In all candor, the genesis of this article is my recent involvement in
defending two claims that seemed phony at best. In one, we had an insurer involved—the
insurer just paid out a ridiculous settlement amount out of fear of those nasty
plaintiff-friendly Bronx juries. In another case, we did not involve the insurance
company, even though the client's policy would have covered the defense and any damages.
I settled it with the phony injured plaintiff withdrawing his case with prejudice
(meaning he could not refile the phony claim again).
These are examples of instances when you should consider NOT giving
notice of a claim to an insurance company. The reasons, in my view, are tied to outdated
and really prejudicial business practices of insurance companies. Perhaps it is time for
insurance companies to reconsider these practices and change their business models,
which may go a long way to help reduce premiums and cut down on out-of-control fraud and
phony claims.
Sure, this sounds like nothing less than blasphemy. Coverage attorneys
routinely rant about the dangers of delayed notice (sounding like the robot in Lost in Space, "Danger, Will Robinson! Danger!"). We
routinely hammer it home and warn that timely notice of a claim is critical to preserve
your rights as an insured and prevent the insurance company from disclaiming based on
lack of notice or late notice; the rule seems inviolate. Yet, intentionally refusing to
give notice may be a viable strategy under certain circumstances.
Real-Life Example: A More Expedient Settlement
The most obvious time when some insureds intentionally refuse to
give notice is where the insured believes that an issue can be resolved, with
minimal risk, outside of the insurance company. That way, a claim need not be made
to the insurance company, and the knee-jerk reaction of increasing the premiums on
the next renewal can be avoided.
We recently worked with a client who had six small claims for
property damage as a result of spray painting that was done by the client's crews.
They did a nice job on a large exterior fence, but also got paint on residents' cars
parked adjacent to the fence. Apparently, spray painting the cars was not in the
scope of work. We resolved the issues with five of the car owners. However, a sixth
decided to be a problem, so we took a hard line and ultimately worked out a worse
deal for him than for the other car owners. No notice was given to the insurer; no
harm, no foul.
Real-Life Example: Keeping Control and Avoiding More
Claims
We defended a number of recent sham cases where clients were sued
but refused to give notice to their insurers, even though the claims would have been
covered and the insurance company would have provided a defense. However, in those
cases, the clients made the conscious decision not to involve the insurance company
because they were concerned that the insurer would settle the case, even though the
cases appeared to be made by complete fraudsters and lacked any merit. Basically, if
the insurer defends, the insured loses control over the case since the insurance
company has the right to settle without the insured's permission.
The clients felt that a settlement of the phony claim would make
them a target of additional phony claims and give scammers an incentive to bring
other, similar cases against others. In each case, we actively defended, and the
scammers walked away with their tails between their legs.
Real-Life Example: Threat of Class-Action Suits
These cases involved scammers and their "honorable" attorneys
claiming that websites do not meet the standards for access by disabled persons and,
therefore, are discriminatory under the Americans with Disabilities Act (ADA). The
scam works by searching the internet for large company websites that may have
technical compliance issues. The scammers then claim that they tried to obtain a
product from the website but were prevented from doing so because of the
noncompliance.
You see the same individuals acting as scorned plaintiffs being
represented by the same "honorable" law firms. The cases are brought as class
actions for all disabled persons with the assertion that the cases are brought in
the interests of justice and to protect the disabled. In reality, the scammers had
no intention of buying anything that was listed on the website—only trolling for
easy victims or large companies that do not want to risk harmful publicity.
It's all apparent nonsense, and the courts recognize this. As
mentioned, in each of our cases, the client could have given notice of the claim to
its insurer and gotten a "free" defense. However, in each case, the client elected
not to give notice out of fear that the insurer would quickly settle the matter,
rather than defend, notwithstanding the lack of merit. That is exactly what these
scammers want—a quick settlement and then on to the next victim.
Here, the scammers wanted $25,000 to settle, and we told them to
forget it. When we actively defended, they walked away. The same result occurred
with other cases that I recently handled.
