
Insurance Companies Are Paying Cops to Investigate Their Own Customers - henryw
https://www.buzzfeednews.com/article/kendalltaggart/insurance-fraud-erie-state-farm-farmers
======
neilv
Good faith reporting of suspected fraud sounds fine, but a couple concerns
about this:

> _In one case, investigators at State Farm withheld several crucial reports
> contradicting their fraud allegations from the bundle of evidence they
> handed over the law enforcement. In another, a Farmers manager admitted
> under oath that there was an "unwritten policy" within the company to
> withhold evidence from customers that could help prove their innocence._

Besides the appearance of possible bad faith, that might also -- in the
context of government relying on the insurance company to do some of the
investigative work -- thwart government obligations to share evidence with a
defendant.

~~~
celticmusic
honestly, these companies should be fined so heavily that it's just not worth
it for them.

I understand that legitimate insurance fraud needs to be investigated and
prosecuted, and I'm all for it. But you give them all the evidence, period,
and let them decide. You do not manipulate them to save yourself from a
payout. That crosses a line that has no grey in it.

~~~
gamblor956
It is a finable offense...in some states, like California. Indeed, something
like this could even get an insurance company's license to sell insurance in
one of those states revoked.

------
reaperducer
This has been going on for a long time. At least decades, if not centuries
(remember that insurance is a _very_ old business).

In the 1940's there were very popular radio dramas that aired every week
following the adventures of insurance investigators, and their cozy alliances
with law enforcement.

~~~
jimbob45
For anyone who's interested, I suggest the 1946 thriller 'The Killers' about
an insurance agent who teams up with a cop to investigate a murder.

~~~
nothrabannosir
This is the premise behind the classic 1944 film Double Indemnity. It holds up
today and is worth a watch!

------
unnouinceput
This article sounds like FBI and/or Internal Affairs should be involved into
investigating State Farm and their paid prosecutors/policemen. Anybody knows
anything or is too early? Or maybe nothing will happen due to too much money
poured into right pockets?

~~~
writepub
Laws with inherent conflicts of interest are supposedly unconstitutional. Can
any lawyer comment on this? Can we have the ACLU challenge these in court?

~~~
jkaplowitz
Such laws are generally unethical, I'd agree with that, but what rule of the
constitution do they supposedly violate?

~~~
ceejayoz
The use of privately gathered evidence intended to be handed over to law
enforcement may violate the Fourth Amendment via the exclusionary rule.

That insurance customers are contractually obligated to assist the insurer
with investigations may violate the Fifth if that contract is being abused in
this way, as well.

[https://en.wikipedia.org/wiki/Exclusionary_rule](https://en.wikipedia.org/wiki/Exclusionary_rule)

~~~
SilasX
Yes, when third parties start acting under the direction of the police, they
_become_ the police in the eyes of the constitution, with the same
restrictions.

That has nothing to do with the GGP’s strange claim that there’s some general
constitutional prohibition against laws with “an inherent conflict of
interest”.

------
Glawen
My god, the US judiciary system is so broken in many ways that it is beyond
repair.

It is crazy how a company making false claims can ruin you so easily, and you
cannot fight back or be compensated.

~~~
huffmsa
No, the judiciary is perfectly sound. The overreaching, self-important
bureaucrats in the Executive branches at all levels are the problem.

Like they always are whenever a society let's government centralize and
"administer".

~~~
randcraw
To be precise, the problem is deeper than any one branch.

In the US system of government, checks and balances are essential to counter
overreaching and abuse from any single branch. If no such checks exist against
unjust prosecutions by law enforcement (the executive branch), then by
default, either the judiciary or legislative branch _must be_ at fault, or
both.

In this case, it's clearly BOTH the US legislature and US courts have been
remiss. Both should step in and outlaw any private funding of public law
enforcement, as well as require ALL public court prosecutions to abide by the
same burden of proof and evidence required of any gov't/DA-led investigation.

