Let’s talk about the F-word in Workers’ Compensation: Fraud.
Guest Connor Thomson is a second-year law student at Villanova University who won the College of Workers’ Compensation Lawyers John F. Burton Jr. Law Student Writing Competition with his paper “Fight Fire With Fire: The Need For Carriers To Be Afforded More Duties And Privileges To Combat The Pandemic Of Workers’ Compensation Insurance Fraud.” He explores an interesting, challenging issue in Workers’ Comp: Are employees sometimes cheating the system?
Workers’ Comp insurance fraud is a multibillion issue. Thomson takes a deep dive. The system does a lot of good, and employer fraud hurts workers. It happens. All fraud is wrong. But sometimes employees cheat, they collect a check for a workplace disability, but they work on the side, maybe under the table. That’s not a victimless crime either. It hurts us all, Thomson argues.
Sure, employers do check on workers who file claims, including the use of private investigators. And that comes with its own issues. But Thomson says controlling insurance fraud may have its place. If carriers can’t investigate, does everyone suffer because of higher insurance costs? This is an intriguing issue.
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Intro: Workers Comp Matters, the podcast dedicated to the laws, the landmark cases, and the people that makeup the diverse world of workers’ compensation. Here are your hosts, Jud and Alan Pierce.
Alan Pierce: Hello, this is Alan Pierce once again on Legal Talk Network for our program Workers Comp Matters. Today, we’re going to be having a discussion, in fact, a follow-up on an earlier show many years ago it turns out on what, I guess what you call the F-word in workers’ compensation and the F-word of course is Fraud. It is a concept, a reality that nobody wants that is involved in this system. It is a type of behavior or behaviors which are perhaps more prevalent than it should be. It’s multifaceted, it doesn’t land on any particular participant in the workers’ compensation system. It is experienced or practiced by employees, employers, sometimes insurers, sometimes lawyers, sometimes claims adjusters, but it’s not good for the system.
We are very happy to have as our guest Connor Thomson, who actually wrote a paper entitled, ‘Fight Fire With Fire: The Need For Carriers To Be Afforded More Duties And Privileges To Combat The Pandemic Of Workers’ Compensation Insurance Fraud.’ This was a paper that was submitted to the College of Workers’ Compensation Lawyers in the John F. Burton Jr. Student Writing Competition, and was our winner for the 2022-2023 Academic Year.
I want to introduce you to Connor. Connor has finished his first year, he is going to be a second-year law student at the Villanova University Charles Widger School of Law, a year ago last May he graduated summa cum laude with High honors, University Honors from Saint Joseph’s University Maguire Academy of Insurance and Risk Management. He has a CPCU, so he is in the insurance biz. I believe this summer he is clerking at a defense, insurance defense firm in Philadelphia.
So Connor, hopefully I got your credentials correct, and if so I’d like to welcome you to Workers Comp Matters to discuss your excellent paper.
Connor Thomson: Thank you for the introduction, Alan. Yes, you got them all correct. I’m happy to be here and happy to connect to you again after speaking with you at the conference in May.
Alan Pierce: Yes, we did meet a couple of months ago in New York and I read your paper, for a first-year law student until I saw that you were still connected to the insurance business, I was so surprised that you got into the weeds of this subject. It is a complex subject. So tell me why you selected insurance fraud and why you feel it’s a pandemic?
Connor Thomson: Right. So, like you said I studied risk management and insurance in college. I went into law school knowing that I wanted to advocate for insurance companies as an insurance defense attorney, and that’s exactly what I’m doing this summer. But earlier in the fall I had read an article or a study conducted by the Coalition Against Insurance Fraud. That brought to my attention that insurance fraud in general in 2022 totaled $308.6 billion in workers’ compensation insurance fraud, and specifically in 2022 totaled $34 billion and as an advocate for the insurance industry, I felt called to take some action and that action was doing a deeper dive into the F-word, like you said fraud and writing this paper.
But for someone who’s 23, I’d like to think that I’ve an advanced understanding of the property casualty insurance industry, I’m passionate about the property casualty insurance industry and I believe that its business model is good and just, it’s imperfect, it’s an imperfect system, but I believe it does a lot of good for a lot of people. So that’s why I decided to write on this subject matter.
