DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

SABBAVARAM, VISAKHAPATNAM, A.P., INDIA

Topic
The Rainmaker: A Study in Insurance Fraud

Subject:
Legal Methods

Name Of The Faculty

Prof. Soma Bhattacharjya

Name of the Candidate(s)

Anjali Gurumoorthy; Angela Elsa John
Roll No(s)
18LLB012
Semester
First
2 A Study of Insurance Fraud

Acknowledgement
I want to express my special thanks to my teacher Prof. Soma Bhattacharjya, who gave me
this golden opportunity to do this wonderful project on the topic, ‘The Rainmaker: A Study
of Insurance Fraud’, which also helped me in doing a lot of research and I came to know
about a lot of things.

Secondly, I also thank DSNLU for providing me with all the necessary materials required for
the completion of the project.
3 A Study of Insurance Fraud

Abstract
This paper is a study into insurance fraud, based on the book, The Rainmaker. The
Rainmaker shows Rudy Baylor, a young attorney out to make a difference in the justice
system. He is also the only hope of an elderly couple after their corrupt insurance company
refuses to pay out a claim that could save their child's life. In this judicial drama, Baylor rails
against corporate lawyers, corrupt judges, and abusive husbands, all with the help of a fellow
lawyer who hasn't even passed his bar exam. It shows intricacies of the working of law, and
one of the biggest insurance frauds ever committed. This paper contains an investigation of
(1) the different types of insurance frauds (2) their impact over the world (3) the sources of
the fine print policy practice, (2) its immediate effects on the degree to which the policies are
understandable to the insured,
4 A Study of Insurance Fraud

Chapterization

Introduction
i. Introduction
ii. Objective
iii. Research Problem(s)
iv. Literature Review
v. Research Methodology
vi. Scope of the Study

The Rainmaker: An Analysis

i. Plotline
ii. Type of Case
iii. Parties
iv. Damages
v. Trial Proceedings

Analysis into Insurance Fraud

i. Fraud
ii. Insurance Frauds and their Types
iii. Scale and Impact of Fraud (Around the World)
iv. Consequences of Fraud
v. Steps Taken to Combat Fraud
vi. Legal Remedies for Fraud
vii. Fine Print

Conclusion
5 A Study of Insurance Fraud

Objective
This study aims to give an overview of the present scenario of insurance fraud, and its
prevalence across the globe.

Research Problem(s)
1. Whether Insurance Fraud is prevalent around the world?
2. Whether fine print is misused by insurance companies?

Literature Review

As mentioned above, the subject of research i.e The Rainmaker is an adaptation of a

novel by John Grisham. In what is described as a courtroom thriller, the author portrays
the intricacies of the working of law, and one of the biggest insurance frauds ever
committed. The protagonist, Rudy Baylor, goes head-to-head with one of the best
defence attorneys, representing a powerful insurance company.

Using this book as a head start, this research aims to look into the working of the Indian
law, in regards to insurance law in particular, and examine the deceitful practices (if any)
in the same.

Research Methodology
The researcher has adopted the Doctrinal Research method of study. The paper follows an
explanatory model. This enables the collection of accurate information regarding the research
topic Insurance Fraud, which helps the reader grasp the nuances of Insurance Law.
6 A Study of Insurance Fraud

Scope of the Study

This study focuses on insurance and insurance frauds, mainly covering UK, Germany,
Sweden, France, Finland and touching upon India.

INTRODUCTION
The Rainmaker (1997) is a drama/crime film starring Matt Damon (Rudy Baylor) and Jon
Voight (Leo F. Drummond) in the leading roles. It is based on a John Grisham novel of the
same name.

The movie shows an idealistic young law school graduate, Rudy Baylor, doggedly pursuing
clients and legal work wherever he can find it in order to make a living while he fights
injustice in a legal system that favours the rich and powerful.

The movie portrays how an insurance giant, Great Benefit breaches the implied covenant of
good faith and fair dealing which all insurance companies are subject to, under the United
States law, subsequently leading to the death of Donny Black (son of the Black’s, whom
Rudy was representing) needed a bone-marrow transplant in order to save his life.

