Personal Injury Fraud in the Transportation Industry – Campbell T. Roper

The Transpor TaT ion L awyer TLA Feature Articles and Case Notes

Personal Injury Fraud in the Transportation Industry

Insurance fraud is defined as deliberate deception against an insurance company or agent for the purpose of financial gain.1 Insurance fraud costs American consumers an estimated $80 billion per year2 with auto insurers losing at least $29 billion per year to these scams.3 The result? Everyday consumers are forced to cover for these losses, which account for 14% of all personal auto premiums.4

Our firm retained fraud expert Dennis Pompa to better understand the insurance fraud phenomenon and the best practices for defending against fraudulent schemes.5 Pompa has provided invaluable insight into common themes and red flags of personal injury fraud in the transportation industry. He has helped us understand the evidence needed to report fraud, has guided us through the ethical obligations in reporting fraud, and has informed us on specific strategies to combat insurance fraud. I had the honor of interviewing Pompa to further explore such topics in personal injury insurance fraud. This article, which highlights portions of the interview, explores questions and provides insight to transportation lawyers in the fight against the billion-dollar scam industry.

I. Identifying Fraud Cases

While some insurance fraud claims are unmistakably apparent, many—if not most—walk a gray line. According to Pompa, most insurance fraud cases arise from a confusing collision that results in a swearing match between the claimant and the victim-driver. As such, knowing common characteristics and red flags is a necessary first step in identifying which cases emanate from fraud.

The National Insurance Crime Bureau describes the most common types of staged vehicle accidents: the “swoop and squat” or “panic stop,” which involve an intentional brake to cause a rear end collision; the “drive-down” or “wave-on” where a suspect “waves” the victim to proceed and then intentionally causes a collision; and the “sideswipe,” where a suspect drifts into the victim’s lane, “swipes” the victim’s vehicle, and then blames the victim for causing the contact.6 Additional types of staged accidents include: the classic “hit and run” or “phantom vehicle” accident, where the suspect blames the accident on an unknown vehicle or object; “backing” accidents, where the suspect causes a collision backing out of a driveway or parking space; and “paper” accidents, where the suspect fabricates an accident report for pre-existing damage.7

When asked which type of staged accident is most prevalent in the transportation industry, Pompa reported that the “sideswipe” is likely the most frequent culprit in his investigations, although the “drivedown” and “swoop and squat” are also regulars in fraud reports. Pompa explained that these types of staged accidents are popular because a fraudster can intentionally cause an accident in such a way that controverting evidence is essentially unavailable, and “it is your word against theirs when they file injury claims.”

Pompa’s explanation is illustrated well by the recent New Orleans fraud scandal. Plaintiff’s Attorney Danny Keating, Jr. plead guilty in June 2021 to wire fraud and mail fraud conspiracy, admitting that he helped orchestrate numerous vehicle crashes into “big rigs.”8 As of June 17, 2021, the investigation has resulted in charges against thirty-three defendants, but Keating is the only lawyer to be charged thus far in this “brazen scheme” whereby passengers willingly ram into tractor trailers.9 Keating admitted to carefully planning each staged crash, stating that he and Damian Labeaud, the so-called “slammer” responsible for carrying out the crash, would discuss how to limit evidence by changing locations of the staged accidents, varying the number of passengers, avoiding police investigations, and avoiding cameras.10

While Keating’s strategies align with Pompa’s experiences, Pompa further explained that uncovering fraud is still very much an oftentimes difficult case-by-case analysis. Red flags that may indicate insurance fraud, according to Pompa, include accidents that occur in larger metropolitan areas during the least trafficked time of day, which decreases the chance that there will be witnesses. Additionally, “there is usually an increase in cases during economic tough times, the suspect will rarely be driving a new car, and there will typically be numerous people in the car—sometimes people will even jump into the car after the accident. In sideswipe cases, the truck is almost always in the far right-hand lane because this prevents the truck from having any ability to avoid a collision,” Pompa said. “You really have to do your homework on each suspect,” Pompa said, narrowing his focus. “Claim history is often the biggest indicator. Multiple claims, especially in a short period of time, is telling. Then you ask, does that person have financial problems?

Campbell T. Roper*

Is that person unemployed? Have they declared bankruptcy? Are they indebted or have any liens? What I often do is then look at close associations of any of the other people involved in the claim. Do they have any background? Did they know each other? But the main thing is you want to do a claim history.”

Pompa continued: “you want to do a thorough investigation and evaluation of the damage in the accident. Could these types of injuries really result from the damage that was incurred? Investigating and gathering evidence before the car is repaired is key. That way, you can recruit accident reconstruction or biomechanical experts down the road to say, ‘those injuries could not have occurred from this collision.’” Intuitively, Pompa recommends that claims adjusters and attorneys obtain as much evidence as possible as early as possible to contradict the suspect’s testimony, which is always at the heart of a fraudster’s claim.