To allow the routine "negotiation of guilt" between prosecutors and the
prosecuted to circumvent due process certainly _is_ a violation of the
Constitution -- something all three branches share culpability for allowing.

~~~
colejohnson66
> To allow the routine "negotiation of guilt" between prosecutors and the
> prosecuted to circumvent due process certainly _is_ a violation of the
> Constitution -- something all three branches share culpability for allowing.

I’ve always wondered why plea deals don’t count as perjury? You’re saying you
did something when you didn’t.

~~~
huffmsa
Plea deals are usually a reduction in the severity of the same charges.

Causing the death of another person typically comes in the "accidental but
negligent", intentional but not premeditated, intentional and premeditated.

Or in final fantasy terms \- Manslaughter \- Homicide \- Homicidaja \-
Homicidaga

A plea moves you from Homicidaga to Homicidaja.

------
mirimir
> Erie Insurance, one of the nation’s largest auto insurers, had not only
> provided the cops with evidence against its own loyal customer — it had
> actively worked with them to try to convict him of insurance fraud.

OK, but there is no "loyal customer". There is only the prospect of a payout.
And the incentive to avoid it.

~~~
Ensorceled
Ah, loyal customer is a commonly used term for a customer who has conducted
business with a company for a long time. Not sure why you put it in quotes or
why it confused you, but you can google it.

~~~
mirimir
Yeah, OK. It's just that the outrage of TFA relies on the assumption that
customers' loyalty implies companies' loyalty to them. It's arguably a foolish
assumption. Especially about insurance companies, whose profitability relies
on denying claims.

~~~
Ensorceled
Not the assumption, the expectation. That's how capitalism is supposed to
work, hence the outrage. "Caveat Emptor" shouldn't be a general business
model.

------
marcus_holmes
What a way to destroy your own industry.

If getting insurance increases the cost of a bad thing happening, instead of
decreasing it (because your claim will be refused, and you'll also be charged
with fraud for even trying to make a claim) then what is the point of taking
out insurance on anything?

~~~
hanniabu
Because it's the law to have certain insurance like health and car insurance.

~~~
daveFNbuck
You don't have to have health insurance. You have to pay a fine for not having
health insurance. Many people decide that the fine is the cheaper option, so
health insurance companies at least have to compete with that.

~~~
gtCameron
The "fine" is now $0 after the tax cuts last year

------
syshum
Remind me never to do business with State Farm, they seem to over the top at
least in this story, I would hate to have Hail Damage to my home then be put
in prison if I expect to have that damage fixed....

Wow

~~~
daniel-cussen
Yeah makes the decision of whether to take out insurance remarkably easy.

------
obituary_latte
Does anyone have any carriers that they would recommend? I’m currently with
State Farm, but this is really concerning. Anyone know of any more ethical
insurance providers? Thanks.

~~~
jcadam
USAA is great if it you meet the membership qualifications - I've been with
them since my Army days (They keep loosening up the requirements, at this
point if your father's brother's nephew's cousin's former roommate was ever in
the military you might qualify)

~~~
codazoda
USAA has their own set of problems.

~~~
pdonis
What are they?

------
deogeo
While everyone involved surely deserves either life in jail or the death
penalty, there's something we can do without going through the corrupt
'justice' system:

 _Inform all the clients of these companies of what they 're doing. Let them
know they bribed the police to put clients in jail after filing a claim._

And don't forget to name names - don't let them hide behind the corporate
facade.

~~~
saagarjha
What you're asking for sounds awfully like extrajudicial punishment that
doesn't match the severity of the crime at all.

~~~
homonculus1
Debatable. To me life imprisonment sounds like a perfect match for perverting
the legal system to jail and ruin innocent people for profit. This corruption
is not just a crime against the victims, but against society itself for its
erosion of the public trust in the institution of law.

