Auto Fraud: Accidentally On Purpose

Car insurance scams are drawing insurers' ire and ingenuity

It's called "swoop and squat" and it goes like this: You're driving down the highway, usually in a late model car. Two cars pass you. The lead car swoops in front of the other car, forcing it to slow down or stop suddenly. That causes you to rear-end the car in front of you, which typically is crammed with passengers. The lead car, which caused the accident, flees. With the second car gone, you figure you should take the blame for not paying attention.

An innocuous fender-bender? Not always. This set of circumstances is often a cleverly executed fraud. Although none of the passengers in the struck car suffered any injuries to speak of, they soon file medical claims. Typically, 80% of the parties show up at the same group of clinics within 24 hours complaining of neck and back pain and in need of medical treatment. Lawyers and doctors are often in on the scam.

Auto fraud is almost as old as the Model T. But insurance companies say that schemes such as the swoop and squat are rapidly growing not only in scope and scale but in sophistication. On June 4, Allstate Insurance Co. filed suit against hundreds of defendants alleged to be part of a huge ring operating in northern New Jersey. The lawsuit claims that the frauds, based on arranged accidents, resulted in more than $75 million in false claims.

WHO PAYS? These elaborate scams cost consumers anywhere from $15 billion to $20 billion annually, according to industry estimates. "It's not the insurance company's money but the premium-paying customer's money," says Allstate Insurance Co. Assistant Vice-President Edward J. Moran. He and other industry experts say frauds add up to $200 a year to the cost of a typical $1,100 average insurance policy for a late model medium-size car.

Insurance companies have long suffered frauds in silence because prosecutors and police, already overburdened with drug cases and violent crimes, viewed them as lesser priorities. Now, insurers are beefing up their investigative resources and have begun employing tactics used by police in other white-collar crimes, such as videotape surveillance, undercover agents, and cross-matching of policyholders and accident victims through powerful computer databases. "We were handling each of these claims individually," says Kevin Hilliard, who heads the claims division of Camden Fire Insurance Co., which last October brought a civil case in northern New Jersey against 800 defendants in an alleged $10 million ring operating in Passaic County. "We happened to run an index of one particular name and all of a sudden, we see [the same conspirators'] names everywhere," Hilliard said. Camden Fire alleges that one woman was in 10 accidents in seven months, some within days of each other.

At State Farm, where the special investigation unit has tripled in size in the past five years to 1,052, Assistant Vice-President Frank Hall uses "link analysis" to track accidents in which the drivers, vehicles, or even locations show up in accident claims repeatedly. Sometimes State Farm takes action against potential scamsters before law enforcement agencies get involved. In one case, Hall hired two former federal prosecutors at a private Chicago law firm to bring a civil suit alleging a pattern of racketeering among a group of Windy City personal-injury lawyers, medical clinics, and street-level organizers that the company claims arranged swoop-and-squat accidents.

The suit, which was filed last October, claims that the lawyers and doctors participated in at least 349 "sudden stop" fraudulent accidents dating back to the late 1980s and lasting through mid-1996. Using video surveillance outside one medical center, State Farm found "people coming and going every few minutes, and the same vehicles picking up and dropping off groups of people throughout the day," according to documents filed for the lawsuit. "No one appears to stay long enough to be treated seriously for injuries, and people seem to stay on the sidewalk outside the clinic using cellular phones." The suit is still pending and the defendants deny any wrongdoing.

UNDERCOVER STING. Another common variation of the staged accident, which dispenses with unwitting victims, is at the heart of a recent case in Houston. "Everybody was in on it," Houston prosecutor Lester Blizzard says of the case he successfully tried in February. Blizzard says the ring would meet at local restaurants and pay $50 to $100 to people to crash cars into each other in a secluded location. Then, Blizzard explains, ring members would move the damaged vehicles to a more public spot on the side of a road, where they could arrange the cars as if an actual accident had occurred. The police were then called and an accident report taken, followed by medical and legal claims.

In the case he prosecuted, Blizzard says, many of the supposedly injured parties showed similar or even identical medical problems and circumstances, suggesting that medical personnel had merely copied the case information from one person to the next. "We had hundreds of people with respiration rates of 22 breaths a minute," he says. The ringleader, a paralegal, was convicted, along with a lawyer and two doctors. Many other participants copped pleas.

Sometimes the ploys are much more simple. Says Bob Murray, a Long Island-based agent with the National Insurance Crime Bureau, an industry investigative group: "You walk into a police station and say you've been in an accident but the other person drove away."

Although the variety of scams is mounting, law enforcement agencies are becoming much more aggressive. A recent indictment of chiropractors and lawyers throughout Long Island, N.Y., was the result of a multi-agency undercover sting dubbed "Operation Backbone." Similar efforts under way in northern New Jersey are expected to yield major arrests, industry investigators say. No one expects auto insurance fraud to go away anytime soon. But more and more swoopers and squatters, as well as other auto scamsters, are becoming prosecutorial prey.