The following pages will aim to give complete information about Insurance Frauds and
everything related to them.
7 A Study of Insurance Fraud

The Rainmaker

Plotline
Rudy Baylor is a law graduate from Memphis State Law School. He secures a position with a
Memphis law firm, which he then loses when the firm is bought out by another larger firm.
As one of the few members of his class without a job lined up, Rudy is forced to apply for
part-time and poorly-paid law positions. Desperate for a job, he reluctantly allows "Prince"
Thomas, the crooked owner of a sleazy bar where he's been working part-time, to introduce
him to J. Lyman "Bruiser" Stone, a ruthless but successful ambulance-chasing lawyer, who
makes him an associate. But to earn his fee, Rudy is required to hunt for potential clients at
the local hospital where he must pick up injury cases and sign them up. He is introduced to
Deck Shifflet, a less-than-ethical former insurance assessor, now "paralawyer" (having
graduated from law school but failing to pass the Bar examination after six tries).

Rudy already has two cases which he passionately believes in. One case is putting together a
will for an old woman who becomes his new landlady after he is evicted from his former
home, and another a case of insurance bad faith. He represents a poor family, Dot and Buddy
Black whom he met through a class visit to a community center. The case could be worth
several million dollars in damages, but his personal life is falling to pieces and he is about to
declare himself bankrupt. With his employer about to be raided by the police and the FBI, he
and Deck set up practice themselves and file suit on behalf of the Blacks, whose son Donny
Ray is dying of leukemia but almost certainly could have been saved with a bone marrow
transplant. The procedure should have been covered and paid for by their insurance company,
Great Benefit Life Insurance.

Rudy, having just passed the bar exam, has never argued a case before a judge and jury - but
he now finds himself up against a group of experienced and ruthless lawyers from a large
firm, headed by Leo F. Drummond. It is daunting but he has several supporters and a
sympathetic newly-appointed judge to sustain his commitment. Whilst preparing the case
while waiting in the local hospital, he meets and later falls in love with Kelly Riker, a young
battered wife healing from her latest injuries.
8 A Study of Insurance Fraud

Before the trial commences, the Blacks' son dies. The case goes to trial and Rudy uncovers a
scheme Great Benefit ran throughout 1991 to deny every insurance claim submitted,
regardless of validity. Great Benefit was playing on the odds that the insured would not
consult an attorney. A former employee of Great Benefit testifies that the scheme generated
an extra $40 million in revenue for the company. The trial ends with a plaintiff's verdict of
$50.2 million which is somewhat symbolic because it is the total of the $200,000 transplant
Donny Ray should have received, the $10 million Rudy originally sued for and the $40
million the scheme that killed Donny Ray generated.

Great Benefit quickly declares itself bankrupt, thus allowing it to avoid paying the verdict.
This starts a chain of further lawsuits as well as further financial catastrophes for the
company and they ultimately go out of business. Thus, there is no payout for the grieving
parents and no fee for Rudy, although Dot Black was never concerned with the money from
the trial, so for her helping to put the company out of business represents an even greater
victory. In fact she testified that if awarded any money from Great Benefit, she would donate
all of it to the American Leukemia Society.

During the Black trial, Rudy finds that Kelly is in hiding after another beating from her
husband, Cliff, and is in the process of helping her get a divorce, but never gets the chance.
Rudy ends up being caught by her violent husband while helping her retrieve items from her
home. Cliff attempts to hit Rudy with his softball bat and threatens to kill him. Rudy gets the
bat away from Cliff and strikes him with it. Kelly intervenes and tells him to leave. However,
Cliff dies as a result of the injuries sustained, and Kelly allows herself to be charged with
manslaughter to stop Rudy being prosecuted. Kelly spends a day in jail before Rudy gets her
charges dropped. Rudy is shaken by these events and becomes wary of the practice of law.
He and Kelly leave the area, heading for someplace where Rudy can let his law license expire
and then become a teacher, and Kelly can go to college.
9 A Study of Insurance Fraud

Type of Case
For Rudy and Deck’s first case, they file a bad faith lawsuit for Dot and Buddy Black, whose
son is dying from leukemia and could have been saved with a bone marrow transplant had
their insurance company not repeatedly denied their insurance claim. A bad faith lawsuit is a
civil court case involving an insurance company which has violated their duty to have good
faith and fair dealings with their insured.

Parties
The Black family’s insurance company, Great Benefit, was being represented as the
defendant by a powerhouse law firm headed by the effective but unscrupulous man Leo F.
Drummond. The Black family was being represented as the plaintiff by Rudy, who had never
before argued a case in front a judge or jury.

Damages
Rudy is looking to get several millions dollars out of Great Benefit, the Black’s insurance
company. He believes that if they had rightfully paid for Donny Ray Black’s bone marrow
transplant he could have been saved from the leukemia.