Alan Pierce: Well, I’m glad you did because it’s certainly is something that is on the minds of anybody that deals with workers’ comp. I do know that where I primarily, if not exclusively representing injured workers, I am well aware of the rare case that one of my clients is found to have been engaging in fraudulent conduct, but I think human nature is such that when you are dealing with money issues and to get a check in the mail for being unable to work, there is a temptation. But I also noticed — and we were going to get into the specter of employee fraud and how that manifests itself in addition to the obvious, but you also did give, mention to misclassifying employees by employers. Tell us what that means.
Connor Thomson: Right. So I think that you’re right. It’s secondary to what I focus on my paper. My paper primarily focused on fraud committed by policyholders and scrupulous policyholders and plaintiffs.
I didn’t give as much mention to employer fraud or medical provider fraud but they’re equally as important. And I think from the employer perspective you know when an employer falsifies records or fails to provide sufficient and comprehensive workers’ compensation coverage to workers, not only is that illegal right, insurance fraud is a white-collar crime in all 50 US states and in D.C., but It does more than that. It leaves injured victims, injured workers unable to pay for their expenses and I think that’s a great social injustice right.
I see workers’ compensation insurance as a means to take care of hard-working honest, laboring people and also help businesses financially succeed. So, if you’re leaving these honest, hard-working laboring people unable to pay for their expenses when they’re injured accidentally during the course and scope of their employment, and that’s just terrible. You know, that is a great social injustice and like I said, it leaves people harmed.
Alan Pierce: Yeah. And just for the sake of completeness from my experience and from our prior guest on the show several years ago, employer fraud can take the form of not purchasing workers’ comp insurance at all. I think there’s been a great Nationwide Crackdown on that, certainly here in Massachusetts that has diminished substantially although there are still some employers and they’re usually very small service type of employers, like landscapers, roofers, siding, I don’t want to pick on them specifically, but they frequently will not purchase insurance and take the risk that nobody will file a claim against them or they get cancelled for non-payment or for whatever reason they are uninsured.
There’s also the situations where employers’ premiums are based on the classification of their workers and a lot of, not a lot, but a significant number of employers will misclassify their workers as independent contractors and pay them on a 1099, not only are they saving workers’ comp premium, but they’re also saving associated other benefits or costs such as FICA Unemployment Insurance.
And then there’s the mischaracterization of what the employees of a covered company are doing, because their premium rate for a roofer is higher than a premium rate for a secretary, so there is this also misclassification of the job title. And we can all talk and point to studies saying, well, the misclassification of employer fraud is greater than employee fraud and vice versa.
At the end of the day, it doesn’t matter which is greater than the other, all need to be rooted out and weeded out, not to mention billing issues, etc.
So, let’s focus on employee fraud. The obvious one that comes to mind is somebody who is collecting a weekly check for being disabled and is working presumably under the table and is caught doing that. What do insurers do to try to combat that or other types of employee fraud?
Connor Thomson: Right. I think to kind of lay out my answer, I wanted to bring your attention to an article I read, published for a study, I read published by the Insurance Journal not too long ago and it highlighted this ethical behavior dilemma and like the younger generation. So Gen Zs and Millennials, and it said that roughly 27% of 18 to 24 year olds would commit workers’ compensation insurance fraud and roughly 25% of 18 to 34 year olds are “motivated” to commit insurance fraud.
So, I think that’s really alarming, right to kind of frame, to frame the issue and what insurance companies can do to root out this fraud, you know, their legal options are limited. Insurance companies through their special investigation units can collect information, collect evidence that could be used in court, and they refer the matters then to the Insurance Fraud Bureau in their respective state or to their State’s Attorney General’s office or local District Attorney’s office.
But you know, from the research that I did, insurance companies their hands are pretty tied. What I do think the insurance industry is making great strides at it, is publicizing this pandemic, right, this, this economic disease that runs rampant through all, throughout all 50 United States jurisdictions and letting people know that it’s not a victimless crime. You know, I often ask myself why there are these studies that highlight the amount, the percentage of people who would commit workers’ compensation insurance fraud or are motivated to commit insurance fraud or how much insurance fraud costs every single policyholder, just between $400 and $700 a year, and I’ve even read some studies say $930 a year. And I think that’s to show that insurance fraud is not a victimless crime.
