The Insured's Role in Subrogation Recovery

As an insurance agent, the value that you bring to your clients can and should extend far beyond identifying the appropriate coverages and securing the best coverage for them based on price, service, stability, and the like. For your workers’ compensation clients, you can bring value when you guide them in preventing workers’ compensation fraud.

Although there are several types of workers’ compensation fraud, the focus of this blog post is claimant fraud (i.e. fraud perpetrated by an employee who suffered – or alleged to have suffered – a work-related injury). Claimant fraud is best prevented by the employer. Others, such as the insurance provider, the medical provider, and the state workers’ compensation agency, may become involved but the individual who has the greatest advantage for preventing claimant fraud is the employer. That said, employers may need guidance on how to prevent that fraud in their company.

Whereas the following list is certainly not exhaustive, these are typically the most effective steps that employers can take to prevent fraud – particularly if they are employed together as a cohesive strategy.

Prevent Injuries – Most workers’ compensation fraud does not involve the outright fabrication of an incident. Instead, most fraud creeps in when a claimant is injured to some degree, but then exaggerates the injury or malingers in hopes of gaining more time off or in hopes of financially benefiting from the incident. For that reason, preventing injuries from occurring in the first place must always be the first step in preventing fraud.

Investigate all injuries Thoroughly. For injuries that were not preventing, employers should have a structured and thorough process for investigating those incidents. This should be done for two reasons. First, it should be done with the mindset that understanding the incident will lead the employer to identify measures that will help prevent future similar incidents. Second, investigating each incident will also help determine if it really happened. When employees know that all injuries will be investigated, they are less likely to fake an injury.

Exercise Due Diligence in Hiring. In other words, employers should have processes and standards in place that help prevent hiring (or even attracting) substandard workers who may be likely to commit claimant fraud. This can be accomplished by applying due diligence hiring practices (formal applications, verification of references, criminal background checks, substance abuse screens, and even medical determination if the applicant can perform the essential physical functions of the job).

Educate the workforce. Workers’ compensation should not be a mystery to your clients’ employees. Instead, employers should educate their employees about the workers’ compensation process, which includes the costs to the company and the consequences of claimant fraud. Employers should also brief their workforce on the company policies and procedures regarding accident investigations, modified duty, etc. to allay confusion and misperceptions that are perpetuated by endless attorney commercials. At the same time, educating the workforce subtly communicates that fraud will not be tolerated.

Communicate with Employees. Your clients must understand that communication with their employees is critical for preventing a work-related injury from spiraling out of control and some element of fraud creeping in. It is reasonable to assume that a significant amount of fraud is borne out of the claimant’s perception that they have been pushed aside and forgotten and are truly not valued by their employer. For that reason alone, employers must routinely communicate with claimants to convey empathy and to ensure them that they are a valued part of the organization.

Prioritize Return-to-Work. One motivator for claimant fraud is remaining off of work as long as possible while receiving indemnity (wage replacement) benefits. To counter this, your clients should be strongly encouraged to establish a Return-to-Work policy and ensure that all employees understand the policy. This deters fraud because those who might be tempted to try this tactic will (if permitted by medical restrictions) be required to return to work in some modified capacity until they can return to their normal work role.

Fighting fraud not only involves efforts focused on preventing it. It also requires the employer to remain alert for the indications of claimant fraud. The following are 10 potential indicators of workers’ compensation fraud. Ensure that your clients know these red flags and communicate them to the claims adjuster as soon as possible in the claim process.

Red Flag #1 – Injury Reporting: If an employee reports an injury early on the first day back to work after a weekend or vacation, then the claim may be fraudulent. The concern here is that the injury may have occurred during the claimant’s time off. Also, if there is a significant time lag between when the employee says the injury occurred and when he actually reported the injury, then the claim may be fraudulent. Sometimes, ill-intentioned claimants use the tactic of late reporting because doing so hinders the employer’s ability to investigate the facts/evidence surrounding the accident; therefore, its validity really can’t be substantiated.

Red Flag #2 – Statements from Coworkers: If other employees report to management that the claimant is not telling the truth, listen to them. Often the fraudulent claimant will brag about his deed or confide with another employee before submitting the fraudulent claim. In addition, the coworkers may even see the fraudulent claimant in the community performing tasks that are inconsistent with his injury (loading groceries into the trunk of his car; cutting his grass with a push mower; performing repairs to his property; going hunting; etc.).

Red Flag #3 – Accident Description: If the claimant has difficulty recalling the details surrounding his accident, or if those details change with each recounting of the event, then the claim may be fraudulent. It is more difficult to consistently lie than to be truthful.

Red Flag #4 – Employment Status: If a claim is reported by an employee who has limited tenure with the company, or who may be facing a layoff, then the claim may be fraudulent. Similarly, if an individual is facing imminent furlough then he may do the math and realize that a workers’ compensation claim may be financially more advantageous than unemployment benefits.

Red Flag #5 – Personal Financial Pressures: If the employee who files the claim is experiencing tough financial issues in his personal life, then the claim may be fraudulent. Unfortunately, sometimes individuals experience financial crises and they “cross the line” and resort to desperate (unethical or illegal) measures. Workers’ compensation fraud is occasionally one of those measures. Add to this the fact that many employees do not truly understand the workers’ compensation system and view it as an entitlement; therefore, they do not view themselves as a thief if they submit a fraudulent claim. Lastly, if the employee does not have health insurance, they may justify fraud in their consciousness.

Red Flag #6 – Evasive Behavior: If a claimant is off work due to a work-related injury and avoids contact with the company or otherwise seems evasive, the claim may be fraudulent.

Red Flag #7 – Personal Attitude: If a claimant demonstrates a persistently negative or defiant attitude, then the claim may be fraudulent. Sometimes employees will seek to “settle the score” with an employer by filing a fraudulent workers’ compensation claim. Similarly, if there have been other integrity issues with the claimant during his employment, there may be a strong reason to suspect that a suspicious injury is also less than honest.

Red Flag #8 – Personal Ties: If a claimant has close ties to others who have defrauded the system, then the claim may be fraudulent, as the claimant may be influenced by his friends who have been successful in submitting fraudulent claims.

Red Flag #9 – Legal Expertise: If the claimant demonstrates unusual knowledge regarding workers’ compensation or retains an attorney soon after filing the claim, then the claim may be fraudulent. Both of these situations are very strong indicators of fraud. Most employers have limited knowledge of the workers’ compensation system so why would an employee be well versed in its intricacies? Furthermore, the system is designed to minimize litigation so that calls into question the motivation for retaining an attorney early in the process.

Red Flag #10 – Medical Treatment: If a claimant fails to attend medically prescribed physical therapy sessions or follow-up evaluations, or even changes doctors just before the termination of his medical work restriction, then the claim may be fraudulent. These actions, or inactions, on behalf of the claimant, could represent an intent to prolong the medical treatment process to prolong their time of work.

Certainly, none of the red flags indicators listed above are tell-tale signs of fraud, but they should increase an employer’s level of awareness and they should be communicated to the claims adjuster for increased scrutiny.