Trial Proceedings
The first step in any civil trial is the selection of the jury. In The Rainmaker, the trial was
selected completely by the standards of the American Bar Association. Even though this was
the case, it was not what Leo Drummond believed because he was listening in on Rudy’s
phone calls and Rudy made it seem like he had tampered with the jury. The opening
statement in the trial was about what the case was, the Black family vs. Great Benefit because
of their denial of the Black family’s insurance claim. Next were the witnesses, these included
Dot Black and the CEO of Great Benefit. The closing argument was a video from Donny Ray
Black on his deathbed saying he would have been saved by a bone marrow transplant.
Instructions to the jury were to find their verdict based on what they thought was right. The
verdict was $150,000 in compensatory damages and $50 million in punitive damages.
10 A Study of Insurance Fraud

Ethical and Legal Violations in the Movie

1. Ambulance-chasing.
 Rule 1.03* - A lawyer shall not, for any corrupt motive or interest, encourage any
suit or proceeding or delay any man’s cause.

2. Rudy Baylor entered into a contract with the Blacks before he even became a lawyer,
implying that he can represent them when in fact he hasn’t even taken the bar
examinations yet
 Rule 18.01* - A lawyer shall not undertake a legal service which he knows or
should know that he is not qualified to render.

3. Bruiser and Rudy Baylor tolerated the illegal practice of law by Deck Schifflet who
was a non-lawyer.

 Canon 9* -A lawyer shall not, directly or indirectly, assist in the unauthorized

practice of law.

4. Deck and Rudy had an agreement to split whatever they earn 50-50. This is Fee-
splitting with a non-lawyer.

 Rule 9.02* - A lawyer shall not divide or stipulate to divide a fee for legal
services with persons not licensed to practice law.

5. Deck Schifflet was also tolerated in soliciting legal business.

 Rule 2.03* - A lawyer shall not do or permit to be done any act designed
primarily to solicit legal business.

6. While engaged in ambulance-chasing, Deck claimed that he was a lawyer and that his
law firm “handles more care wrecks than anybody in Memphis. Insurance companies
are terrified of us, and we don’t charge a dime.”
11 A Study of Insurance Fraud

 Rule 3.01* - A lawyer shall not use or permit the use of any false, fraudulent,
misleading, deceptive, undignified, self-laudatory or unfair statement or claim
regarding his qualifications or legal services.

7. Champertuous contract. The contract engaging the law firm was champertous when it
said that they would handle all the expenses of the case and they get 1/3 of any
recovery.

 Canon 20* - A lawyer shall charge only fair and reasonable fees.

8. The judge met with the lawyers in his chambers to discuss about his decision to grant
the motion to dismiss the case

 Canon 1, Section 1**. Judges shall exercise the judicial function independently
on the basis of their assessment of the facts and in accordance with a
conscientious understanding of the law, free of any extraneous influence,
inducement, pressure, threat or interference, direct or indirect, from any quarter or
for any reason.

 Canon 3, Section 4**. Judges shall not knowingly, while a proceeding is before
or could come before them, make any comment that might reasonably be
expected to affect the outcome of such proceeding or impair the manifest fairness
of the process.

9. The judge wanted to dismiss the case and for Rudy to refile it in Federal Court to
unclog his court docket

 Canon 3, Section 1**. Judges shall perform their judicial duties without favor,
bias or prejudice.

 Canon 3, Section 4**. Judges shall not knowingly, while a proceeding is before
or could come before them, make any comment that might reasonably be
expected to affect the outcome of such proceeding or impair the manifest fairness
of the process.

10. There was an obvious familiarity between the judge and the defense counsel in a way
that they tag-teamed Rudy Baylor in convincing him to accept the offer of $75,000.
12 A Study of Insurance Fraud

 Rule 13.01* - A lawyer shall not extend extraordinary attention or hospitality to,
nor seek opportunity for cultivating familiarity with Judges.

 Canon 2, Section 1**. Judges shall ensure that not only is their conduct above
reproach, but that it is perceived to be so in the view of a reasonable observer.

 Canon 6, Section 7. Judges shall not engage in conduct incompatible with the
diligent discharge of judicial duties.

11. Bruiser and his partner were involved in a money skimming scandal, jury tampering
and tax evasion.

 Rule 7.03* - A lawyer shall not engage in conduct that adversely reflects on his
fitness to practice law, nor shall he, whether in public or private life, behave in a
scandalous manner to the discredit of the legal profession.

12. There was also the matter of evidence tampering where the defense removed a certain
“Section U” in the employee handbook, threw away board resolution of Great Benefit
on bone marrow transplant, and fired a claims handler among others, all in order to
destroy any evidence against them.

 Rule 15.07* - A lawyer shall impress upon his client compliance with the laws
and principles of fairness.