So while their hands are kind of tied legally, and they can only like I said, collect information, evidence which will be used in court, and send to Insurance Fraud Bureaus, Attorney Generals and District Attorneys, they can raise awareness of this issue, which I think the industry is doing a pretty remarkable job with now.
Alan Pierce: I agree in part. One thing that I think may come from my experience as opposed to studying articles and studies is that very few of the employee fraud cases that I have seen or gotten involved with, ever get to the Insurance Fraud Unit. This is what typically happens. Insurers have from my experience significant powers that aren’t reflected in some of these studies. For example, they make widespread use of private investigators and surveillance every — I would say, every single one of my clients, claimants that are out of work over three months or so are investigated. They are surveilled, they are followed, their social media accounts are looked at and what happens is if they uncover a pattern of behavior, very rarely is it working, but more obvious, more often, it’s documented physical activities of bending and stooping, and putting things into their car when they have a bad back and things like that.
And what happens is, when evidence of activities surveillance or Facebook post indicating somebody is doing something that doesn’t look like they’re physically able to do, that then goes into the claims adjudication level and usually those cases are worked out, either the claim is withdrawn, the claim is settled much cheaper, and I would say, of all of the employee fraudulent behaviors that are caught by insurance companies, most of them are dealt with individually in the case and really don’t get reported anywhere.
So I just wanted to say that, the insurers, while they may have be hamstrung with respect to certain reporting requirements, they are empowered with a great deal of surveillance and other what I would call somewhat invasive activities. I mean I’ve had clients post things on Facebook of them at a social event or a sporting event doing things that don’t look like things that they should be doing, whether that’s fraud or not, it depends on the individual case.
But we can discuss that in a little bit. We are going to take a quick break. We are going to come back and speak with Connor Thomson a little bit more about fraud in the workers’ compensation process. We will be right back.
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Alan Pierce: Welcome back to our discussion about workers’ comp fraud with Connor Thomson. Connor, do you have a response to the bit of a soliloquy I delivered on fraud and all of its forms?
Connor Thomson: I do, and I appreciate what you said. Part of my article that I submitted for the college was to critique a leading case in your home state Massachusetts, it’s Maxwell. And that Court actually agreed with you and said, you know, since insurance companies have a direct financial interest in demonstrating a transaction to be fraudulent, that interest might reduce objectivity and lead to overzealous and oppressive efforts to root out fraud when none actually exists. And you noted that insurance companies have wide-ranging investigative duties, but actually the Maxwell Court stripped seemingly carriers from possessing the duty of reasonable investigation, which I think runs — it’s ironic and runs contrary to the name of an insurance company’s special investigation unit, but I guess what I would ask is, do we risk a small percentage of claimants, of laypeople not receiving benefits to control the premium cost for every policyholder through at all 50 U.S. jurisdictions, right. Do we afford carriers more duties because insurance fraud specifically workers’ compensation insurance fraud has in my opinion, reached a tipping point, reached a point where I don’t think there’s any — any return, any coming back, it’s getting worse and worse each year.
And if we don’t afford carriers more duties than like you said they already have, their private investigators, people scrubbing social media accounts, if we don’t do more, then everybody else suffers as opposed to just that one individual claimant. But, you know, I do concede that the Maxwell Court articulated their findings similar to what you said, but in my opinion I think limiting carriers to just those investigative duties and privileges and forcing them to halt all other discretionary investigative duties, is it detriment, it’s a waste of their resources, it’s a waste of their anti-fraud technology, it’s a waste of their money which they’re pouring more and more into every year for predictive modeling and link analysis capabilities, it’s just a waste and I think it hurts more people than it helps.
Alan Pierce: I agree. I mean, I think anybody who is involved in the workers’ comp system, whether we work for insurers, employers or employees, none of us like workers’ comp fraud especially as it impacts a particular case which would be might most experienced.
