries, in 2012, after hackers broke into the company's corporate computer system and the systems at several individual hotels, between 2008 and early 2010, and allegedly stole credit and debit card information from hundreds of thousands of customers. The FTC alleged that Wyndham did not take reasonable measures to protect its customers' information from theft. It cited what it alleged were wrongly configured software, weak passwords and insecure computer servers. Wyndham argued that the FTC did not have the statutory authority to police corporate cybersecurity. The FTC argued that its authority came from its 100 year old statutory power to protect consumers from businesses that engage in unfair or deceptive trade practices. There was no finding of liability, but the court reportedly upheld the FTC's right to bring the suit. The lawsuit reportedly seeks to have the court order Wyndham to improve its security measures and fix whatever harm its customers suffered.

With the possibility of federal enforcement of what amounts to a "reasonable-precautions" cybersecurity standard, businesses, not just fraud investigators, should pay attention to the potential tools at their disposal to protect their clients' information.

The technological advances in keeping things secret are ingenuous. Much like the mythical jackalope, or my favorite, the basselope, they use things that do not seem to have anything to do with each other, to come up with something better: A more effective lock and key to turn away prying eyes from private information they should not see.

Continue reading "Recent Developments In Cybersecurity: What The Federal Trade Commission, Encryption Schemes, and Creative Thinking Have to Do With Your Business" »

March 14, 2014

How Do You Know What To Look For In A Fraud Investigation? Utilize The Right Tools And The Right People

cosmos-lighting-1-1024026-m.jpgInsurance fraud, how it's committed and how it's solved, always is an interesting topic. It's like a crime drama. Whether it's Castle, The Mentalist, or NCIS, you get to see the end result and then figure out how it happened; and you inevitably learn about a couple of mistakes that help it along and a few more that eventually bring it to an end. Real-life examples are not always as compelling as highly-rated TV shows but they do illustrate the problem and show what investigators should, and should not, do to bring it to an end. The ones we will be talking about in this post are Rental Car Fraud, a smart-phone app, and, once again, the Target Data Breach. They have a lot more in common than you might think.

Rental Car Fraud, a subset of the ever-popular Auto Fraud, is growing at an alarming rate, according to an article in the March 12, 2014 edition of the Claims Journal by Denise Johnson. The concept is simple: rent a series of cars; use them to commit crimes and then dump, and maybe even burn, them when you're done; and conceal your identity by using fake or stolen ID. The cars are hard to trace and the connections between them even more difficult to figure out. According to Kraig Palmer, an investigator with the California Highway Patrol who recently spoke at the Combined Claims Conference in Orange County, Calif., stolen ID's are not hard to come by and can be relatively cheap at about $50 each. The fraud is not easy to solve. According to the article, Palmer said he worked on one case that involved 103 vehicles, which resulted in 72 arrests. Another involved 3 main suspects who rented 42 cars from 2 different rental agencies. One of the suspects was a preferred customer, which evidently made it easier for him to rent the cars and harder for the companies to trace him. Those incentive programs reportedly often allow a customer to register on-line without even having to set foot in the rental agency.

There are certain things a claims adjuster or SIU rep should look for when faced with an auto claim for property damage or bodily injury that involves a rental car. Kraig Palmer, according to the Claims Journal story, suggested they look for unusual patterns, such as whether one person rented more than one vehicle involved in the occurrence. Howard J. Hirsch added a few more, which appeared in the January/February 2011 edition of Auto Rental News; though he referred the tips to auto rental counter agents, fraud investigators might be able to use them as well:

  • The customer owned a vehicle, but it is not being serviced or repaired [at the time he rents the car].

  • The customer inquires about extra insurance before it is offered.

  • The customer is a walk-in and does not own a vehicle.

  • The customer has a local address and an out of state license.

  • The customer only requests a one-day rental.

  • The customer pays in cash.

  • The customer pays for the rental with someone else's credit card.

  • The customer presents a foreign driver's license with no passport.

Continue reading "How Do You Know What To Look For In A Fraud Investigation? Utilize The Right Tools And The Right People " »

February 28, 2014

How To Negotiate a Business Deal: Think Win-Win and BATNA

out-of-the-park-842657-m.jpgA recent news story caught my eye because it shows the importance of a win-win negotiation strategy and the need to accurately assess your BATNA, or best alternative to a negotiated agreement. Though it deals with personal injury claims in Kansas, it can teach a lot to businesses in New York and across the country.

The state legislature in Kansas is considering a few important changes to personal injury litigation: increasing the cap on non-economic damages while at the same time changing the rules of evidence to allow a jury to hear whether a plaintiff has had losses covered by other, or collateral, sources including insurance, and to make it more difficult to use questionable expert testimony. To put it another way, the proposed rule changes would allow personal injury plaintiffs to collect more for pain and suffering while arguably making those harder to prove.

