Army of Scam Artists Milks Millions From Insurers, Officials Say

Using computer-age technology and a talent for choreographing automobile accidents, an army of lawyers, doctors and their underlings is stealing at least $500 million a year from the state’s insurance industry and driving the cost of premiums skyward, state insurance investigators say .

In almost every major metropolitan area in California, state authorities receive complaints daily about well-oiled scams involving insurance claims for injuries that never happened or for car wrecks that were planned down to the debris the scammers carefully spread on the street.

Insurance executives and state investigators estimate that between $500 million and $1 billion a year is lost because of fraud across the state, the bulk of it in the greater Los Angeles area.

“Los Angeles is the insurance fraud capital of the world,” said Robert Chambers, Southern California manager of the Insurance Crime Prevention Institute. “There’s a lot of money in insurance fraud, and people are trying to get at it.”

Since 1986, reports of false automobile claims filed with the state Department of Insurance have increased by almost 300% statewide, from 1,355 to almost 4,000 in 1989.

As an indication of the size of the problem, State Farm Insurance Co. statistics show that Californians file 10% more accident claims than the national average, but claim to be injured twice as often.

“The cars come together only 10% more in California, but you get hurt twice as often, and I just don’t believe you people out there are more fragile than the rest of us,” said G. Robert Mecherle, a claims vice president for State Farm Insurance in Bloomington, Ill.

The statewide losses have become so severe recently that the insurance industry is pushing for legislation, and the State Bar of California is actively investigating attorneys from San Diego to San Francisco who have been identified as filing false insurance claims.

Prosecutors across the state, including those in the Orange County district attorney’s office, are beefing up their fraud units with auto insurance specialists or creating separate bureaus to handle insurance cases. Proposition 103, the controversial insurance reform initiative passed last year, created other mandates to curtail auto insurance scams.

The fraud often begins with an army of ambulance-chasing “cappers” armed with beepers, police radios, cellular telephones and computers who often arrive at accident scenes before police and rescue workers.

The cappers find accident victims and refer them to lawyers for a fee. The lawyers in turn work hand-in-hand with certain medical clinics that often inflate medical bills or generate fake charges for people who are not hurt.

Cappers can receive between $800 and $1,500 just for referring accident victims to certain attorneys. Good ones can make annual salaries into the six figures, state investigators say.

In addition to full-time cappers, the ranks of tipsters have included ambulance drivers, tow-truck drivers, police officers, auto shop workers or emergency room personnel who can inform lawyers almost immediately about accidents.

Capping, the act of soliciting accident victims for a lawyer for a fee, is a misdemeanor, which makes prosecutors who are swamped with more serious crimes less likely to spend time catching them, insurance companies complain. They are pushing to make capping a felony.

With little risk, attorneys and physicians stand to make substantial amounts of money settling claims and getting kickbacks from medical clinics that bill insurance companies for exaggerated or non-existent injuries.

“Capping has become an extremely serious problem in California,” said Ronald E. Warthen, chief investigator for the fraud bureau of the state Department of Insurance. “It’s a massive money drain from the coffers of the insurance companies, and therefore from the wallets of the citizens of California.”

Some fraud rings don’t even bother to find real accidents but stage their own, recruiting auto shops to write false repair estimates and people, often from poor neighborhoods, who are taught how to feign “soft tissue” injuries, such as neck and back pain, that are difficult to verify.

In some cases, the doctors used are so brazen as to report the same injuries for everyone in a staged crash, said D. Michael Bush, a private lawyer in Long Beach who represents insurance companies pursing false-claims suits.

Bush, who keeps a copy of Gray’s Anatomy behind his desk, pulled out a sheaf of four claims from people who said they were hurt in the same car wreck on March 21, 1988.

“The chances that all people injured in a minor accident are injured in the same way are very, very slim,” Bush said. Nevertheless, their doctor reported that all four had suffered identical and rare injuries to the brachial plexius, a shoulder muscle, as well as neck sprains and headaches.

Mercury Casualty Co. investigators say they found one ring that was so sophisticated its members spread debris at so-called accident scenes and then called police to make a report.

Witnesses were paid to testify about the crash, they said, while “accident” victims were coached on how to act by the capper during a meeting at his house. The vehicles involved were damaged at remote locations before being driven to the scene.

Furthermore, victims were given money to buy insurance policies that could be exploited by the ring in the future, investigators said.

According to Mercury Casualty, the capper operating this scheme set up five to 10 accidents a night. His operation was so large that he had an organized file system with a folder on every insurance claim.

In another scheme, a capper coordinated the scripts of two to seven staged accidents a night from the front of a major grocery store in Orange County. Occasionally, participants had to wait in line as he handled crashes scheduled before theirs.

Assuming that the two rings staged a total of 50 accidents a week or 2,600 accidents a year, the Mercury investigators estimated that they stole $52 million a year in the Los Angeles area alone. And Mercury alone has identified dozens of rings over the past few years.