You cite a variety of studies, and one thing that I have observed is, it depends on who is doing a study because I have seen other articles about insurance fraud, and I’ve seen two different organizations studying the same state and coming up with two different results. Now you cite the Coalition Against Insurance Fraud, and the 2022 article called, ‘The Impact of Insurance Fraud on the U.S. Economy’, give us an idea of what that organization has come up with in terms of the degree or frequency or cost of workers’ comp claimant insurance fraud.
Connor Thomson: Right. So, the Coalition Against Insurance Fraud is a nationwide resource or coalition as the name states to fight against insurance fraud, to root out insurance fraud. And in their 2022 study they said in general insurance fraud totaled $308.6 billion in 2022 and workers’ compensation insurance fraud specifically totaled $34 billion in 2022. And that $34 billion in 2022 broke down as follows, $9 billion was from premium fraud and $25 billion from claims fraud.
And I know you’ve said you saw different studies where employer fraud and medical provider fraud surpasses or exceeds that figure from the employee or the claimant fraud, the Coalition found otherwise and even noted that 16% of all workers’ compensation insurance claims are fraudulent, and that’s up from what was predicted in 2020, which was 10% of all insurance, of all property casualty insurance claims losses and loss adjustment expenses a year are fraudulent.
So that the trajectory is getting worse and worse, it’s, you know quite frankly it’s highly disturbing and it needs to be addressed.
Alan Pierce: Yeah. And for example, again the coalition for insurance fraud, I am guessing is an insurance-based coalition.
Connor Thomson: Yes.
Alan Pierce: I’m looking at a study by the AFL-CIO which is I guess the polar opposite of the insurance, and this was reported on, on Frontline on PBS and an article called, ‘The Myth Of Workers’ Compensation Fraud’, and just to show you how the numbers vary. John Larson, who was the reporter said, workers’ comp fraud is quite common. All right, so we have some agreement there. The industry estimates it adds up to five billion dollars a year and there’s a citation for that.
The AFL-CIO has heard the five billion claim before, a similar claim put workers’ comp fraud at 20% which is I think what you said. The truth is that, that was suspected fraud that year according to the State Department of Insurance, actual frog was three-tenths of one percent. Actually the Assistant to the President of AFL-CIO wrote to Tom Brokaw after a Dateline Report, I’m just going to quote, and this is just shows you depending on who is doing the study, Robert Stern of the Washington State Labor Council, AFL-CIO in his letter to Tom Brokaw, this was number of years ago, says, “In every study that has been done on fraud in Workers’ Comp employer, insurer, and provider fraud are found to be a dramatically greater problem than claimant fraud. At a time when injured workers throughout this nation are suffering enormously from the deform of the system driven primarily by insurance providers that the report that kind of mirrored some of your quotations gave a seriously skewed presentation on the problem.”
I don’t know who is right. I grant you that an organization of labor that represents the interests of organized labor can do studies, and find three-tenths of one percent, and an organization that is a coalition of insurance providers finds 20%.
I suspect probably both are overstated or understated. But the important thing for our audience, and I’m going to take a break and then we’ll finish up, is just to recognize that, yes, there is indeed employee fraud. It’s done on an individual basis; one employee, another employee, another employee. When there is employer fraud, it’s usually their entire payroll that is suspect or their entire workforce that is suspect, even if they don’t file a claim. This is where things get skewed in terms of numbers.
If there are a thousand employees working without workers’ comp insurance, that’s a thousand instances of workers’ comp fraud, although maybe none of those injured workers get hurt, so that those injuries never get reported. And now take a brief break and we’re going to come back with Connor and discuss this interesting topic a little bit more, we’ll be right back.
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Alan Pierce: So Connor, I hope you continue your career in insurance, even if you’re on the defense side we need good defense oriented people doing good work, studying and being aware of this insidious aspect that taints our particular practices in the field of workers’ comp. How would you sum this up? What are the takeaways? I think we can take from your paper, you know, recognizing that there is — despite a lot of efforts to the contrary, there’s been a lot of progress in combating workers’ comp fraud. What can companies do better, or what can we do better?