According to the story in the February 28, 2014, Claims Journal, Kansas has not raised its cap on damages for pain and suffering since the 1980's. Though the cap was found constitutional by the state's highest court in 2012, the decision disapprovingly noted the long delay in raising the cap. The warning evidently was heard loud and clear. The story notes that the chairman of the state senate judiciary committee, Jeff King, considers it only a matter of time before the current cap, of $250,000, is overturned as being too low. That is why the current bill would increase the cap, in stages, to $350,000.

Continue reading "How To Negotiate a Business Deal: Think Win-Win and BATNA" »

January 13, 2014

Data Breaches, Cyber Security, and Insurance Fraud: How Information Can Help and Hurt

Marsh.12.28.13.jpgThere's an awful lot of data out there in the great big digital universe, and, as everyone should know by now, it can create a record of people's activities that they may not always fully appreciate. We've previously written about how metadata, when used the right way, can help investigate insurance fraud. As recent news stories point out, however, when used the wrong way by the wrong people, it can be used to steal and defraud innocent people and companies.

Everyone, every time they go online, leaves a digital footprint. Whether it's social media, where you just have to post your latest thought for all to see; e-commerce, where you browse, select and pay for everything on-line; or even shopping at the local brick and mortar store where you pay by credit card, there's a record created and information left behind. Cyber-security, which is just another name for at least trying to keep that digital information safe, was much in the news this Christmas Season. Unfortunately, for shoppers, retailers and broadcasters, alike, cyber-security often seems to be more of a goal than a reality.

By now, the security breach at Target stores may seem like old news, but it's not. On Friday, January 10, 2014, Target said that 70 million people had their names, addresses, and telephone numbers taken by cyber-thieves. This is in addition to the 40 million people who had their credit and debit card information, including Personal Identification Numbers, or PIN's, hacked from Target's servers. Thankfully, a lot of the information, including the PIN's, evidently was encrypted, which at least means it has to be cracked open before a thief can get at it. Whether that will be enough to protect the stolen information is something only time will tell. Unfortunately, even the loss of seemingly benign personal information, like your address, email address, and telephone number, can make you more susceptible to identity theft.

Neiman Marcus, just this past Saturday, January 11, 2014, announced that it, too, had been a victim of a cyber-security attack, in which thieves stole some of its customers' credit card information and made unauthorized purchases during the holiday season.

On December 25, 2013, the BBC was hacked. Just so you don't think that retail customers are the only targets, or that retail sales are the only source of ill-gotten gains, communications companies, even staid government-run ones like the British Broadcasting Corporation, are vulnerable. The story broke because someone saw the thief trying to sell access to the BBC servers, online. That would be kind of like coming home from work and not realizing your house was broken into until you see a commercial trying to sell your heirloom jewelry on TV.

The supposed thief, according the BBC story, is a notorious Russian hacker known by the names ""HASH" and "Rev0lver". From the sound of it, it's not the first time he's done this, and it won't be the last time he'll try. He attempted to sell access on underground, which is another word for clandestine, marketplaces on the web. It was first noticed by the Milwaukee based cyber-security firm Hold Security LLC, which reportedly makes a practice of monitoring such sites to locate people who try to deal in stolen information like this. HASH tried to convince buyers he had something worthwhile by showing them files which only someone with access to the servers would be able to get at.

Now you might think to yourself, what's the big deal about the BBC? After all, it's just information. It's not like anyone stole money directly out of your pocket.

Continue reading "Data Breaches, Cyber Security, and Insurance Fraud: How Information Can Help and Hurt" »

December 28, 2013

Insurance Fraud and Metadata: If NSA Can Have Too Much Information To Do Its Job, What About SIU?

SB.dunes.left.Shrunk.jpgInformation and investigations go hand in hand. Whatever you investigate, whether it's insurance fraud; where that priceless, uninsured, artwork went after two rogues in police clothing strolled in late one night and took it from Boston's Gardner Museum; or who the one-armed man really was; you need information, lots of information, to figure it out. But does information always help?

When you investigate insurance fraud, you need information to confirm coverage for a given claim; to determine whether the claim really happened the way the insured said; to establish whether the insured submitted a fraudulent and/or exaggerated claim. You take his recorded statement and examination under oath. You interview witnesses and get corroborating documents. You get ... information.

Can you ever have too much information, though? Can an investigator, in effect, be buried in an avalanche of so many facts, have so much information, that she doesn't know what she has and misses the answer? At least according to an article in Thursday's Wall Street Journal, the answer is an emphatic yes.

The article, on the front page of the December 26, 2013 Wall Street Journal, is about the NSA. Yes, it mentions Edward Snowden, but it really isn't about him. It features William Binney, a former NSA analyst who's been retired for a dozen years. It really is about Mr. Binney's claims that the NSA's spying, the collection of all the metadata, the who-to's and the where-froms, of all of the calls of all of the people the NSA is supposedly collecting, hurts more than helps. Not that it hurts me or you directly, but that it hurts the NSA itself and keeps it from completing its mission: tracking down the bad guys and preventing terrorist attacks.