13. The counsels for Great Benefit also resorted to wire-tapping the telephone in Rudy’s
law office.

 Rule 19.01* - A lawyer shall employ only fair and honest means to attain the
lawful objectives of his client and shall not present, participate in presenting or
threaten to present unfounded criminal charges to obtain an improper advantage
in any case or proceeding.

14. There was a violation of the rule on privileged communication when he told his
client’s son that his client had a fortune.

 Rule 15.02* - A lawyer shall be bound by the rule on privilege communication in

respect of matters disclosed to him by a prospective client.
13 A Study of Insurance Fraud

15. Presenting stolen evidence in court, although it was later on justified by a previous
ruling.

 Code of Professional Ethics 22(4). A lawyer should not offer evidence which he
knows the court should reject, in order to get the same before the jury by
arguments for its admissibility.
*Code Of Professional Responsibility **New Code of Judicial Conduct for the Philippine Judiciary

What is Insurance Fraud?

Fraud
Fraud is the crime of using dishonest methods to take something valuable from another
person (definition of Fraud as given in Merriam Webster) The legal definition of fraud
defines it as means misappropriating assets or by deliberately misrepresenting or
concealing material facts relevant to some financial decisions or by abusing
responsibility, a position of trust (Section 17 of Indian Contract Act, 1872)

Insurance Fraud
Insurance fraud occurs when any act is committed with the intent to fraudulently obtain
some benefit or advantage to which they are not otherwise entitled or someone
knowingly denies some benefit that is due and to which someone is entitled.

Examples of Insurance Fraud

Here are a few examples of what fraud is and isn’t:

 A Chiropractic clinic performs manipulations on its patients and bills the

insurance company a rate of $100.00 per visit. The customary price is $60.00.
This is a case of abuse on his billing practices. You may think they are ripping off
the insurance company, but it does not necessarily constitute fraud. Now, if the
Clinic billed for these services and they were never performed on the patients,
then you can consider this fraud.
14 A Study of Insurance Fraud

 An insured is involved in an automobile accident and brings their vehicle to a

repair shop. The adjuster meets them there and provides an estimate for $2500.00
minus his $500.00 deductible, to fully repair the vehicle back to the pre-accident
condition. The adjuster then writes a check to the insured for $2000.00 and goes
on his way. The body shop owner then speaks with the insured and offers to fix
his vehicle for $2000.00; he’ll waive the $500.00 deductible. The shop manager
tells the insured he’ll fix the vehicle, and do so with his own parts, not the ones
required by the adjuster. Was fraud committed, no? Insured’s can take their
money and do what they want with it, repair or not repair their vehicle.

 Now in this same case, if the insured paid his $500.00 deductible to the shop and
told the shop to repair his vehicle utilizing the repair estimate his adjuster
provided and the shop doesn’t, then it can constitute fraud.

Types of Insurance Fraud

Internal Fraud Intermediary Customer Fraud

Fraud
Fraud against the Fraud against the insurer Fraud against the
insurer by its or policy holders by an insurer in the purchase
Definition Director, Manager agent or any other third or execution of an
and/or any other party administrator insurance product.
officer, staff member
Misappropriating Non-disclosure or Soft Fraud:
funds misrepresentation of risk • Exaggerating
• Fraudulent financial to reduce premiums • damages/loss
reporting Commission fraud – • Deliberate or subtle
Examples • Forging signatures Insuring nonexistent lagging of claims
and stealing money policy holders while resolution
from customers’ paying premium to the Hard Fraud:
accounts insurer • Staging the
occurrence of incidents
• Medical claims fraud
Internal audit teams Having documented Adequate client
independently policy for appointment acceptance policy,
examine the processes of new intermediaries, client should be
Control and report appropriate sanction identified and identity
Framework weaknesses in control policy in case of non- verified. Professional
mechanisms compliance by the judgment based on
intermediary experience should be
used.
15 A Study of Insurance Fraud

Scale and Impact of Fraud

The extent of insurance fraud varies between countries. Detected and undetected fraud is
estimated to represent up to 10% of all claims expenditure in Europe. This figure varies
between countries and classes of insurance due to a number of factors, such as how the
market functions or the local prevalence of one type of insurance. The approach to
identifying insurance fraud also differs between European countries. In some countries,
importance is placed on establishing an accurate estimate of detected and undetected fraud,
while other countries place little emphasis on this distinction, choosing instead to focus on
reducing the amount of known fraud. Nevertheless, the aim remains the same: to establish the
extent to which current counter-fraud initiatives are successful and whether further initiatives
are required. Several markets collect precise data on the prevalence of fraud.