Connor Thomson: So you know like you said, I just wanted to recap. Workers’ compensation insurance fraud is a common reality. It’s insidious and it taints our profession, that is 100% true, and you know you cited studies that said $5 billion, I cited studies that said $34 billion and while there’s a drastic difference between the two figures, it’s nonetheless bad, it’s nonetheless needs to be stopped and be addressed. And you’re right, the industry, the insurance industry has taken great strides, in 2019 40% of carriers have said that or said that their technology budgets are getting larger and larger every single year and more money is being poured into anti-fraud technologies and resources.
And like I said earlier in the episode, more public awareness is being raised about this issue. So people know that it’s not a victimless crime, that it may not injure people, although some workers’ compensation insurance fraud specific on the medical provider side can cause humanitarian harm and hurt patients if they’re subject to unnecessary testing and procedures, but for the most part, it hurts people and their wallets, and their bank accounts.
But to wrap it up, I think that it’s important to note that carriers and the public are fighting the same fight here, right. Workers’ compensation insurance fraud effects carriers’ profitability and it costs the average policyholder between $400 and $700 a year in premiums.
So I think that it’s a public policy issue, right, there’s a dire need for judges and from courts to not only one, understand from a high-level strategic perspective how the insurance industry and how insurance companies operate, but two, to take a hard line approach to combating this, this pandemic. My solutions, you know that I outline of the paper are to get insurance companies the duty of reasonable investigation, to afford them that duty given their resources and anti-fraud technologies and to allow immunity laws to be modified and expanded so that insurance companies have unqualified, not qualified immunity to address a crime that’s not a localized crime but a crime that affects everybody.
Alan Pierce: And to that I would say insurance companies already have a great deal of authority or tools that don’t exist, for example, in Social Security Disability or unemployment insurance or long term disability insurance.
They make extensive use of private investigators, a varying degrees of sophistication and talent, but they’re all armed with video cameras, they’re all armed with sophisticated surveillance, and believe me, they investigate even the non-fraudulent clients. I can’t tell you how many clients call me and say they’re being followed. They’re not very discreet. Everybody, everybody, I would say without over exaggerating this, anybody is out on workers’ comp is going to be surveilled, followed or have their activities checked at least once during the lifetime of the claim if not more than once. They have — to us, to those of us who represent the injured worker, we feel this is a privacy issue here, recognizing the insurers have a duty to do this. I tell my clients when they call, I said as long as you’re in a public place, and the investigator is not on your property, they have a right to follow you, they have a right to video you, they normally log in with the local police. There is a very sophisticated system that the carriers have on the ground to combat this, at least in Massachusetts and most of my colleagues tell me the same thing.
So you know, if there’s more they can do with technology, fine, let them do it. If my client is guilty, I want them to be caught, by the same token I also want to afford the innocent injured workers the knowledge that yes, they’re going to be investigated as long as they’re doing everything that they’re supposed to be doing or not doing everything they’re not supposed to be doing, then they’re going to be fine.
So I applaud your efforts. I’d like to see people in your profession, people in law school focusing on this and workers’ comp, if nothing else is one of balance. It’s the rights of the injured worker and it’s the rights and (00:26:43) of the employer and the insurer, and if everything goes the way it’s supposed to be, it is a great system. When it doesn’t, we need folks like you that can identify this and help us learn how to do it better.
So, good luck in your second year of law school, you’re going to stay in insurance defense do you think when you get your degree and passed the bar?
Connor Thomson: We’ll see. So, you know, while I do things that I’m hopelessly defense-oriented, workers’ compensation is probably the one practice area where I can see myself actually representing plaintiffs. Like I said, I think it takes care of honestly bring people and it’s a means of businesses succeed and sustain a competitive advantage. So we’ll see, I’m keeping my options open right now.
Alan Pierce: Keep them open, we could use good guys like you in our side and the insurers could use good guys like on their side as well.
Connor Thomson: Right.
Alan Pierce: You take it seriously, you understand what the problems are and you’re eager to find the solution. So I applaud you for that.
Connor Thomson: I appreciate that, and thank you for this fruitful dialog.
Alan Pierce: Yeah. I always enjoy these types of exchanges, especially on this subject, because it is a subject that (00:27:54) of interest.
So to all of you listeners out there on Workers Comp Matters, I hope you enjoyed the show, I hope you stick around and listen or download future shows and those of you out there thank you for listening and go out and make it a day that matters. Bye bye.