The most telling line in the whole story is when it eloquently sums up Mr. Binney's complaints about the NSA: "It knows so much, he says, that it can't understand what it has." And that, to put it mildly, can be a problem. Any votes on what would be worse: not being able to figure it out because you don't know enough or because you know too much but don't realize what you have? It seems like a tie: either way you lose; you still don't have the answer.

Continue reading "Insurance Fraud and Metadata: If NSA Can Have Too Much Information To Do Its Job, What About SIU?" »

December 17, 2013

Investigating Insurance Fraud: Be Honest, Are You Lying?

night sky.jpgOur last post was about how sometimes it's easier to tell a lie than others; scientific research suggests it depends upon what you're lying about. Well, there's another new study that says sometimes, just sometimes, people are honest about their lying. In other words, they'll admit it; not always, not under every condition, and definitely not everyone, but definitely sometimes.

Lying has been in the news a lot recently. For sports fans, there's the old tried and true theme of performance enhancing drugs: did he or didn't he use them? Think of Lance Armstrong. He long said he didn't and then admitted that he did. For news junkies, there's Bashar al-Assad. The Syrian president said he didn't use chemical weapons, then the United States said he did, and he's now giving up his chemical weapons stockpile, if only someone will find a suitable place to destroy it. It's hard to say you didn't use chemical weapons if you're giving them up so you can never use them again. Wouldn't it be a whole lot easier if the world could know, before things get out of hand, who's telling the truth and who is lying? Truth detection is more of an art than a science but, there is some science to help the effort along the way.

Continue reading "Investigating Insurance Fraud: Be Honest, Are You Lying?" »

December 13, 2013

Insurance Law, Trials, and Fraud. Lying Under Oath: Easier Said Than Done

thread-spool-1378256-m.jpgLying and Insurance Fraud go together. Cheat, steal, get caught, admit it; which one doesn't belong? Better yet, be honest when you cheat. No, that doesn't work either. Most every time someone tries to get away with something he shouldn't, chances are he's going to lie about it somewhere along the line. Investigators need to know how to ask questions, elicit answers, and get at the truth; so, chances are, they should all know a good lie when they hear one.

Detecting, and exposing, lies also is a big part of trial work. A trial attorney wants to make certain that the jury at least will doubt, if not see right through, slanted testimony; will see the inconsistencies, understand the contradictions, and punish the lies; or even scoff at the willful forgetfulness. Cross-examination, impeachment in general, and artful closing arguments all can accomplish this. Knowing a lie is essential to ensuring that everyone else does, too.

Everyone thinks they know a lie when they hear one. They believe they can tell the difference between a deliberate falsehood and an innocent mistake. That's probably one reason lying is the focus of so much comedy. Think of the Jon Lovitz character from Saturday Night Live, with his blatant lies getting cackles from the studio audience. Then compare him to poor little Emily Litella who seemed to spend most of her time trapped in an endless game of telephone, never getting things quite right, wondering what all the commotion was about violins on TV. Or think about how funny it was to see Jim Carrey playing a slick attorney in the movie Liar Liar, who, for 24 hours straight, had to tell the truth and nothing but the truth. Some lawyers, I mean every lawyer, thought that was funny; yeah, that's the ticket.

Continue reading "Insurance Law, Trials, and Fraud. Lying Under Oath: Easier Said Than Done" »

December 10, 2013

Creative Claims and Insurance Fraud: Is Diligence Worth The Effort?

odd-sunrise-669835-m.jpgIf you ever wondered what money can make people do, all you have to do is look in the news and you'll see it, even in the most unlikely places. The last time, we spoke about Auto Thefts and Insurance Fraud and how money motivates both. Everyone wants a dollar and some don't want to work for it; they'd rather steal it, though a lot of time and effort can go in to the theft. This time, the news comes from a more unlikely source: the Deepwater Horizon oil spill and the BP settlement. They again show that when there is a big pot of money lying around, people will find creative ways to take it.

Everyone remembers the Gulf Oil Spill; it happened only a couple of years ago, on April 20, 2010. It dumped a tremendous amount of crude into the Gulf; between 103 million and 176 million gallons. It polluted the Gulf; fouled its waters and shores; and devastated the economy in the area. Most people can still see the pictures of oil-covered birds being hand cleaned; the fireball and smoke coming out of the crippled rig, with streams of water pouring in from surrounding boats trying to put it all out; and the frantic efforts to cap the well. If you notice, the ads urging you to come back to the Gulf are still running, all this time later. It all points out just how bad it was. It seems only right that people and businesses should be compensated for the money they lost through no fault of their own, because of the spill.