------
rconti
So, I've seen the flip side of this. I have a friend who does building
inspections for insurance companies. He sees what's basically outright fraud
all the time, but companies rarely press it. Think about it: their main
incentive is to avoid paying out claims where they shouldn't have to. They're
more than happy to deny a claim, stop offering your services to that person
and let the next insurance company get defrauded by the person. The companies
have minimal incentive to rat out their own clients (especially when they're
merely 95% sure it's fraud), and so lawlessness can easily continue.

So, I can see both sides of this. The government might WANT to prosecute
insurance fraud, but they're rarely aware of it, because how would they find
out?

~~~
Mathnerd314
I assume he's seeing construction fraud? Then the builder would be liable
rather than the policyholder, and IANAL but probably the insurance company
wouldn't have standing to do anything even if they wanted to since they don't
own the building.

Or is he correcting details of the properties used in some actuarial model? I
suppose that would be more interesting but I can't imagine that a 4x premium
adjustment or whatever would be worth suing for.

~~~
rconti
Policyholder/homeowner fraud.

------
skrebbel
Just today, Dutch newspapers reported that courts in the Netherlands are
running trial processes against suspected insurance fraudsters without any
involvement from the police or the DA's office [0].

The idea is that the police force is too understaffed to do research against
smalltime insurance fraud, but the insurance companies are more than happy to
build the case independently. And the judge is still impartial, so everything
is fine, right?

This worries me because the insurance isn't exactly impartial, right? I assume
that once they suspect fraud, they _really really_ want you to have indeed
committed fraud, because there's hardly any downside for them if they wrongly
accused you. They'll build up a very one-sided case.

Apparently in the US, the same problem is solved with an undereducated instead
of an understaffed police force, plus semilegal bribes. To be honest I don't
really see the fundamental difference between that and the new Dutch idea.

I wonder what HN thinks should be the solution. Staff more cops? What if
recruiting good ones is prohibitively hard? What if the good ones would really
prefer to be put on other cases than "we think Joe Smith stole $2000 from an
enormous cash-loaded faceless financial corporation"? It's a hard problem.

[0] [https://www.ad.nl/binnenland/proefproces-
verzekeringsfraudeu...](https://www.ad.nl/binnenland/proefproces-
verzekeringsfraudeurs-voor-de-rechter-zonder-
politieonderzoek~a131ac17/?referrer=https://www.google.nl/)

~~~
speeder
When lightning struck my house, insurance company just flat out refused to
help, one employee of their just flat out told us on the phone that unless we
could prove lightning hit our property specifically, they wouldn't even bother
sending someone over to check our claims, because or the claim was false, or
the lightning hit the power lines, and in this case we should bother the power
company...

(by the way, we know the lightning hit our property, the damage got bigger and
bigger in specific direction, and following it the place with highest amount
of damage was the tall metallic post where the motor for the gate was
attached...)

~~~
michaelbuckbee
Curious what they would have accepted as proof in that case?

~~~
ceejayoz
Video surveillance showing the bolt hitting, perhaps?

~~~
buckminster
A notarized affidavit from Thor?

------
bytematic
The investigative wing for life insurance is really interesting. They can
sniff out fraud from a mile away. They still have to do a lot of insurance
apps manually because people lie so often. How can people say they don't smoke
but it shows up all over their medical records?

------
writepub
After a very long time, this is a fine piece of investigative journalism to
make the top 30 on HN. I wish the main BuzzFeed site did more of this than the
clicbait.

~~~
ceejayoz
The clickbait largely funds the longform journalism.

[https://www.poynter.org/tech-tools/2016/how-buzzfeed-
built-a...](https://www.poynter.org/tech-tools/2016/how-buzzfeed-built-an-
investigative-team-from-the-ground-up/)

> But Schoofs acknowledges that BuzzFeed’s investigations may never rocket
> into the social media stratosphere with the same velocity as the company’s
> lighter fare. Major investigations seldom get fewer than 200,000 pageviews,
> but that’s a dribble of traffic compared to the 73 million pageviews
> garnered by The Dress.

------
snazzycalynx
Insurance companies obviously end up being the front line of insurance fraud
and should definitely turn over those cases to the proper authorities. But
this shit? "Erie had even paid part of the salary of the lead detective who
knocked on Schmidt’s door that day, as well as that of the prosecutor who went
on to charge him with felony insurance fraud. And it would also secretly cover
the costs of an expert witness to testify against Schmidt in court." Why on
gods green earth is it legal for any person or company to directly pay police
departments like this? How is this not a bribe?

