Abstract
Life can be full of surprises, even for fraudsters. This article provides details of a nearly successful attempt to fraudulently impersonate someone who was unhealthy in order to profit from a life insurance policy. The fraudsters were successful at getting their policy issued; fortunately, the fraud was discovered and successfully litigated despite the case being outside of the contestable period. Furthermore, this case had an interesting twist that was completely unexpected by the would-be fraudsters. The actions taken by the insurance company, their legal team, and their investigation partner are a great example of investigative prowess and principled fortitude, and it shows some of the steps that can be taken to identify fraudulent cases that may otherwise go unnoticed, thus emboldening and unjustly enriching the perpetrators at the expense of honest policyholders.
Introduction
Every business in every industry must be concerned about the possibility of losses due to fraud. This is particularly true in life insurance since a criminal can reap 100’s of thousands of dollars in profit, if not millions, with a minimal investment. And the risk of getting caught, much less prosecuted, is relatively slim. The case below highlights a real case where the perpetrators almost succeeded, but for a diligent insurance company. Even when caught, the fraudsters doubled down and filed litigation against the insurance company. The names have been changed, but the case itself is factual. Every case is unique, and the ability to challenge a case is dependent upon the facts and circumstances of the case. In this case, the evidence was convincing.
The case
The case began in 2018 when someone claiming to be Sophia Jenson applied for a $150,000 term life insurance policy for the benefit of her two children. The application was submitted from Ohio, where the insured was purportedly born and currently residing, or so the company thought. She was born in 1954 and is healthy per her application for insurance. She was working to support herself, making a modest income, but enough to support the payment of the policy premiums from her checking account.
Four years later, one of the children notified the insurance company of the death of his mother. As part of the review of the claim, the insurance company noted some peculiarities and inconsistencies between the application and the death certificate. Some of the concerns found were as follows:
- Immediately upon approval of the policy, Ms. “Jenson” sent a handwritten note with a request form to change the checking account listed on the application to pay premiums to another account. The form was signed as Sophia “Jenson.” The envelopee also contained the name “Jenson” in the return address.
- Within a few weeks of the policy being issued, Ms. “Jenson” sent a handwritten note along with a request form to change the last name of her son from “Jenson” to “Evans.” It’s very unusual that a mother would not know her son’s last name; nonetheless, that is what was requested. The envelope also contained the name “Jenson” in the return address. The form was rejected because it was incomplete.
- A few weeks later, the insurer received another handwritten note along with a request form stating her son’s last name was incorrect and needed to be changed to “Evans.” This time, the form, handwritten note, return address on the envelope, and the signature were that of Sophia “Johnson.” It seemed our perpetrators got the name wrong on the application. The form was, of course, rejected.
- Immediately thereafter, Ms. “Jenson” sent another handwritten note and request form to change her name to “Johnson.”
The consistent use of the wrong last name in the application and multiple subsequent letters before asking that it be corrected was concerning to the insurance company.
When the claim documents were received, the insurance company noted that the insured lived in Illinois, not Ohio, and that her state of birth, something that most people know, was different than stated in the application. Furthermore, her date of birth was two years prior to the application state of birth. This was concerning since any requests for information by the insurance company when considering her application for insurance, such as prescription drug, criminal, or medical history, using an incorrect date of birth would have resulted in no records being found, thus leading the underwriters to conclude she was an acceptable risk.
The insurance company continued to investigate the case despite the age of the policy. What ensued was enlightening. The relationship between the insured and the purported children came into question, and whether someone had impersonated the insured to purchase the policy became a concern. The company concluded that there was no legal relationship nor insurable interest between the insured and the beneficiaries despite claims that they were her children. The daughter, for her part, admitted that the insured was not her mother; rather, she was a “mother-figure.” In addition to finding that there was no insurable interest, the insurance company also concluded that someone other than the insured had procured the policy by posing as the insured.
The denial and evidence
The company denied the claim based on their conclusion that Sophia “Jenson” (or “Johnson”) had not applied for coverage; rather, someone posing as her had procured the policy. They also asserted that there was no insurable interest on the part of the insureds despite the application listing the beneficiaries as children. The “children” initiated a breach of contract claim against the insurer. Even though they had been caught, they were not going away without something to show for their efforts. They were, of course, likely hoping for a settlement for the “nuisance” value of the case if nothing else. In response, the insurance company answered the allegations with a counterclaim seeking to void the policy based on its findings.
