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64 Def. Counsel J. 23 (1997)
Fraud and Its Effects on the Insurance Industry

handle is hein.journals/defcon64 and id is 25 raw text is: Fraud and Its Effects on the Insurance Industry A marshaling of anti-fraudforces and an awakening of the public are needed to combat increasing and more sophisticated insurance fraud By Edward L. Schrenk and Jonathon B. Palmquist IN 1993, New Jersey's insurance fraud di- vision staged a series of bus accidents in which the only passengers were state fraud investigators. The sting operation impli- cated more than 100 persons who claimed injuries after either jumping on the buses immediately after the accident or filing a claim after driving by the scene. Although alarming, this is not an isolated incident of insurance fraud; it repeats itself every day in various forms in cities, large and small, across the nation. In fact, fraud has been a plague on the institution of in- surance from the time people first began pooling their resources to minimize the risk of individual financial losses. Now in a so- ciety vastly more mobile and technologi- cally sophisticated, fraud simply has taken new shapes and is of greater magnitude. The problems associated with insurance fraud are beginning to receive national at- tention. They are addressed in the national press, on television and radio, special re- ports, and in insurance company advertise- ments. Some companies have set up hotlines to receive reports of fraud. Many states and the federal government have taken notice, offering various proposals to deal with fraud. Nevertheless, criminal prosecution of in- surance fraud is a low priority with law enforcement and prosecutors. As one pros- ecutor put it, insurance fraud is simply one thief stealing from another. Facing contin- ued indifference and lack of resources by prosecutors, insurance companies have been forced to go on the offensive, using civil remedies to prosecute fraud cases IADC member Edward L. Schrenk is Se- nior Vice President and General Counsel of USAA Property and Casualty Insurance operations in San Antonio, Texas. A graduate of the University of Notre Dame and DePaul University Law School in Chicago, he engaged in insurance defense practice and served in various claims and claims counsel capacities prior to joining USAA. He is a past chairman of the Board of Governors of the National Insurance Crime Bureau. Jonathon B. Palm quist is Legislative Counsel for USAA Property and Casualty Insurance operations. He received a B.A. degree from Baldwin Wallace College, at- tended law school at Ohio State University and the University of Louisville, and re- ceived an M.A. in international manage- ment from Baylor University. against medical providers, lawyers, con- tractors, automobile repair shops, and oth- ers. Comparative and reverse bad faith are theories of law that are slowly evolving to equip insurance companies with remedies against spurious bad faith claims. The fed- eral Racketeer Influenced and Corrupt Or- ganizations Act, known as RICO, has emerged as a strong civil weapon for insur- ance companies. And traditional common law and fraud statutes continue to be used. THE COST OF FRAUD It is impossible to state precisely the fi- nancial impact of insurance fraud. There are some estimates that fraud ranks second only to illegal drug trafficking in terms of illegal dollars earned. In 1985, property and casualty insurance

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