II. Combating Insurance Fraud

One of the best ways to combat the estimated loss of $80 billion per year due to fraud is to report any suspected fraudulent activity, according to Pompa. While it appears that most types of fraud are widely reported throughout the United States,11 Pompa believes that fraud reports in the transportation industry are generally lacking: “I imagine that most of the cases are paid out versus going through litigation. Many are ripe for a couple thousand bucks here and there, and usually you can’t prove one way or the other so it’s easier for companies to pay out the claim. It’s often a business decision to avoid litigation expenses.”

When asked about how settlement impacts criminal proceedings against fraud suspects, Pompa explained that settling diminishes the potential for finding fraud because payment is essentially acknowledgment of the claim’s legitimacy. A jury will not convict someone when the victim insurance company pays the suspect for the allegedly fraudulent claim. In Pompa’s experience, the Texas Fraud Unit, or even a Prosecutor, will drop an investigation or proceeding if a case has settled.

Pompa’s opinion supports the statistics. In Texas alone, there were 14,180 cases of fraud reported to the Texas Department of Insurance in 2020, yet only 240 cases were opened for investigation, and only 65 were referred for prosecution.12 “Settling with a fraudster is essentially the same thing as condoning the fraudulent act, even if [the decision to settle was made because it was] the more cost-effective business decision,” Pompa said. “And unfortunately, the people out there committing the fraud know that they will settle. And so, it keeps on happening.”

Still, Pompa’s opinion and the statistics pose a problem for insurance companies and practicing attorneys: what about ambiguous cases where the suspected fraud is not so cut and dry? At what point should a potential victim of a fraudulent claim come forward and make the report? The answer, according to Pompa, is that insurance companies must feel confident in the information from the insured, and this confidence typically arrives with the clear and convincing evidentiary standard.

Pompa emphasized that even if nothing comes out of the reported fraud, it may pay off for other companies down the road. It at least puts the name of the claimant into the fraud unit’s database so that the department can make a reasonable assessment as to whether the claimant is a habitual offender. “Often, investigations are not opened with a single report, but when multiple reports come in—an investigator might say, ‘hey, this guy is in here four times. The first three times we couldn’t prove anything but now this time we have more evidence. When you report the fraudulent information, this information is made available to all insurance fraud units across the country to investigate suspected fraud. Remember, suspected fraud costs consumers billions of dollars a year, with 10% of all claims having some element of suspected insurance fraud. It costs you; it costs me; it costs the manufacturers [and the] transportation companies. Rates are increased—everyone is impacted,” Pompa explained.

III. Reluctant to Report?

While reporting fraud seems logical for building a defensive network against fraud in the transportation industry, most states require insurance companies, agents, and/or professionals to report suspected fraud to state insurance departments. To note, forty-three states and the District of Columbia now require insurers to report suspected fraud to the state fraud bureau or other authorized agencies.13 Adjusters, however, are still reluctant to report fraud in ongoing investigations because they do not want to be sued for bad faith. But at least forty-eight states now have statutes in place that provide immunity to the person or entity that reports the fraud to the authorized department or agency, so long as the report was made with a good faith belief.14 The balance set by most state legislatures weighs in favor of reporting fraud so that potentially fraudulent activity is deterred or can be prosecuted.15 Still, Pompa said, “I’ve heard it before from companies, ‘yeah, well that’s not going to stop someone from bringing a claim.’ But the statute as it is written does provide protection.”16 “Keep in mind that when you make a report to a department, they are obligated to maintain the confidentiality of who made the report,” he continued. “So that information will not be revealed unless the case goes to trial.” Pompa further noted that “there is consistency with immunity provisions with reporting insurance fraud across states that have insurance fraud departments; states are trying to encourage individuals to report suspected fraud. I mean $80 billion a year—so yes, states are encouraged to provide that immunity.”17

While state laws promote and even require reporting fraud, practicing attorneys must tread carefully when reporting fraud within the scope of a civil dispute. Many states have retained a version of a Rule from the original ABA Model Rules of Professional Conduct, which holds that “A lawyer shall not present, participate in presenting, or threaten to present criminal charges solely to obtain an advantage in a civil matter.”18 In other words it is unethical in some jurisdictions to report fraud for the purposes of leveraging a favorable outcome in a civil dispute.

Other states, however, have adopted Formal Opinion 92-363 of the American Bar

Association, concluding: The Model Rules do not prohibit a lawyer from presenting criminal charges against the opposing party in a civil matter to gain relief for her client, provided that the criminal matter is related to the civil claim, the lawyer has a well-founded belief that both the civil claim and the possible criminal charges are warranted by the law and the facts, and the lawyer does not attempt to exert or suggest improper influence over the criminal process.19

On the one hand, attorneys can avoid violating any ethical rules by simply reporting the fraud to the authorized agency without mention to the opposing party. Indeed, Pompa instructs that reporting may be done confidentially while engaged in a civil dispute. On the other hand, however, attorneys might gain a great advantage in threatening criminal prosecution if the state permits such an action. Regardless, attorneys, along with insurers, must proceed with caution in reporting fraud to ensure they are abiding by each state’s ethical rules.