As depositions were conducted and facts confirmed, more facts emerged. The insured never lived in Ohio despite all the correspondence postmarked from Ohio. In fact, the insured had not been in Illinois for years prior to the application date, if ever. The insured also never paid the premiums for the policy – one of the beneficiaries who was not related to the insured paid all the premiums. The insured was illiterate and could not read nor write thus begging the question of how she could have submitted all the handwritten requests.
The twist
The insurer then took a bold move to amend its counterclaim to assert fraudulent intent and to seek damages from the plaintiffs. Since the attempted fraud was for $150,000, the insurer sought $300,000 from the beneficiaries as allowed by Illinois law. This twist now changed the dynamics of the case; the beneficiaries went from a “nothing to lose, everything to gain” position to one of real consequences should they lose their case. Their attorney immediately recused himself from the case, leaving the brash fraudsters to find another attorney to represent them.
The court, in a summary judgement decision, ruled in favor of the insurer concluding that the insured could not have purchased the policy. The court also concluded there was no insurable interest on the part of the beneficiaries. As a result, the policy was void ab initio. No appeal was filed, and this resolved any question of liability on the part of the insurance company. The insurer had not breached its contract and owed nothing to the beneficiaries. The damages claim against the beneficiaries, however, would be left for a jury. Prior to trial and facing significant consequences, the beneficiaries settled the case with the insurer prior to trial.
Conclusion
This case had a favorable and just outcome. Had the insurance company not taken the effort to review a claim even though it was past the contestable period, it is likely that the fraudsters would have made off with an easy $150,000. In fact, we learned just that – another well-intended insurance company issued a similar policy except with a much higher face amount. They did not investigate the death, and the beneficiaries made off with a huge profit. As it turned out, our insurer’s efforts not only saved the insurer from an unnecessary expense, it also sent a message to other would-be scammers. This insurer takes fraud seriously, and it will not only take steps to identify fraudulent attempts against it and its policyholders, but it will also pursue fraudsters to the extent allowed by law. This sentinel effect is real but is difficult to measure.
While this outcome was good, it came at the expense of time, investigation fees, and attorney fees. The undisputed best time to prevent fraud such as this is at inception. For insurance application fraud, that means stopping the fraud before a policy is issued. Insurers cannot rely on claim processes to either identify all fraudulent cases, nor to be able to successfully defend against them when one is identified. Tools are now available to detect and prevent this type of fraud that did not exist in 2018, albeit the adoption rate is mixed, leaving openings for exploitation.
This case highlights the importance of monitoring activity after a policy has been issued, particularly in the first few months and then immediately at the expiration of the contestable period. While a single policyholder request may seem reasonable on its own, when multiple requests are received, holistically reviewing them can lead to a different conclusion.
Another conclusion reached is that defenses are available to protect against fraud outside of the two-year contestability period in nearly, if not all, states. Death claims occurring within at least the first five policy years should be reviewed to ensure that the policies were not fraudulently procured. If fraud is suspected, there may be defenses available. The facts and evidence must support the case, and the applicable jurisdiction’s laws and regulations should be checked before reaching a final decision.
If you have any questions about ways to mitigate application fraud or have experiences you would like to share, please reach out to the author, who is always delighted to explore cases.
About the author
Kevin Glasgow is an insurance industry veteran with over 40 years working with both retail insurers and reinsurers in the United States and Canada. His roles have included leading claim teams in the United States and Canada, and as such, he has worked extensively collaborating with underwriters and others to mitigate fraud risks as well as defending companies against fraudulent activities. He has worked as an expert witness in insurance matters, and he is currently working with Diligence International Group, which specializes in fraud mitigation and identification. He is also on the Advisory Board with Friendly, an AI company serving the insurance industry. He holds a bachelor’s and master’s degree in business administration and is the past president of the International Claim Association and the Eastern Claim Conference, and his designations include the ARA, FLMI, FLHC, CFE, and CLU®. Articles written are from his thoughts and experiences and are not