British Petroleum, or BP, has a problem with settlement proceeds going to those they consider undeserving. Their biggest complaint seems to be that businesses are being paid even though they cannot trace any loss back directly to the spill. There's even a report in the London Evening Standard that lawyers are advertising in the Gulf area by claiming "there is no need to provide proof that BP caused your loss." According to those same reports, BP believes it already has been forced to hand over $500 million to firms who suffered no actual losses from the tragedy.

Continue reading "Creative Claims and Insurance Fraud: Is Diligence Worth The Effort? " »

December 5, 2013

Auto Theft, Insurance Fraud, and Dollar Signs: The Motivation Behind the Mayhem

old-ships-8-1261209-m.jpgThere are a few things, when you look around today, that most people probably can agree on: Auto theft is a large problem; Insurance Fraud is a large problem; and both involve a lot of money. Neither is going to go away anytime soon; not in New York; not in the U.S.; and not anywhere else you can think of where money speaks louder than words. A recent news story brought this home in a big way.

The stats are impressive: In 2012, according to the FBI, there were 721,053 motor vehicle thefts nationwide, with 47,658 in the Los Angeles metropolitan area, 24,660 in the New York metropolitan area, and 24,218 in the Chicago metropolitan area. The money is substantial: the average dollar loss per stolen vehicle was $6,019; and the total loss, nationwide, was more than $4.3 billion. Just because a car is reported stolen doesn't mean that Insurance Fraud is involved, though sometimes the theft is faked. Even where there is no fraud involved, however, it still has a big impact on the Insurance Industry, including those who provide the coverage and those who pay to be covered; i.e., just about everyone.

Continue reading "Auto Theft, Insurance Fraud, and Dollar Signs: The Motivation Behind the Mayhem" »

October 22, 2013


nuke-fire-1427306-m.jpgArson is only one of many types of Insurance Fraud. Unfortunately, it is one of the most dangerous; and it just never goes away. As we previously mentioned, whenever a big pot of money is available, people will try to find a way to take it, or at least grab a big share of it; making a fraudulent insurance claim is just one way. Intentionally setting a fire to defraud an insurance company, though, is something different; it's inherently dangerous in a way most other types of Insurance Fraud are not. You never know what's going to happen once the flames begin to catch. People, whether running to escape or rushing to the rescue, often will get hurt; they simply are hard to put back together.

Unfortunately, there have been many examples of intentionally set fires in the New York area. Most recently, three 19 year olds were arrested for allegedly setting fire to a convent on Staten Island. They reportedly broke into it to see what they could steal and one allegedly set the fire when he lit two religious candles and dropped one on a closet floor and one on an upper floor. As always, not everyone made it out safely. One of the two nuns who were sleeping in the convent escaped, apparently without harm. When the second nun had to jump out a second floor window to get away from the fire, though, she broke her back and reportedly will have to learn how to walk again.

Sometimes, insureds set fire to their own houses in order to collect the policy proceeds. Not that long ago, a mother and her adult daughter were arrested in Connecticut for allegedly setting fire to the mother's house in Stratford. This evidently involved a first-party property claim; the mother allegedly recovered $337,000.00 for damage the fire caused to her house and personal property and the daughter recovered almost $2,000.00 for damage to her car that had been parked in the mother's garage at the time of the fire.

Reportedly, the mother and the daughter originally said that they were nowhere near the mother's house; they were at the daughter's house miles away and didn't learn about the fire until the next day. The police, however, first grew suspicious when they found valuables and food from the mother's refrigerator in the daughter's car. Evidently, neither the mother nor the daughter had a good explanation for why two televisions, frozen food, a digital camera, jewelry, and four cellphones from the house, were inside the daughter's car. It didn't help that the fire reportedly was started by gasoline that was poured throughout the house.

The unnamed insurance companies in the Connecticut case paid the insureds' claims; a total of almost $340,000.00 worth. There's also no indication whether the carriers investigated the claims or, if they did, what their investigations consisted of. But it's fair to ask whether, based on the facts the police reportedly developed, the insurance companies would have been able to deny the mother's and daughter's insurance claims and make those denials stand up in court.

In New York, a carrier has to establish the affirmative defense of arson by clear and convincing evidence. See Van Nevius v. Preferred Mut. Ins. Co., 280 A.D.2d 947, 721 N.Y.S.2d 210 (4th Dept. 2001). This is the same burden of proof as for fraud. See Rudman v. Cowles Commc'ns, Inc., 30 N.Y.2d 1, 10, 280 N.E.2d 867, 871 (1972). It's no easy task, however. The carrier has to do more than merely show that the evidence makes it more likely than not that the insured caused the fire; it must show that the evidence makes it highly probable that the insured caused the fire.