~~~
4ntonius8lock
The really crazy thing is a small time blogger I know got fined thousands of
dollars for not disclosing a product endorsement on her small time blog.

The FTC is up and active and enforcing the rules... on the smallest companies
in the US.

Somehow in this country if I get a free meal at a restaurant, post about it
and don't disclose the free meal, I'm a target. But bribing police is legal
without disclosure to courts? I can pay 'experts' to testify in court without
revealing I'm paying? Just when I though the corruption couldn't get any more
entrenched, I keep finding new areas of deep rot.

~~~
CocaKoala
> I can pay 'experts' to testify in court without revealing I'm paying?

I feel like it's generally understood that when expert witnesses get called to
the stand, they're being compensated for their time by whoever is calling
them.

~~~
4ntonius8lock
> I feel like it's generally understood that when mommy blogger talks about a
> product on their blog, they're being compensated for their time by whoever
> is calling them.

I edited it for you to see if you agree that what's good for the geese should
be good for the gander. If that logic won't fly for Mommy blogger with the
FTC, why should it fly with expert witness? The stakes are WAY lower in one
than in the other.

To be clear, I'm not supporting the idea of the FTC giving fines to anybody.
But the idea of rule of law is that laws should apply to everyone, which is
clearly not the case.

Your argument BTW, feels weird. Why would you bring up the idea of 'generally
understood' when that can equally apply to the other side? To me it feels like
one of those subtle defenses for the current system that don't actually spell
out a defense, but tries to remove criticism with offhanded comments.

~~~
CocaKoala
Blogging is a hobby for many people; being an expert witness is not. Does
every expert witness donate their time out of the goodness of their heart?
They're experts; they have a career doing something. They're taking time out
of that career to consult for the case and appear on the stand; why would you
not think that time is compensated for?

Edit: I could see an argument that normal witnesses are not compensated for
their time, and so a layperson might assume that an expert witness is not? But
normal witnesses are appearing in their capacity as a witness; expert
witnesses are appearing in their capacity as an expert. They're consultants;
consultants get paid for consulting.

~~~
4ntonius8lock
> They're consultants; consultants get paid for consulting.

Bloggers... get paid for blogging. The issue, just like the expert witness, is
by who. That is literally the whole point of disclosure for mommy bloggers,
disclosing conflict of interests. Why not for witnesses?

Again, you keep putting out arguments that seem to be defending the current
system without actually stating as much. If you feel the FTC should be as it
is, then say so. These off handed contrarian comments with subtle defense of
terrible things... is a kinda dishonest way to communicate.

I will say, you did spell out the rationalization of this. But a
rationalization is just that: "the action of attempting to explain or justify
behavior or an attitude with logical reasons, even if these are not
appropriate.". Your logic can also be restated in a way that really highlights
the issue I have:

People are not to assume someone in a commercial setting is getting
compensated for endorsement. So therefore a disclosure is needed and strong
enforcement.

People who are volunteering (jury) are to assume that things that happen in a
non-commercial setting happen for money. Therefore, no disclosure is needed
and no enforcement.

Also, the commercial setting has low stakes. The court setting has high
stakes.

Which again, brings us back to: what's your point with these off handed
comments?