IV. Final Thoughts

When it comes to advice for the transportation industry in fighting insurance fraud, Pompa encourages companies to be proactive by training drivers on what to look for to avoid fraud and by teaching them how to report the suspected fraud back to the insurance company, including what they observed and what precautions they took to minimize the damage. He also highly recommends dashcam videos in trucks, as video evidence is the best way to win a swearing match. As attorneys, we can do our part by communicating this information to our clients, when appropriate.

As the U.S. continues to fight against the massive insurance fraud industry, it is my hope that Pompa’s insights will encourage attorneys, transportation companies, and insurance entities alike to educate themselves about the issues inherent in auto insurance fraud, to be on the lookout for red flags suggesting the existence of fraud, and to take the steps necessary to report suspected fraud when the evidence so demands.

Endnotes

1 Background on: Insurance Fraud, INSURANCE INFORMATION INSTITUTE (Nov. 18, 2020), https://www.iii.org/article/background-on-insurance-fraud. 2 Fraud Stats, COALITION AGAINST INSURANCE FRAUD, https://insurancefraud.org/fraud-stats/ (last visited July 21, 2021). 3 Steve Leakas, Auto Insurance Premium Leakage: A $29B Problem for the Industry, VERISK ANALYTICS, March 7, 2017, www.verisk.com/insurance/visualize/auto-insurance-premium-leakage-a-29b-problem-for-the-industry/. 4 Fraud Stats, COALITION AGAINST INSURANCE FRAUD, https://insurancefraud.org/fraud-stats/ (last visited July 21, 2021). 5 Dennis Pompa began his career as an investigator for the Travis County District Attorney’s office in Texas, and later worked for the Texas Department of Insurance

Fraud Unit, where he specialized in financial fraud investigations. Pompa was then appointed Associate Commissioner and Chief Investigator of the Texas

Insurance Fraud Unit, where he conducted and/or managed more than 3,000 investigations of financial fraud during his eleven years of service. Notably, Pompa served as Chair of the National Association of Insurance Commissioners (NAIC) Anti-Fraud Task Force and assisted in the development and implementation of NAIC’s Automated Fraud Reporting System. Pompa also served as the Chair of the Agents and Entities Unlawful Working Group. Pompa currently engages in consulting work for the insurance industry by developing and reviewing insurer anti-fraud plans, analyzing suspected fraud matters, compiling data for compliance reports, and providing litigation assistance. 6 Staged Automobile Accident Fraud, NATIONAL INSURANCE CRIME BUREAU, https://www.nicb.org/sites/files/2017-10/StagedAccident.pdf (last visited July 21, 2021). 7 Types of Fraud, TEXAS DEPARTMENT OF INSURANCE FRAUD UNIT, https://www.tdi.texas.gov/fraud/types-of-fraud.html (last visited July 21, 2021). 8 John Simerman, In scheme to crash cars into big rigs, New Orleans lawyer Danny Keating Jr. pleads guilty, NOLA.COM, June 17, 2021, https://www.nola.com/news/courts/article_9656c8e0-cf7a-11eb-8b76-37da3607bf14.html?utm_medium=social&utm_source=nolafb&utm_campaign=snd. 9 Id. 10 Id. 11 The Federal Trade Commission alone reported more than 2.2 million reports of fraud in 2020. See New Data Shows FTC Received 2.2 Million Fraud Reports from

Consumers in 2020, FEDERAL TRADE COMMISSION CONSUMER INFORMATION, Feb. 4, 2021, https://www.ftc.gov/news-events/press-releases/2021/02/new-data-shows-ftc-received-2-2-million-fraud-reports-consumers. 12 Fast Facts and FAQ, TEXAS DEPARTMENT OF INSURANCE, https://www.tdi.texas.gov/fraud/facts.html (2020). 13 Fraud Stats, COALITION AGAINST INSURANCE FRAUD, https://insurancefraud.org/fraud-stats/ (last visited July 21, 2021). 14 Insurance Fraud Prevention, 0110 Surveys 14, 50 State Statutory Surveys, THOMAS REUTERS, Dec. 2020. 15 Johnny Parker, Detecting and Preventing Insurance Fraud: State of the Nation in Review, 52 Creighton L. Rev. 293 (2019). 16 Pompa was referring to: 2 TEX. INS. CODE § 34.002. Added by Acts 1999, 76th Leg., ch. 101, Sec. 1, eff. Sept. 1, 1999. 17 To find out more about your state’s anti-fraud legislation, visit https://insurancefraud.org/government-law/. 18 DR 7-105(a) of the ABA Model Code of Professional Responsibility, superseded by the Rules of Professional Conduct in 1985; see also Peter H Geraghty, Making

Threats. AMERICAN BAR ASSOCIATION, Oct. 2008, www.americanbar.org/content/dam/aba/publications/YourABA/201108makingthreats.authcheckdam.pdf. 19 Formal Opinion 92-363, Use of Threats of Prosecution in Connection with a Civil Matter, AMERICAN BAR ASSOCIATION, STANDING COMMITTEE ON ETHICS AND

PROFESSIONAL RESPONSIBILITY, July 6, 1992, www.americanbar.org/content/dam/aba/publications/YourABA/11_92_363.authcheckdam.pdf.