October 14, 2013


usa-dollar-bills-1431130-m.jpgIf anyone wants to know how prevalent Insurance Fraud is, all they have to do is take a look at the recent arrests and convictions for it in New York, as reported by the state. Nothing much has changed since the last time we looked at them. Some schemes are dangerous; some are complex; some are straightforward; and some, simply, are silly. That people will go to great lengths to steal money is no surprise; it's always been that way. The really surprising thing is that people think they can get away with some of this; greed doesn't just cloud good judgement, it can blind it. Insurance Fraud Investigators, however, can use these examples to learn how to better spot Insurance Fraud and, maybe, carriers can use them to better learn how to prevent it.

One of the most dangerous, and hard to prove, Insurance Fraud schemes is back in the news. Eight people were arrested in May 2013, for their alleged involvement in staged accidents, where they allegedly caused accidents for money. Their idea was simple: rent U-Haul trucks and either intentionally strike another car or have another car strike them. The only saving grace was that, reportedly, the only people they hit, or that hit them, were co-conspirators. Many times unsuspecting people are targeted; cars will stop short in front of them or fail to stop behind them. Here, apparently, no innocent victims were involved, just paid participants.

The 8 people arrested allegedly made more than $2 million of claims, to recover for phony injuries, to insurers, including U-Haul's insurer; the insurers paid out more than $1 million for treatment of non-existing injuries. As always, it looks like it took a lot of work to crack the scheme and bring the charges; fitting the pieces together, connecting the various people and accidents, through the car registrations, rental records, medical providers, and insurance companies, is no easy task. The fact that the claimants used rental vehicles with the rental company's insurance, rather than their own, probably made it even more difficult. The large number of agencies involved in the investigation shows just how hard it is to uncover this type of fraud. The arrests were the result of a joint investigation by the U.S. Attorney for the Eastern District of New York, the New York City Police Department, the United States Postal Inspection Service, and the New York Insurance Frauds Bureau.

One of the most straightforward types of Insurance Fraud is also perhaps one of the least well thought out. A New York City Transit worker was arrested in May 2013 because he allegedly faked a disability. He was hurt in a car accident in February 2011 and claimed he couldn't work until May 2012. It seems that if he couldn't work he had a credit disability insurance policy that would pay his loans. Evidently the policy did what it was supposed to: it made $4,335.50 of loan payments for him. The only problem was that he allegedly did work, and worse, there were records of it. He evidently forgot that there was a record of every time he got paid for being a subway conductor, and those same records showed that he worked when he said he couldn't. The investigator remembered, though, and the conductor was arrested. Paper trails and fraud do not mix.

Sometimes, even when you alter the records, you still get caught. A man was arrested in May 2013 after he submitted nine claims to recover medical benefits for services he said he received at four different hospitals. He even submitted statements from the hospitals showing they performed, and charged him for, the services. The statements were legitimate, at least when he first received them back in 2005. The only problem was that he tried to pass them off as being recent, and allegedly altered the documents in order to do it. Evidently the investigator from the Insurance Frauds Bureau didn't accept the documents at face value, did a little legwork, and discovered they were phony. After all, the hospitals probably had the original billing statements or at least records of the original treatment. Sometimes all you have to do is remember to ask. Good record keeping is always difficult to get around.


July 12, 2013

When Is An Insurance Broker Liable For A Coverage Mistake In New York?

1424855_wave.jpgEveryone knows the devastation caused by Hurricane Sandy: property destroyed; power lost; lives disrupted. No one expected it, but everyone has to live with it. Insurance is supposed to help put the pieces back together. But who's responsible when the insurance you have isn't the insurance you need? Nothing good happens when businesses close and homeowners can't rebuild because they don't have the right kind, or the correct amount, of insurance. When that occurs, who's liable for such a big mistake? You might think it's the insurance broker or agent but, more often than not, it's the insured.

Recently, a Glen Cove, New York restaurant, The Water's Edge, sued its insurance broker, B&G Group, Inc. for allegedly getting it the wrong coverage, from the wrong company, in the wrong amounts. According to an article in Newsday, the restaurant closed down on the day of the Storm, October 29, 2012. It didn't have power for 14 days, couldn't maintain its refrigeration system, had to dispose of the spoiled food, and only reopened in late May of this year. It claims that it lost $115,000 in spoiled food and suffered $250,000 in lost business income. The problem, evidently, is that it received only $5,000 for covered losses under its insurance policy, when it thought it would receive, and obviously needed, much, much more.

The Water's Edge, which opened only last summer, according to news reports, obtained an insurance policy from Lloyd's of London and used an insurance broker, B&G Group Inc., to get it. The Water's Edge allegedly paid the policy premiums to B&G but B&G failed to pay the premiums to Lloyd's of London and, as a result, the policy was canceled. B&G allegedly replaced the canceled Lloyd's policy with another, presumably with different terms and coverage limits, but never informed the restaurant of the changes. The Lloyd's policy allegedly had coverage limits of $500,000 for both the loss of the food and for business interruption, but the most the restaurant could recover under the replacement policy evidently was much less. When the loss was adjusted, and the payment turned out to be so small, the restaurant sued the broker to make up the difference.