“I have never witnessed such an onslaught of brazen, organized capping activity as is now occurring in the greater Los Angeles area,” Mercury investigator Pete Brown wrote in a January, 1989, internal company report. “It is extremely frustrating to see this problem firsthand and to hear confessions over and over again.”

How many unscrupulous lawyers, cappers and physicians are doing this is difficult to determine. Warthen estimates that there are upward of 100 attorneys in the Los Angeles area who have been associated with false insurance claims. But few are ever prosecuted.

One former capper, who did not want to be identified, estimated that upward of 75% of all injury claims processed in the Garden Grove-Westminster area involved some kind of fraud.

Orange County lawyers who run honest personal injury practices say that professional cappers have been running rampant in the area for the last 10 years, particularly in Garden Grove and Westminster.

“We have had numerous individuals approach us in this regard, have had many cases stolen from us by cappers and have frequently observed signs of capping,” Westminster attorney Bruce Bridgman said in a May, 1989, letter to state Assemblyman Richard Polanco (D-Los Angeles), who is trying to develop anti-fraud legislation.

“It seems like every little gang-banger we’ve been picking up here for the last little bit has been carrying beepers,” said Westminster Police Detective Marcus Frank. “The assumption is that they are drug dealers, but in fact they are capping for an attorney.”

Frank said he has seen so-called accident victims come to the police station to complain of back and neck pain days after a car wreck in which no injuries were reported. Usually, they have been referred to a lawyer by a capper, he said.

Statewide, at least 47 attorneys have been associated with false claims by the State Bar of California, said Frank Bassios, deputy chief trial counsel for the association. Nine of the lawyers are under investigation by the Bar while another 15 have been targets of the state Department of Insurance, he said.

In Los Angeles civil courts last year, the Southern California Rapid Transit District filed a lawsuit seeking $17 million in damages from 37 people who allegedly filed false claims after a bus collision in Studio City in May, 1988.

RTD attorneys blamed a ring of lawyers, doctors and others for 20 claims manufactured on behalf of “phantom riders”--people who were not aboard the bus when it was rear-ended by another RTD bus.

In a recent criminal case, California Highway Patrol investigator Theresa Clark went undercover to infiltrate a ring of cappers, attorneys and medical clinics in Orange and Los Angeles counties. Ultimately, seven people pleaded guilty in the scam and five of them served several months in jail, said Orange County Deputy Dist. Atty. Connie Johnson.

Although Clark, who was carrying a concealed tape recorder, never claimed to be injured, she was sent from a tow truck company in Long Beach to the offices of two different attorneys and a medical clinic in Los Angeles.

Staffers for the attorneys told Clark she could make money if she agreed to file suit and visit the Los Angeles clinic for treatment.

“He said, ‘If you sue, you can make $5,000 to $7,000,’ ” Clark said. “This is all on tape. ‘All you gotta do is go to the hospital and get checked out by the doctor.’ I said, ‘I can’t go that far.’ He says, ‘All you gotta do is sign in and leave.’ ”

Clark said she was ultimately treated for $2,600 worth of non-existent ailments, and the law office demanded $13,000 from the insurance company to settle the claim.

Two paralegals who worked in the law office pleaded guilty to charges stemming from the case, Clark said. No charges were filed against the lawyer.

The doctor ultimately pleaded guilty to a misdemeanor count of aiding and abetting a conspiracy to commit insurance fraud, Johnson said. He was given a one-year suspended jail sentence and ordered to pay $15,000 restitution, she said.

In the state Legislature, efforts to crack down on insurance fraud have made little headway. A measure by Polanco, the Los Angeles assemblyman, to make capping a felony instead of a misdemeanor was killed in committee last year. Polanco has not yet tried to resurrect the bill.

“Going after the capper is much easier than trying to prove that the lawyer who runs the claims-processing firm knew that the accident was staged,” Warthen said. “It’s a chronic problem in Southern California, and it’s getting worse in Northern California too. The big incentive is the money that attorneys pay the cappers.”

Others doubted that much would be done in the Legislature or anywhere else to remedy the situation.

“Even though capping is illegal, not much is being done about it because so many other bigger things are going on,” said Robert Barrie, an investigator for Mercury Casualty Co. “It’s a low priority for these overworked investigators for the Bar and for everyone else.”

INSURANCE FRAUD PRIMER

Auto insurance fraud, which is becoming widespread in the state, basically has taken two forms--inflating the severity of injuries and property damage from actual automobile accidents and staging carefully choreographed car wrecks.

Actual auto accidents are often exploited by an army of ambulance-chasing “cappers” who are armed with beepers, police radios, cellular telephones and even computers, and who often arrive at accident scenes before police and rescue workers. They comb the scene looking for crash victims and then refer them for a fee to unscrupulous law firms and medical clinics that inflate legal fees and bill insurance companies for treating non-existent injuries.

Faked accidents--from the amount of damage to the cars to the injuries sustained by the so-called victims--have been carefully planned down to the last detail by a host of sophisticated ringleaders. Once the accidents occur, auto shops prepare inflated damage estimates, lawyers process the insurance claims and the injured are referred to certain medical clinics that bill for treatment.

Source: California Department of Insurance