Impact of Fraud around the World

UK
Figures from the Association of British Insurers (ABI) show that:

• Despite insurers detecting more fraud, it is estimated that around £1.9bn

(€2.2bn) of fraud goes undetected each year.
• Insurers are detecting more fraud — the value of detected fraud in 2011 rose
7% to £983m (€1 148m) from £919m in 2010.
• In 2011 insurers uncovered 138 814 fraudulent insurance claims — equivalent
to 2 670 claims every week — up 5% on 2010.
• The value of savings for honest customers from detected frauds represented
5.7% of all claims, compared to 5% in 2010
16 A Study of Insurance Fraud

Germany
A study conducted by the insurance association (GDV) concluded that more than half of all
claims arising from loss or damage to smartphones or tablet PCs could not have arisen and
therefore must have been fraudulent to some extent.

Sweden
Figures from Insurance Sweden (Larmtjänst) reveal that:

• Insurance fraud investigators, established by insurance companies, conducted

6 200 investigations into suspected fraud in 2011 and detected a total of €40m
of fraud.
• A study found that 10–20% of all fraudulent claims are claims for losses
arising from events that never occurred (ie untruthful claims) and 80– 90% of
all fraudulent claims are exaggerated claims. Also in Sweden, a serious
problem was identified with vehicle arson. In the autumn of 2012 there was at
least one car fire per day in the south of the country, with most of the cars over
10 years old and many only owned for less than three months. The cars were
being purchased cheaply at online auctions and then registered to and insured
with fictitious owners. The damage claims were for compensation
significantly higher than the purchase value of the vehicle.

France
Figures from the insurance association (FFSA) reveal that 35 042 fraudulent insurance claims
were recorded in 2011, leading to €168m not being paid out to dishonest individuals.

Finland
A study of 1 000 adults conducted by the insurance association (FFI) in 2012 found that 27%
said they knew a person “who has deceived his/her insurance company”. This figure is up
from 25% in a similar study in 2010.

India
According to an Indian association, Out of the total outgoings in health insurance, nearly 25%
are fraudulent claims.1

Consequences of Fraud
Fraudulent claims and the cost of investigating suspected frauds lead to higher premiums for
honest customers. Investigating fraud also has an impact on insurers’ ability to deal with
genuine claims quickly. In addition, evidence from recent studies carried out by insurers
suggests that insurance fraud funds and facilitates other serious crime.

• According to the Danish insurance association (F&P), insurers in Denmark withhold

approximately DKK 500m (€67m) from claims payments due to documented fraud.
1
17 A Study of Insurance Fraud

• In Germany, the GDV estimates that the cost of fraud exceeds €4bn per year. • In the
UK, the ABI estimates that fraud adds, on average, an extra £50 (€58) a year to the
annual insurance bill for every policyholder.
• Sweden identified a criminal network that arranged at least 214 staged traffic
accidents. Every major non-life insurance company in the Swedish market was
affected by its activities.

Insurers remain committed to paying all genuine claims as quickly as possible, and strive to
achieve a balance between investigating potential frauds and ensuring that genuine claimants
do not face delays as a result. While insurers must investigate all potential frauds, they do all
they can to ensure that genuine claimants get their claims paid quickly and efficiently.

Steps Taken to Combat Fraud

The insurance industry’s responses to fraud vary between countries and the initiatives are
wide-ranging. For instance:
 In several countries, insurers exchange relevant information to help them identify
potential frauds. Insurers are transparent about this and operate in compliance with data
protection and privacy requirements. Such exchanges of information among insurers (in
varying forms) exist in Croatia, Estonia, Finland, Germany, Ireland, Malta, the
Netherlands, Norway, Portugal, Slovenia, Spain, Sweden and the UK, and are currently
being considered in Cyprus.
 Cross-border cooperation also exists. For example, the Nordic countries meet regularly
to discuss trends, issues and common challenges, since trends in one country have been
seen to spread to neighbouring countries.
 In several countries, including France, Sweden and the UK, insurance companies have
set up (more or less) formalised groups to investigate insurance fraud.

 In France, insurers set up a national body (Agence pour la lutte contre la fraude à
l’assurance, ALFA) in 1989 to investigate suspicious claims. ALFA aims to promote
counter-fraud activities, drawing up suitable tools to assist the industry in combating
fraud. These include: training and certification of fraud investigators, advice on how
to handle fraudulent cases that target several insurers at a time, and advice on
managing relationships with law enforcement agencies.
18 A Study of Insurance Fraud

 In Sweden, insurance undertakings have created special investigation units that are
charged with detecting insurance fraud. Insurance Sweden encourages these units to
make police reports of detected or suspected frauds.
 In the UK, the Insurance Fraud Bureau (IFB) focusses on detecting and preventing
organised and cross-industry insurance fraud. The IFB leads or co-ordinates the
industry response to the identification of criminal fraud networks and works closely
with the police and other law enforcement agencies. It encourages and helps people
to report suspected or known frauds anonymously through an insurance cheat-line.
The impact of the IFB has been hugely positive since its launch in July 2006, with
numerous arrests and tens of millions of pounds of savings for insurers and
ultimately their customers.