Importantly, the Water's Edge, based on the news reports, did not sue its insurer. This probably means it received everything it was entitled to under the replacement policy. There also is no allegation that Lloyd's wrongfully terminated the original policy. With these two avenues closed, there was only one other place to turn: its insurance broker.

If the allegations are true, and right now we don't know if they are, the restaurant has a good chance of recovering at least some of its losses. It will have to show that the only reason the Lloyd's of London policy was not in effect was because of the broker's mistake. It then could be entitled to recover only the difference between what it received under the replacement policy and what it would have recovered under the Lloyd's of London policy. The broker will be able to challenge the claimed coverage and damages because it will stand in the insurer's shoes; i.e., if the insurer would have had to pay, then the broker will have to pay. Soho Generation of New York, Inc. v. Tri-City Ins. Brokers, Inc., 256 A.D.2d 229, 231-32, 683 N.Y.S.2d 31, 34 (1st Dept. 1998).

Normally, though, it is not so easy to recover from an insurance agent or broker when the insurance turns out to be different than the insured thought it was before the loss. To know why, you have to understand what an insurance agent's duties are.

Continue reading "When Is An Insurance Broker Liable For A Coverage Mistake In New York?" »

July 5, 2013

Text Mining: A Divining Rod For Insurance Fraud?

1339518_rhondda-valley.jpgWe've previously talked about how technology can be used in fraud investigations; basically, it can help investigators pay attention to the important things. The trick is learning, and keeping up with, what is important. A good tool for doing this is text mining. By taking advantage of a computer's ability to "read" many more pages of text than a human ever could hope to, in a fraction of the time, and to draw patterns and other relevant information from all of that "reading," text mining can point an investigator in the right direction by letting her know what warning signs to look for and address. Turning words in free-flowing narratives, emails, statements, and notes into useful facts that can be studied and analyzed, text mining can, and should, help any investigator.

There are four different parts of the text mining process, each of which is as essential as the other:

1. Information Retrieval Systems: These weed out irrelevant documents in order to concentrate on the ones that are more likely to get you the answers you are looking for. Say you're looking for the best attorney to help you buy a house; chances are you'd be smart to look for ones who have "real estate," "houses," or "homes" somewhere in the description of their practice. This won't necessarily get you the attorney you want, but it will make your search a whole lot easier. This is what information retrieval systems do.

2. Natural Language Processing: This allows a computer to "read" the text, by breaking it down by sentence structure and parts of speech, and by figuring out what a word means, even when it has more than one meaning. Think of how hard it would be to understand a sentence if you couldn't put it into context. "Break a leg," would mean one thing if said it to a performer, another if said to a doctor or even a lawyer.

3. Information Extraction: This allows a computer to identify, and pull out, multi-word terms, names, and facts from text in a written document. Instead of a free flowing narrative, you now get concrete facts to analyze and in which to look for patterns and meanings.

4. Data Mining: This is really the way to discover what you're looking for: the heretofore hidden meanings or unknown correlations between facts. A good example is when a drug developed to battle one condition, such as minoxidil for lowering blood pressure, is found to cure another, such as male pattern baldness. You have to be able to search through all of the scientific studies in order to know that this is even possible, before you even think to confirm it with your own investigation.

A recent study, led by Philip Borba of Milliman Inc., shows just how useful text mining can be to the insurance industry. Using text mining, the study was better able to predict how severe an auto accident will be, and whether anyone will get hurt in it, based on whether the drivers use a medication or drug. The best part, though, was that the study used only free form narratives, really general descriptions of how the accident occurred, in order to do it.

The researchers started with narrative reports of approximately 7,000 auto accidents, where each contained between 400-600 words, and looked for indications of drug use in each. It would be difficult, if not impossible, even for a dedicated team of professionals, to sort through the minimum 2.8 million words to look for any indications of drug use, let alone different types, and draw any meaningful conclusions from them. It would be equally useless if a computer could do nothing more than recognize, and tally, each particular word, without recognizing that particular groups of words have particular meanings and that certain of these indicate drug use. What Borba did, however, was different. He broke down the narratives into 1-6 word phrases; over 3 million of them. He then had computers "read" the reports to identify particular combinations of phrases which indicate that someone was on medication or using a drug. What he found was enlightening.

Under the same conditions, good weather, daytime driving, and no alcohol use, the likelihood that someone would be injured jumped from 57%, to:

- 72% when one of the drivers either was on a prescription or a specific drug was mentioned;

- 75% when the narrative mentioned medication; and

- 85% when a specific illegal drug was mentioned.

