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U.S. Fraud
Legislation
by
Howard Goldblatt
Insurance Advocate Magazine
May 23, 2005
Many States Fail to Enact Fraud Laws
Most state
lawmakers agree that insurance swindles are bad. None will say
their state needs more money-sucking larceny. But still, several
promising anti-fraud bills have quietly fizzled or are teetering
on the cliff this year.
Everyone
agrees the bills mean well, and yes, the lawmakers say they want
to stop insurance crimes.
But the
quirks of state legislatures can make even welcome fraud reforms
dauntingly hard to pass unless there's an all-out fraud crisis.
And even a crisis isn't always good enough.
In many
states, the lawmakers are part-timers. They come to the capitol
for a few months each winter and spring. They canoodle over
large stacks of bills, then head back to their farms, hardware
stores and accounting firms.
Fraud bills
thus have a short time window each year. Any bump in their path
can derail, even the most welcome fraud reforms in a heartbeat.
The Good
Let's start
with a happy exception, Indiana. The Hoosier State has just
beefed up one of the weakest insurance-fraud laws in America.
Governor Mitch Daniels signed a bill that greatly expands the
state's dragnet. The old fraud law was so poorly worded that
state prosecutors didn’t bother using it.
It only made
dirty claims a crime. The new law makes it clear that other
insurance swindles, such as agent theft of client premiums and
cutting of bogus checks by adjusters, also are verboten. Jail
terms also are beefed up, which gives prosecutors more incentive
to try fraud cases.
But even
that bill barely beat the reaper. Squabbling between the parties
shut down the entire committee system just days after the fraud
law slid through. Other non-fraud bills weren't so lucky.
The Bad
But the list
of fraud bills that did fall down is a lot longer. The
insurance-fraud law in Kansas is so vaguely written that it
isn't even clear which insurance scams are crimes and which
aren't.
A promising
reform bill had widespread support, but died over haggling about
procedural issues. The Legislature shut down, so a fraud reform
that most lawmakers like must wait until 2006 for another
go-around.
Vermont is
one of the few states without an insurance-fraud law or fraud
bureau. Still, a well-liked bill making fraud a specific crime
appears to be a wash this year.
No visible
opposition now exists, but lawmakers simply haven't focused on
fraud. The legislature will close soon, leaving little time to
tackle swindles. So this reform likely will wait until next
year, through no fault of its own.
In nearby
Maine, a move to create the state's first fraud bureau also was
derailed. But wisdom, not unlucky timing, carried the day.
Everyone likes the .concept of a fraud bureau. But nobody could
figure out how badly Maine needs a fraud bureau, and how much
it will cost. Wisely, the bill sponsors agreed to hold off until
next year, which gives them more time to iron out the
questions.
Continued
Inaction in N.Y.
Meanwhile, a
much-needed billy club to help dismantle rampant staged-accident
rings in New York is DOA. Again. Drivers in the Empire State pay
some of the highest auto premiums in America, thanks in part to
accident rings and crooked clinics that are hitting insurers
with hundreds of millions of dollars in bogus injury claims a
year.
Even so, a
modest bill making it a crime to recruit members of
staged-accident rings, and to hire recruiters, has gathered dust
in Albany for at least three years.
Who can
argue against shutting down accident rings? Well, nobody. But
the problem is New York's legislators can't pass any law, of any
kind. Feuding among the leaders, and years of hard-wired
gridlock have doomed fraud reforms, no matter how urgently
needed.
Amid this
gridlock, insurers got a big break from New York's highest court
in April. State Farm had refused to pay suspicious injury claims
by a shady clinic. The clinic had illegally installed straw
owners to hide the suspected crooks who really ran the
operation. Police call these "doc-in-a-box" clinics.
New York's
highest court agreed illegal clinic ownership was a valid reason
for State Farm to block the claims. This precedent could help
insurers around the U.S. seeking legally solid grounds to deny
suspicious auto-injury claims.
The moral,
if any: sometimes insurers can accomplish what legislators
can't.
Howard Goldblatt
Director of Government Affairs
Coalition Against Insurance Fraud
The Coalition Against Insurance Fraud is a
national alliance of insurers, cons- umer groups and government
agencies fighting all forms of insurance fraud.