 Insurers have also increased their co-operation with law enforcement agencies in several
countries. This is the case, for example, in Croatia, Denmark, Estonia, Germany, Ireland,
the Netherlands, Portugal, Spain, Sweden and the UK.

 Evidence from several law enforcement agencies shows that many are unaware of
the simple visual checks that can be made to identify possible stolen private or
commercial vehicles. International efforts to train law enforcement staff have been
initiated by Europol, Interpol and national insurance associations.
 In Denmark, insurers are urged to report every documented fraud to the police. F&P
organises exercises at the Danish Police Academy on how to combat insurance
fraud. Former police officers are often employed in the insurance industry to assist
with detection and evidence-gathering.
 In Croatia, the insurance association initiated a Protocol on Cooperation to Combat
Insurance Fraud in 2002. The Protocol formalises cooperation both between insurers
and between insurers and third parties such as the police, the judiciary and other
agencies. The Protocol has an international reach and is signed by several other
national insurance associations in the region, including Austria, the Czech Republic,
Slovenia and Hungary.
 In the UK, the Insurance Fraud Enforcement Department (IFED) is funded by
insurers. Set up in January 2012, it forms part of the City of London Police, the
UK’s lead police force for economic crime and insurance fraud. It investigates
potential frauds referred by insurers in all types of insurance. In its first nine months
19 A Study of Insurance Fraud

of operation, IFED made over 200 arrests with £12m (€14m) of suspected insurance
fraud under investigation.
 In Spain, almost all insurance undertakings have appointed fraud representatives.
These representatives have access to a confidential extranet containing data from the
police about current investigations.

 Insurers increasingly use technology to uncover fraud. Methods include electronic

devices to detect the authenticity of documents submitted in support of claims and the
use of publicly available information on various social media and other websites.
 In Sweden, insurance undertakings use advanced key-readers to confirm that car
keys submitted in support of a claim for a stolen vehicle are those belonging to the
car alleged to have been stolen.
 In the UK, a claim for alleged back injuries was rejected when Facebook images
showed the claimant performing gymnastics and training for a charity run.

 Training of insurance staff and police is widely used to raise awareness of fraud, to show
how to detect it and to highlight the new and ever-changing methods used by fraudsters.

 In Denmark, F&P organises seminars on insurance fraud for its members. Seminars
are aimed at general insurance fraud, but can also be tailored to specific areas, such
as car immobilisers and car keys, luggage handling at airports, fraud via internet
freight exchange, codes of ethics for investigators, fraud in household content
insurance and so on. Training is provided to those working in fraud detection,
including insurance investigators, chief claim handlers and specialist claim handlers.
 In Germany, annual training is given to claims adjusters to teach them how to detect
and combat fraud. The training is conducted by practitioners from the insurance
industry, legal advisors, technical specialists, police experts and medical scientists.
Participants can take an exam to acquire a certificate of expertise in detection.
 In the UK, bodies like the IFB and IFED run specialist workshops for counter-fraud
staff, and many insurance companies additionally run training schemes at induction
and throughout employees’ careers and appoint “fraud champions” who emphasise
and remind colleagues of the possibility of fraud in all areas of the business.
 In Finland, the insurance federation has been organising seminars and training with
the police, other authorities and the media for 30 years.
20 A Study of Insurance Fraud

 The use of “cheat-lines” is successful in several countries, including Ireland, Sweden

and the UK. Members of the public can call a helpline to report suspected or known
insurance fraud. The caller will generally retain anonymity to encourage such reporting.

 In Ireland, a man obtained motor insurance with an insurance company. On the

proposal form he completed to obtain the insurance, he stated that he had no
previous motor convictions. However, the insurance company received an
anonymous tip-off via the insurance federation’s Insurance Confidential hotline that
the man had several motor convictions. The insurer’s internal investigation team
carried out further investigations, which resulted in the matter being passed to the
police. The individual was subsequently convicted for obtaining insurance by
making a false declaration and driving without insurance. He received a four-month
suspended sentence.

Legal Remedies for Fraud by Insurance Companies

Breach of contract or bad faith.