Edit: Reading your other comments on this page, I think you didn't even read
the article, which is why your comments are coming off so strange.

~~~
CocaKoala
> People who are volunteering (jury) are to assume that things that happen in
> a non-commercial setting happen for money.

What? Jurors aren't volunteers. Jury duty is mandatory; if you get called, you
have to show up or provide justification for why you can't be a juror. If you
get selected, you can't just say "no sorry, this case actually sounds boring
and I'd rather not". Also, jurors get paid. They are volunteers in no sense of
the word.

Court is generally considered to be a professional setting; I agree that it's
non-commercial but I disagree that there are only two options where one is
"commercial" and the other is "if you're getting paid you have to disclose
it". Who would you think is paying an expert witness for their time, if not
the person who wanted them to testify?

I legitimately do not understand why you feel like this is a conflict of
interest.

~~~
4ntonius8lock
> I legitimately do not understand why you feel like this is a conflict of
> interest.

And you legitimately didn't read the article, so I'm legitimately not
surprised you legitimately don't understand the conversation going on.

------
judge2020
I'm drawing connections to the Black Mirror episode Crocodile
[https://en.wikipedia.org/wiki/Crocodile_(Black_Mirror)](https://en.wikipedia.org/wiki/Crocodile_\(Black_Mirror\))

------
drtillberg
The author gets this topic utterly backward. Large insurance companies each
have essentially no business incentive to do anything except pay claims. Maybe
they try to get insureds back to baseline on the cheap, but deny an insured
loss entirely? No. Not even investigate them.

And so fraudulent claims and the shadow industry that surrounds them grow in
size until something bad happens, like a grandma dies in a commercially-staged
motor vehicle accident.[1] And then everyone gets all introspective and tries
to figure out how we got to that regrettable point and what we can do to walk
things back to a sane place where fraudulent activity is not acceptable.

Unfortunately, the basic incentives in the insurance industry still are, and
always will remain, for companies to do as _little_ as possible about
fraudulent claims. What I see in the facts reported by the article are
companies that have used fraud investigators who are poorly trained or under-
resourced and are generating erroneous or weakly-supported evidence of fraud,
which the companies then hand off to public authorities who apparently have no
better resources. That leads to two observations:

1\. If the problem is irrational, counterproductive prosecutions due to poor
training and resources, writing a hit-piece about supposed conflicts of
interests over supplemental _funding_ being used to patch the resource
problems isn't really part of the solution.

2\. The insurance companies are paying for the consequences of poor-quality
investigations communicated to authorities by their investigators. The article
talks about some of the claimants suing the insurers for bad faith practices
(and defamation?), which I'd call a "cottage" industry in the U.S., except
that the industry is quite large and active. The insurers named in the article
most definitely have been incentivized to learn the lesson not to refer
marginal fraud prosecutions-- maybe not to refer prosecutions at all-- and so
we'll repeat the cycle mentioned above until at a future time a grandmother,
aunt or child is killed again in a staged fraudulent insurance claim, and then
everyone will get introspective again and muse that at one point we had laws
that incentivized insurers to identify and prosecute scam artists but bad
press like this article led to changes that made them stop.

[1]
[https://www.ifb.org/(X(1)S(dzqyttjltzr0pry1l1wmvlxj))/Conten...](https://www.ifb.org/\(X\(1\)S\(dzqyttjltzr0pry1l1wmvlxj\)\)/ContentPages/CIFI/DefaultCIFI.aspx)

~~~
syshum
>>Unfortunately, the basic incentives in the insurance industry still are, and
always will remain, for companies to do as little as possible about fraudulent
claims

Incorrect, the entire point of an insurance company is to collect as much in
premiums as possible while paying out as little in claims as possible

the Clear basic incentive is to DENY as many claims as possible

>> What I see in the facts reported by the article are companies that have
used fraud investigators who are poorly trained or under-resourced

I don't see that at all. I see the companies incentivizing "investigators" to
find away to deny claims even if it means fabricating a good story wholesale.

The Contractor that had is business ruined by State Farm because he was
talking to the press is a clear example of that

>> The insurers named in the article most definitely have been incentivized to
learn the lesson not to refer marginal fraud prosecutions

Where on earth do you get any of these companies have "Learned their lesson"

Let me guess you are an insurance sales man, or in some way make your living
connected to the Insurance scam?