Another group of apparent scam cases involved disabled persons
claiming that an entrance to a business was not ADA compliant. We're looking at the
same story as the previous situation that was discussed. It was the same plaintiffs'
counsel and the same "honorable" law firms supposedly seeking to protect the little
folks. In each case, the scammer has no interest in the products being sold but
makes a phony claim that access was denied, so the scammer was hurt.
Real-Life Example: Copyright Infringement
Another group of these cases in which I've been involved deals
with claims of copyright infringement. The scammer claims an infringement and brings
a lawsuit claiming substantial damages. The same tactics are used as have been
discussed previously, and the same results are achieved when we refused to cave to
their phony claims and settlement overtures.
The scammers use the same law firms and the same documents, and
all it costs is the filing fee. If someone actively defends against the phony
claims, they withdraw. If an insurance company is involved and settles, then the
plaintiffs and their attorney hit pay dirt for little or no work. Assuming the going
settlement rate is $25,000 (which was what was demanded from us in the internet
case), then the attorney may receive one-third, and the plaintiff gets the other
two-thirds. That's an incentive—not a bad haul for little work.
The problem is greatly exacerbated by the ongoing willingness of
insurance companies to settle these matters for what they consider nominal amounts,
which are seen as cost-effective for the insurance company. The insurance company
makes an economic analysis and decides that it will be cheaper for them to settle
rather than to pay a law firm to defend.
Insurers Need to Change Their Tactics
It's time for insurance companies to change their business model
in the following ways.
Actively Litigate Each and Every Case
In my view, it is time for the insurance companies to refuse to settle these types of cases and aggressively defend each and every one. It is the willingness of insurance companies to settle these meritless cases that keeps the cycle going.
Sometimes, settling a case creates incentives for sham cases to continue to be
filed. After all, the scammers use the same documents for each case; only the
filing fee differs. If a business defends, the scammers withdraw the case. If
the insurance company settles, another good score results, and more cases
follow. In addition to giving the scammers an incentive to start more cases, the
insurance company's settlement of these sham cases directly leads to increased
premiums for insurance policies.
Therefore, insurance companies must aggressively defend each and every one of
these sham cases and let the world know. Once scammers see that they cannot get
a quick score, the number of such ploys will decrease.
On a related subject, insurers should also aggressively defend against the
supposed worker injury cases and other personal injury cases, in my opinion. How
many false claims have we heard about with workers claiming faux injuries, only
to be paid disgraceful and stomach-turning amounts for workers compensation and
as part of a negligence lawsuit? It does not help that certain state laws (in my
own New York State, for example) actually incentivize these sham cases. An
aggressive defense in each and every case will likely slow fraud and lead to
fewer overall payouts by insurance companies. That means lower premiums, of
course.
Require Approval of a Settlement by an Insured
Insurance policies typically give the insurance company control over a
settlement, often stating, in no uncertain terms, that the insurance company can
settle cases without the insured's approval. How many times have you been
outraged by amounts that your insurer agreed to pay out as a settlement when it
was in the insurer's best interest to do so, not yours? I sure have been
outraged many times. Therefore, it is time to give the insured control over
settlements and make any settlement subject to approval by the insured.
Compensate Defense Firms at Standard, Not Discounted, Insurance Rates
It always shocks me when I hear the lower rates that insurance defense law
firms are being paid. I understand that the incentive for the law firm to charge
a lower rate is the promise of being referred a significant number of cases,
which somehow justifies the lower rates. The problem, in my opinion, is that the
lower rates result in law firms assigning lower-level, inexperienced, and
cheaper lawyers and paralegals to handle insurance defense matters throughout
the important discovery and pretrial stages of a lawsuit, bringing in a senior
attorney only once a trial nears.
The lower rates also force defense firms to accept more cases, with the result that literally hundreds of cases can be assigned to a single attorney.
The combination of less expertise throughout important litigation stages and
overburdened associates handling a large workload often leads to bad results
overall. And bad results in lawsuits lead to increased premiums for insureds
down the road.