Generally, breach of contract and bad faith are the most common law suits filed against
insurance companies. In breach of contract, you sue to have the value of the denied benefit or
service, along with the value of any damages you sustained be returned to you.

Example: Your insurance company would not pay for a surgery that cost $2,500. After
this you spent another $2,500 in doctor bills because you were still sick. If you had the
surgery, you probably would not have had to spend this extra money. You sue your
insurance company for breach of contract. If you win, they will have to pay you for the
surgery ($2,500) and the damages you sustained ($2,500 in extra medical services).

In bad faith, you are saying that it was unreasonable for the insurance company to refuse to
pay your claim. You sue them to recover the damages for emotional distress, interest on out-
of-pocket losses and fees for your lawyer. This would be basically the same as the example
given above. You just get more money. You would get money for the surgery and damages.
21 A Study of Insurance Fraud

In this case you would also be awarded money for "pain and suffering" so to speak. You
would also get money to pay for your lawyer.

The reason that you can sue your insurance company for this is because all insurance policies
obligate the insurance company to "good faith and fair dealing." This means that when you
submit a claim to the insurance company, they cannot just look for reasons to deny it. They
need to give equal consideration to their own interests and your interests. In extreme cases of
bad faith where the insurance company engaged in malicious or willful misconduct, you can
also sue them for punitive and exemplary damages. You would get paid back for your
surgery, damages, emotional distress and fees for your lawyer. The insurance company would
also be fined as punishment for their actions. They would also have to pay this money to you.

Infliction of emotional distress and fraud.

Under some circumstances you may even be able to sue your insurance company for
infliction of emotional distress and fraud. However, these types of cases are very rare and
usually only happen in extreme circumstances.

Example. "The Rainmaker," is an example of someone suing their insurance company

for infliction of emotional distress and fraud. In the movie, an insurance company will
not pay for an operation for a young man suffering from leukemia. The company would
pass the claim around between departments until it got lost. They did this each time the
family called to try to get them to pay for the surgery. This surgery would have saved
the man's life, but he died before he was able to get it. His parents were able to sue the
insurance company for infliction of emotional distress and fraud because the insurance
company was knowingly putting off paying for the surgery. They figured if the claim
kept getting buried in paperwork that the young man would die before it ever came to
them having to pay for the surgery. His parents were awarded a huge sum of money.

Fine Print

‘[w]hat the big print giveth the fine print taketh away2

2
Sheen, J.F., Tudor Bunch of Dates (1992).
22 A Study of Insurance Fraud

Challenges arising from complex legalistic language in insurance are related to more general
problems connected to fine print and specialized jargon in other parts of society. Statements
made by lawyers and other academics and experts are often so laden with specialized jargon
that the ordinary person is excluded from understanding them and participating in genuine
dialogue. Only people belonging to the same professional circle can truly grasp the content of
the utterances. In some cases, the complexity of the issue at hand demands a correspondingly
complex set of concepts to be appropriately expressed and discussed.

In other cases, the academic jargon takes the upper hand even if the phenomena under
scrutiny can be described in simpler and more publicly accessible terms.

Insurance contains a promise of indemnification from the insurer to the insured. A promise is
an expression of a commitment to a particular course of action, an intention to respond to a
certain kind of event in a particular way. It narrows down the options available to the
promisor in relation to the promisee, should those specified events occur. When promises are
expressed in fine print documents, the actual content of the promise is blurred, at least in the
eyes of a non-expert.

Their interpretation of the insurer’s promise at the time of purchasing the insurance is
revealed to be misguided or wrong. Harald Sverdrup, director of The Norwegian Financial
Services Complaints Board in Norway (interview with nrk.no, 13.10.10), has drawn the
general conclusions that

(t)here is a considerable gap between what people believe they will receive insurance
payment for, and the reality. People believe they are better covered than they actually
are3.

In the case of M/S United India Insurance…vs Jai Parkash Tayal4, it has been stated that

The fine print of an insurance contract is not easily understandable by a layman, who
operates primarily on the basis of trust and faith. Standard form contracts, especially
insurance policies, do not provide a choice to the consumer whether to sign up or not.
Under such circumstances, the principle of uberima fides applies, on the insurance
companies and the insured, as held by the Supreme Court in Hanil Era Textiles Ltd v
Oriental Insurance Co. Ltd & Ors (2001) 1 SCC 269.