~~~
drtillberg
The insurance business is about paying claims with minimal friction, expense,
and dispute, and making sure premiums are set at an appropriate level .
Triggering bad faith discovery and expensive extracontractual settlements is
not the point, and it is exactly what the companies identified in the article
have done. The ability of claimants to bring those claims more than levels the
playing field.

I'm just floored to see a post on HN criticizing someone else personally on HN
and then calling insurance a "scam"? It's a regulated industry, it's
definitely not a scam, and I'm really saddened at the level of
misunderstanding brought about by a poorly written one-sided article that
doubtless was inspired by some kind of sharp-elbowed personal injury
litigation strategy by sources in the story.

~~~
syshum
> It's a regulated industry,

That does not in anyway "prove" it is not a scam, it is a legal scam backed by
the government which there are many of those

The Insurance Industry for decades now have succeeded in regulatory capture
where the "regulators" are made up of industry insiders that ensure the
regulations favor the companies not the citizens

That is one of the biggest points of the story, is how the "regulations"
mainly shield the insurance companies from liability and prohibit them from
being sued

>I'm really saddened at the level of misunderstanding brought about by a
poorly written one-sided article

It is not the article, the article just confirms what many of us has already
experienced in Real Life when it comes to insurance.

Submit a claim, only to have it denied because you insurance only covers you
if the event happens on the 5th tue during a full moon, if you are standing on
one leg while praise the xenu god... That clause was on page 900 of the 4
point font contract you "agreed" to when you took out the policy

Or if the do approve your claim, You are Dropped from the insurance the second
they legally can, or they jack your rates up Sky High to ensure they recover
the costs, never mind that you paid in premiums for years well in excess of
the claim....

~~~
drtillberg
Ok, point taken on underwriting and excluded risks, both of which are closely
regulated and create legal commitments which insurers scrupulously honor by
paying claims.

I think in any organization when management constantly is trying to squeeze
costs there will be instances of incompetent conduct (which folks on HN will
quickly note is often indistinguishable from malice). That said, if an insurer
denies claims where liability and damages are reasonably clear, or abuse legal
processes-- both of those are torts, legal fees are often available for the
successful party, and if you feel you've been wronged by an insurer in any of
those ways by all means go speak with a bad faith insurance attorney and good
luck.

------
onetimemanytime
The biggest and (maybe) the only problem are the incentives for LEO to
manipulate proof to jail /convict innocent people. Even an arrest can ruin
your life, let alone trial, regardless of outcome.

Other than that, insurance companies have a right to cut down on fraud and
jail fraudsters.

~~~
devoply
They paid salaries of police, the judiciary, and the guy who testified against
him in a CRIMINAL trial. That's more than enough conflict of interest to have
any such criminal trial thrown out.

~~~
onetimemanytime
I understand the issue, but you either committed insurance fraud or you
didn't.

Here's the evidence, counter it and let the jury decide.

~~~
pas
Direct incentives for law enforcement rarely lead to unadulterated truth and
prevention.

------
RickJWagner
It's a necessary part of the business, and it keeps rates down for every
insurance holder.

I just wish they were more public about punishing the bad ones they catch. It
would help people understand the necessity of investigations, and probably
discourage some would-be fraudsters.

~~~
CocaKoala
> In one case, investigators at State Farm withheld several crucial reports
> contradicting their fraud allegations from the bundle of evidence they
> handed over the law enforcement. In another, a Farmers manager admitted
> under oath that there was an “unwritten policy” within the company to
> withhold evidence from customers that could help prove their innocence.

If withholding evidence that might prove your customer's innocence is a
necessary part of the business, I submit that your business is bad and should
not continue in its current form.