This information is useful in and of itself. It could let carriers more accurately set their rates and possibly make it easier to recover in subrogation when the other driver was on medication at the time of the accident. What makes this study really important, however, are the possibilities it points out for fraud investigations.

If a carrier could scour the narratives, emails, and reports on its tens of thousands of claims every year, it could use that information to determine what set of facts warrant closer scrutiny for each particular type of claim. It could determine whether an insured is more likely to set an incendiary fire if he doesn't live in the house for a month, has to rent out part of his house for the first time, or takes a certain percentage of his tenants to landlord-tenant court within a given time. It could let the carrier know the warning signs of an insured who doesn't live in his own home or of an insured who doesn't even own the piece of scheduled jewelry she has claimed was stolen. It could even simply look for common denominators, such as names of doctors or medical professionals in suspicious no-fault claims; when one is found to be fraudulent, all those who had contact with him could then be looked at more closely. These criteria could easily be kept up to date by consistently examining claims as they get closed out. Either way, as a heads-up or a look-back, they should prove invaluable in the hands of a skilled investigator; and that is something you should pay attention to.

June 21, 2013


1390187_earpieces_.jpgWhen you are investigating insurance fraud, what is technology really good for? The answer may surprise you: Listening.

Listening: Everyone knows what it is. Everyone knows how to do it. And everyone believes they do it well. Whether it's investigating insurance fraud, negotiating a business deal, or trying a case, it's perhaps the single most important skill you need in order to succeed. Whether it's the company rep you're negotiating with or the witness you're interviewing, you will always have a better chance to succeed if you actually listen to them.

Listening is really just paying attention; to the person you are talking to; to what she's saying; doing; to what she really means. Often, like the pages of a good book, you have to dig beneath the surface to get the true meaning. Standing alone, her words may say one thing; when they are put with everything she's said before, they may mean something else; and when combined with her actions, her words will often mean something completely different. If you only hear her words, you'll never know what she is trying to say. If you listen to her and pay attention to all the important details, then you'll understand.

Technology has been in the news a lot recently. By now, just about everyone has heard of Edward Snowden, spying, and the NSA. Text Mining, Apache Hadoop, and HAIL, might even ring a faint bell, though they still probably conjure up pictures of wonkish IT-types speaking a language only they know. Would you be surprised to learn that technology has an awful lot in common with the very useful human art of listening? Or that many times it really just helps you listen better?

There is a television show on the National Geographic Channel, called Brain Games, with David Copperfield, the magician. In it he talks about using how the brain works to trick people with his magic. In one episode there was a particular trick I just could not figure out. The magician held five one dollar bills in his hand and showed them to the camera, one at a time, front and back, for everyone to clearly see, and then folded them back up into his hand. He almost immediately opened them up again and the singles had turned into $100 bills. I sat there with the remote, pausing, re-winding, and playing the sequence in slow motion over and over again, all the while staring at his hands, but couldn't figure out how it was done. When David Copperfield explained it, though, it was obvious. They stopped the camera, and they exchanged the singles for a wad of hundreds. What made the whole thing so frustrating, though, was that I missed all of the obvious clues that showed they had done just that: they changed the magician's hat and handkerchief, and changed parts of the background at the same time. The problem was, I was so focused on the hands that I missed everything else. Since I didn't know what was important, I didn't know what to pay attention to.

With all the information that's available, how can you know what to stay focused on? Big Data is just that: Big. Estimates are that 7 million web pages of text are being created every day. There's no way an average person, who can read only about 60 pp. per hour, can keep up. What good is all of that information if you don't even know it exists, or, even if you do, you don't know which of it might help you solve your problem?

That's where technology comes in. It helps sift through the mountains of information that are out there to find out what you need to pay attention to. Computers can file it into easy to search databases. Remember HAIL? All that really does is sort information into what you could think of as different types of phonebooks, which arrange the information in different ways. Think of how much easier, and faster, it would be to find someone if you could look through not only a phone book arranged by last name, but one arranged by first name, another by address, one by age, and one by gender. Then think of how quickly you could find what you're looking for if a computer, which can "read" between 15,000-250,000 pp. per hour, was doing the looking.

Going back to the magic show, think of what could have helped an investigator prove how the trick with the dollar bills was done. If she had a database of information about magic tricks, she could run multiple queries to determine relevant information; perhaps one on televised magic tricks, another on money tricks, and another on David Copperfield's tricks. This would let her know what these tricks had in common and then she could keep an eye out for them. It wouldn't take much to show that magic tricks performed in front of cameras without a studio audience often rely on video production techniques to succeed. That would have told her what to look for: any clues that the cameras had been stopped and started in the middle of the trick to create a gap in which the money could have been switched. For any trained investigator, knowing what to look for is more than half the battle; and being given a heads up on what's important is often more than enough to get the job done. That is what technology does.