3
Blurred Promises: Ethical Consequences of Fine Print Policies in Insurance by Oyvind Kvalnes
4
M/S United Insurance v Jai Parkash Tayal (2018)
23 A Study of Insurance Fraud

"Learned Author E.R. Hardy Evamy, in his book relating to Fire & Motor Insurance, 2nd
Edn., on p.7, has observed:

"The contract of fire insurance, like other contracts of insurance, differs from any
ordinary contarct in that it requires, throughout its existence, the utmost good faith
(uberrima fides) to be observed on the part of both the insured and the insurers...."

4 Clauses Hidden in the Fine Print of Healthcare Policies:

An Example of Hidden Clauses in Fine Print

1. Pre and Post Hospitalization Expenses

Most are not aware about this benefit that an insurance company offers to the
policy holder. As per pre-hospitalization expenses, the insurance company
reimburses all the expenses before hospitalization.

Doctors may conduct a range of tests to diagnose the condition of a patient

accurately before prescribing treatment. The number of days that fall in the ambit
of pre hospitalization insurance may vary from 30 to 60 days depending on the
insurance company.

Post hospitalization expense covers all charges incurred by an individual, after he

is hospitalized. At times, the consulting physician may prescribe tests to ascertain
the progress of a patient. The number of days that fall under the coverage varies
across insurance providers.

It is important to note that therapies such as acupuncture and naturopathy are not
covered, whereas consulting fees and diagnostic charges are covered.

2. Insurance Waiting Period

In most cases, individuals who have plans of buying a health insurance policy do
not understand the term “waiting period”. It is one clause that can affect the
possibility of receiving benefits from day one of the insurance policy. It is
important to note that all insurance companies come with a waiting period, which
24 A Study of Insurance Fraud

is the length of time during which you cannot claim benefits from the insurance
company.

Irrespective of what happens to you, you will have to wait for the “waiting period”
to get over before making a claim. The waiting periods can be of three different
types; initial, disease specific and pre-existing ailment.

In case of the initial waiting period, if you fall ill within 30 to 90 days from the
start of the policy, you will not receive any help. If you are suffering from an
adverse medical condition the waiting period can vary from few months to a few
years, depending upon your medical condition. For specific diseases, the waiting
period can go up to 2 years from the commencement of the policy.  

3. Limit on the Room Rent

Room rent limit is a tiny clause that is buried in the text of a health insurance
policy details. This clause can result in maximum headache. As per your health
insurance policy you will be entitled for maximum per day room charges.

The problem arises when you realize that the hospital has better rooms. If you
occupy a room that costs more than the room rent expense covered by the policy,
the remaining amount has to be borne out of your pocket.

All the other expenses that you incur will be charged as per the room type. The
insurance company will not only deduct the room charges above your eligibility,
but all other hospital charges will be proportionately deducted except for products
with MRP.

4. Renewal Ceasing age and Age Brackets

When you buy a health insurance policy, it may never occur to you that you have
to take into consideration the age of policy renewal. Renewal ceasing age refers to
the time, when the insurer will refuse to insure your policy. The higher the
renewal ceasing age, the better it is. You should have a clear picture on the
maximum age, when you can renew an existing policy.

Make sure that you clarify this point with your insurance agent, before deciding
on the policy. The insurance company is not bound to remind you about a policy
renewal. It is advisable that you renew a policy before the expiry date. You would
25 A Study of Insurance Fraud

not be able to enjoy the benefits and discounts that you are entitled to, if you do
not renew your policy on time.

CONCLUSION
Detecting and reducing insurance fraud is a key priority for insurers. Insurance fraud
is not a victimless crime. This is reflected in the serious consequences for those found
guilty of fraud, which can include custodial sentences. Honest customers should not
have to pay the price for fraudsters through higher premiums. The insurance industry
continues to strengthen its systems and controls to ensure that all types of fraud are
detected and prevented — whether committed at the application or the claims stage —
to minimise the cost of fraud to insurers and therefore the impact on honest customers.
Insurers’ methods are constantly evolving to combat changes in fraudster behaviour.
26 A Study of Insurance Fraud

Bibliography
I. The Rainmaker – John Grisham
II. The Definition of Insurance Fraud – www.fraudeducation.com
III. Claims and Fraud Analytics – Debashish Banerjee
IV. Insurance Fraud – www.derrig.com
V. The Impact of Insurance Fraud – www.insuranceeurope.eu
VI. Blurred Promises: Ethical Consequences of Fine Print Policies in Insurance – Oyvind
Kvalnes
VII. Fine Print In Contracts: From ‘Invisible Ink’ Cases To ‘Red Ink’ Rules - Stephen
Kapnoullas and Bruce Clarke
VIII. www.therecoverytrust.org
27 A Study of Insurance Fraud