Conclusion
It's time to look at options (think outside the box) to address
and curtail the longstanding abuses by scammers and their "esteemed" counsel from
filing—and winning—false insurance claims and, in the process, help reduce insurance
premiums overall.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
In all candor, the genesis of this article is my recent involvement in defending two claims that seemed phony at best. In one, we had an insurer involved—the insurer just paid out a ridiculous settlement amount out of fear of those nasty plaintiff-friendly Bronx juries. In another case, we did not involve the insurance company, even though the client's policy would have covered the defense and any damages. I settled it with the phony injured plaintiff withdrawing his case with prejudice (meaning he could not refile the phony claim again).
These are examples of instances when you should consider NOT giving notice of a claim to an insurance company. The reasons, in my view, are tied to outdated and really prejudicial business practices of insurance companies. Perhaps it is time for insurance companies to reconsider these practices and change their business models, which may go a long way to help reduce premiums and cut down on out-of-control fraud and phony claims.
Sure, this sounds like nothing less than blasphemy. Coverage attorneys routinely rant about the dangers of delayed notice (sounding like the robot in Lost in Space, "Danger, Will Robinson! Danger!"). We routinely hammer it home and warn that timely notice of a claim is critical to preserve your rights as an insured and prevent the insurance company from disclaiming based on lack of notice or late notice; the rule seems inviolate. Yet, intentionally refusing to give notice may be a viable strategy under certain circumstances.
Real-Life Example: A More Expedient Settlement
The most obvious time when some insureds intentionally refuse to give notice is where the insured believes that an issue can be resolved, with minimal risk, outside of the insurance company. That way, a claim need not be made to the insurance company, and the knee-jerk reaction of increasing the premiums on the next renewal can be avoided.
We recently worked with a client who had six small claims for property damage as a result of spray painting that was done by the client's crews. They did a nice job on a large exterior fence, but also got paint on residents' cars parked adjacent to the fence. Apparently, spray painting the cars was not in the scope of work. We resolved the issues with five of the car owners. However, a sixth decided to be a problem, so we took a hard line and ultimately worked out a worse deal for him than for the other car owners. No notice was given to the insurer; no harm, no foul.
Real-Life Example: Keeping Control and Avoiding More Claims
We defended a number of recent sham cases where clients were sued but refused to give notice to their insurers, even though the claims would have been covered and the insurance company would have provided a defense. However, in those cases, the clients made the conscious decision not to involve the insurance company because they were concerned that the insurer would settle the case, even though the cases appeared to be made by complete fraudsters and lacked any merit. Basically, if the insurer defends, the insured loses control over the case since the insurance company has the right to settle without the insured's permission.
The clients felt that a settlement of the phony claim would make them a target of additional phony claims and give scammers an incentive to bring other, similar cases against others. In each case, we actively defended, and the scammers walked away with their tails between their legs.
Real-Life Example: Threat of Class-Action Suits
These cases involved scammers and their "honorable" attorneys claiming that websites do not meet the standards for access by disabled persons and, therefore, are discriminatory under the Americans with Disabilities Act (ADA). The scam works by searching the internet for large company websites that may have technical compliance issues. The scammers then claim that they tried to obtain a product from the website but were prevented from doing so because of the noncompliance.
You see the same individuals acting as scorned plaintiffs being represented by the same "honorable" law firms. The cases are brought as class actions for all disabled persons with the assertion that the cases are brought in the interests of justice and to protect the disabled. In reality, the scammers had no intention of buying anything that was listed on the website—only trolling for easy victims or large companies that do not want to risk harmful publicity.
It's all apparent nonsense, and the courts recognize this. As mentioned, in each of our cases, the client could have given notice of the claim to its insurer and gotten a "free" defense. However, in each case, the client elected not to give notice out of fear that the insurer would quickly settle the matter, rather than defend, notwithstanding the lack of merit. That is exactly what these scammers want—a quick settlement and then on to the next victim.
Here, the scammers wanted $25,000 to settle, and we told them to forget it. When we actively defended, they walked away. The same result occurred with other cases that I recently handled.