June 11, 2013

The Art of the Interview: Why Investigators Still Count In Investigating Insurance Fraud

827419_fongrafo.jpgTechnology is not the only thing you need to investigate insurance fraud. Technology might tell you who to question, but someone still has to do the questioning. Analysis of big data might give you a lot to talk about, but someone, preferably with a little training and experience, is going to have to have that conversation. Technology might be able to sort through a tremendous amount of otherwise indecipherable data in order to identify, or obtain, clues about possible fraud. No matter how good the technology, no matter how vast the meta-data, no matter how many computers parse the data, a skilled investigator still has to connect the dots, and, eventually, a lawyer still has to convince a jury that those dots create a clear, unmistakable picture of fraud.

The interview, where one real person talks to another, is necessary in all fact-finding, whether it be a fraud investigation, a deposition in litigation, or a criminal prosecution. How to obtain information from people, however, is an art, not a science. There might be rules to follow and methods to learn but, by themselves, they are not enough.

An article in the June 1-2, 2013 Weekend Edition of the Wall Street Journal points out the art, and skill, involved in obtaining information from people who may be reluctant to provide it. The author, Jason Matthews, is an ex-CIA agent with more than 30 years of experience, who worked in what now is known as the National Clandestine Service. He talks about what it takes to convince people to spy against their own country. The key, he argues, is to find out what motivates a person. He describes four basic motivational factors, common to all people, that he used. Known by the acronym MICE, they are: money, ideology, conscience, and ego. According to the author:

Money is the most straightforward motivational factor. It's a business deal: the spy gives you useful information, you give him money. Greed may not be good, but it evidently can get you what you want.

Ideology, or the sudden loss of it, is the most potent factor of all, according to Matthews. The example he uses to prove his point, however, really proves another: sometimes, the most motivated person is the one driven by revenge against someone they trusted who hurt them or their family. Matthews describes one of the best assets in CIA history, Dmitri Polyakov. He was a Soviet military officer stationed in the United States, whose son became fatally ill. Moscow refused to allow his son to be treated by an American doctor. He became one of the best spies in CIA history. Simple.

The most potentially dangerous, is the spy motivated by conscience, especially if he is out to save, or to atone for the sins of, the world. In many ways this could describe the NSA leaker, Edward Snowden. If you read his coming out story in the Guardian newspaper, he justifies his leaks by claiming the American public must be told of the NSA's programs because they simply have gotten too big, with too much room for abuse. He describes how he is a champion of internet freedom and does not want to live in a world in which there is no privacy, where the government knows your every move. He doesn't seem to have been motivated by money since he reportedly earned $200,000 per year as a defense analyst and, as he pointed out, did not sell his secrets. He seemingly wasn't motivated by ego, either, since, according to the Guardian's reports, he was a former staffer for the CIA and had a fairly important job with a contractor within the NSA. In other words, he leaked classified information to atone, in his mind, for what he alleges are the sins of his government.

Ego is a tricky tool to use. If a normally meek person has his ego properly stroked, he'll overcome his fears to provide what he is made to believe is crucial information. Once convinced that he's important, that people depend on him, however, he'll always need to be re-assured.

Importantly, blackmailing potential agents, threatening to expose their sexual or other misconduct, doesn't work too well. The agent you get will be unreliable, and the information he gives won't be much better.

What makes the article interesting is that most everyone likes a good spy novel, and sometimes real life is stranger, and better than, fiction. Learning about how the spy world operates always is intriguing, and enlightening.

What makes the article useful is that it demonstrates some of what goes into the art of persuasion. The same thing does not work with everyone; scripts are no good. You have to pay attention to the person. In many ways it's more difficult to read a person than to read a book, and it requires a lot more thought and experience. In many ways, though, it's the same; the true meaning isn't just in what the words say.

An average person, who, right or wrong, feels stuck in the rut of his everyday life, may jump at the chance to tell what he knows about the accident he witnessed, especially when he finds out that five people claimed they were hurt while in the car in which he saw only two people. The single mother, trying to make ends meet in her low-paying job at the local clinic, may be able to put up with the lies and the cheating; she won't risk her children's welfare just to stop fraudulent billing. She will, however, reluctantly tell what she knows in order to make sure that no one else gets hurt by being put under for a medical procedure they didn't even need. Even the arsonist will tell you, if you'll only understand, that he really thought he could put out the fire, he wanted to be the hero, except that the fire just spread too fast.

The author, Jason Matthews, says that a bond of trust needs to be established. In a way he's right. There has to be a reason the witness wants to give you the information; often you can see it, staring right there at you. It doesn't have to be anything big; nothing grand. You can hear it, if you listen; it may be faint, but it's there. Every person has a different story to tell and a different reason for telling it. You'll never know what it is unless you listen. Listening and trust often go together; maybe they are even the same thing. One thing seems pretty certain, though: you can't have one without the other; and that is a good lesson for every interviewer to learn.