My previous article dealt in some depth about the uncovering and eventual arrest of the ServiceMaster Franchise contractors in Rancho Cucamonga and Tustin, and their scam which enabled them to illegally obtain an estimated $10,000,000 in insurance claim payments. Several insurance companies were directly involved in the investigation, as well as various banks due to their financial interest in the properties involved, and of course, the authorities.
This article will examine in detail the steps that may have been taken by both the contractors involved in defrauding the insurance companies involved, and the actions taken by the companies involved to bring these individuals to justice. The backround of this article is the result of years of dealing with the occasional defrauding contractor and the warning signs that a scam may be in progress.
Acts of insurance fraud such as these individuals pulled off, and others, are responsible for at least 10% of your insurance premium today. As a member of the insurance industry, as well as a premium paying insurance policy holder, the reasonable question to ask is how in the world did something this flagrant happen?
The major answer to this question is the fact that most insurance companies’ claims offices are so under staffed, they simply do not have the time, or the employees adequately trained to re-inspect jobs completed by contractors. This vulnerability was taken advantage of by those individuals recently charged, as well as manyh others who have not been caught yet.
ServiceMaster, like many other Restoration Contractors, have 24/7 service contracts with various insurance companies throughout the United States. This means that if you own a home or a business and are insured by Mercury Insurance, as an example, and you experience a serious water damage problem in the middle of the night, your first move will be to call your insurance company contact number.
That contact person would either direct you to call the Restoration Service Contractor with whom your insurance company has the service agreement, or they would take your name and address and call the company themselves. Up to this point everything is legal and the plan of action established to insure service is being followed.
If the Contractor that responds to you call detects the opportunity to take advantage of the situation financially, and knows the claims office to which this loss will be reported is short staffed or drowning in claims due to some recent catastrophe, the path to a legally adjusted claim now becomes distorted.
If the Restoration Contractor presents to the insured an Authorization to Begin Work agreement, and asks the insured to sign it, and if that authorization contains a Power of Attorney which gives the contractor the legal right to sign the claims payment check with their stamp/signature on behalf of the insured, we may see a problem developing. Now, can I definitely tell you that every contractor that presents a Work Authorization which contains a Power of Attorney is trying to defraud the insurance company? Of course not, however, in my own opinion it signifies that as the Claims Adjuster involved, I should closely examine the reported Scope of the damage, and the payment involved for that scope.
Most of the service contracts between Restoration Service Contractors and insurance companies will have a dollar cap on Emergency Service work, which means that if the cap is $3,000 and the Emergency Service, company sees that the work will be at least $3,500, they will need authorization from the insurance company to proceed to the $3,500 level.
If the contractor is attempting to defraud, he would call the insurance company and report additional damage than what was originally reported and offer an acceptable reason for the necessary additional work. In most instances, the Adjuster, on behalf of the insurance company would authorize the additional work, if it sounded reasonable. Then the contractor would actually repair the damage that took place and may present the insured an estimate for that work, while sending the insurance company an estimate for the inflated cost. In many instances, the insured may never see the estimate for the work billed to the insurance company.
The next significant step in the fraud is the issuance of the claim payment check for the work completed. It would not be out of order for the contractor to send the insurance company their invoice for the completed work, along with a copy of the authorization signed by the insured and request the insurance company kindly issue the check and send it to the contractor’s office for processing.
Dependent upon the insurance company’s policy, they may send the check to the contractor’s office, believing all was in order. The insurance company may include the name of the mortgagee on the check. If they do, the unscrupulous contractor now faces the issue of forging the mortgagee’s signature and this is where our recently apprehended contractors made their eventual error.
The topic of how the forged signatures of the financial institutions involved eventually became known will be dealt with in my next article.