Another group of apparent scam cases involved disabled persons claiming that an entrance to a business was not ADA compliant. We're looking at the same story as the previous situation that was discussed. It was the same plaintiffs' counsel and the same "honorable" law firms supposedly seeking to protect the little folks. In each case, the scammer has no interest in the products being sold but makes a phony claim that access was denied, so the scammer was hurt.
Real-Life Example: Copyright Infringement
Another group of these cases in which I've been involved deals with claims of copyright infringement. The scammer claims an infringement and brings a lawsuit claiming substantial damages. The same tactics are used as have been discussed previously, and the same results are achieved when we refused to cave to their phony claims and settlement overtures.
The scammers use the same law firms and the same documents, and all it costs is the filing fee. If someone actively defends against the phony claims, they withdraw. If an insurance company is involved and settles, then the plaintiffs and their attorney hit pay dirt for little or no work. Assuming the going settlement rate is $25,000 (which was what was demanded from us in the internet case), then the attorney may receive one-third, and the plaintiff gets the other two-thirds. That's an incentive—not a bad haul for little work.
The problem is greatly exacerbated by the ongoing willingness of insurance companies to settle these matters for what they consider nominal amounts, which are seen as cost-effective for the insurance company. The insurance company makes an economic analysis and decides that it will be cheaper for them to settle rather than to pay a law firm to defend.
Insurers Need to Change Their Tactics
It's time for insurance companies to change their business model in the following ways.
Actively Litigate Each and Every Case
In my view, it is time for the insurance companies to refuse to settle these types of cases and aggressively defend each and every one. It is the willingness of insurance companies to settle these meritless cases that keeps the cycle going.
Sometimes, settling a case creates incentives for sham cases to continue to be filed. After all, the scammers use the same documents for each case; only the filing fee differs. If a business defends, the scammers withdraw the case. If the insurance company settles, another good score results, and more cases follow. In addition to giving the scammers an incentive to start more cases, the insurance company's settlement of these sham cases directly leads to increased premiums for insurance policies.
Therefore, insurance companies must aggressively defend each and every one of these sham cases and let the world know. Once scammers see that they cannot get a quick score, the number of such ploys will decrease.
On a related subject, insurers should also aggressively defend against the supposed worker injury cases and other personal injury cases, in my opinion. How many false claims have we heard about with workers claiming faux injuries, only to be paid disgraceful and stomach-turning amounts for workers compensation and as part of a negligence lawsuit? It does not help that certain state laws (in my own New York State, for example) actually incentivize these sham cases. An aggressive defense in each and every case will likely slow fraud and lead to fewer overall payouts by insurance companies. That means lower premiums, of course.
Require Approval of a Settlement by an Insured
Insurance policies typically give the insurance company control over a settlement, often stating, in no uncertain terms, that the insurance company can settle cases without the insured's approval. How many times have you been outraged by amounts that your insurer agreed to pay out as a settlement when it was in the insurer's best interest to do so, not yours? I sure have been outraged many times. Therefore, it is time to give the insured control over settlements and make any settlement subject to approval by the insured.
Compensate Defense Firms at Standard, Not Discounted, Insurance Rates
It always shocks me when I hear the lower rates that insurance defense law firms are being paid. I understand that the incentive for the law firm to charge a lower rate is the promise of being referred a significant number of cases, which somehow justifies the lower rates. The problem, in my opinion, is that the lower rates result in law firms assigning lower-level, inexperienced, and cheaper lawyers and paralegals to handle insurance defense matters throughout the important discovery and pretrial stages of a lawsuit, bringing in a senior attorney only once a trial nears.
The lower rates also force defense firms to accept more cases, with the result that literally hundreds of cases can be assigned to a single attorney.
The combination of less expertise throughout important litigation stages and overburdened associates handling a large workload often leads to bad results overall. And bad results in lawsuits lead to increased premiums for insureds down the road.
Conclusion
It's time to look at options (think outside the box) to address and curtail the longstanding abuses by scammers and their "esteemed" counsel from filing—and winning—false insurance claims and, in the process, help reduce insurance premiums overall.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.