Protect Yourself Against Fraud

Insurance fraud occurs every day across the United States. While most workers’ compensation claims filed in Texas and other states stem from real instances of on-the-job injuries, there are, unfortunately, people who cheat the system. Consequently, fraud drives up costs for employers, consumers and insurers.

According to the Texas Department of Insurance, insurance fraud is one of the most costly white-collar crimes in the United States, ranking second only to tax evasion. As a corporate executive once noted, if workers’ comp fraud were a legitimate business in the United States, it would rank among the Fortune 500 companies—likely in the top 25. 

Fraud is lying for financial gain—with claimant fraud being the most common type. Claimant fraud happens when employees:

•  Fake or exaggerate injuries.
• Collect benefits for injuries that were not work-related.
• Continue to collect benefits after returning to work.

 The National Insurance Crime Bureau estimates that workers’ compensation fraud costs insurers $7.2 billion a year—approximately 25 percent of the $30 billion that fraud costs insurers annually. 

 Companies need to pay close attention to red flags that help detect possible workers’ compensation fraud. If you identify two or more of these situations, you should contact your insurer.

 A tip from a credible source, such as an employee of your company

• An injury to a new or disgruntled worker
• There is no witness to an alleged injury
• Inconsistent or illogical descriptions of how an injury occurred
• Difficulty in contacting an injured worker
• An injured worker who’s upset when he or she is contacted
• A suspicious injury occurring on a Monday or Friday
• An injury not reported until a week or more after it allegedly occurred
• An injured worker engages in activities that are inconsistent with his/her injuries

Red flags do not necessarily translate into proof of the offense, but they are indicators that the situation should be examined further. Workers’ compensation fraud occurs in simple and complex schemes that require investigation and proof. Remember what it takes to prove criminal fraud, and always ask yourself these questions when you suspect fraud:

What was the lie?

• Was it knowingly or intentionally made?
• Was it made for the purpose obtaining benefits?

Some insurance carriers write off workers’ comp fraud as merely a cost of doing business. Other companies, such as Texas Mutual, take a zero tolerance approach to combating fraud. Texas Mutual employs three teams of experienced, full-time investigators who take fraud claims with the utmost seriousness.

It’s also important for employers to educate their employees on the consequences of workers’ compensation fraud, including the trickle-down impact it can have on bonuses, raises and other company-involved benefits. Fraud is not only against company policy, but it is also against the law and affects everyone in the workplace. Workers’ comp fraud can be curtailed if employers, insurers and others are vigilant about this type of crime.

For more information about workers’ comp fraud, visit www.texasmutual.com/fraud/fightfraud.shtm.

About the author

This article was written by Tim Riley, vice president for special investigations at Texas Mutual. In 2011, Riley and his three teams of investigators saved, identified or recovered $5 million through their zero tolerance for fraud program.

Two Indicted in Travis County on Workers’ Comp Fraud Charges

Texas Mutual Insurance Company reported today that Travis County grand juries indicted, in separate cases, Curtis L. Blankenship, Sr. of San Antonio and Melody Tendayi of Austin on workers’ compensation fraud-related charges.

Blankenship, a Texas Mutual policyholder, reported a company fatality involving his son as a work-related accident. As a result, Texas Mutual began paying death benefits to him. Meanwhile, a Texas Mutual investigation uncovered evidence that Blankenship knew the fatality was not work-related.

The indictment alleges that Blankenship obtained $39,000 in workers’ compensation benefits he was not entitled to.

In an unrelated case, Tendayi reported a job-related injury while working as a youth care worker for Youth and Family Alliance in Austin. She claimed she was unable to work as a result of the injury, and Texas Mutual began paying income benefits to her.

Meanwhile, Texas Mutual uncovered evidence that Tendayi worked for another company while receiving income benefits.

The indictment alleges that Tendayi obtained $5,762 in workers’ compensation benefits she was not entitled to.

Note: A grand jury indictment is a formal accusation – not a conviction – of criminal conduct.

Midland Business Pleads Guilty to Hiding Payroll from Texas Mutual

Texas Mutual Insurance Company reported today that AB Abatement, Inc. of Midland, Texas, pled to workers’ compensation fraud-related charges. A Travis County district court ordered AB Abatement, Inc. to pay $70,000 in restitution to Texas Mutual and a $1,000 fine.

Vanco Insulation, Inc., owned by Robert Crow of Midland, obtained workers’ compensation coverage through Texas Mutual from April 2003 to October 2006. During that time, related company, AB Abatement, Inc., misrepresented numbers of employees and payroll associated with the Vanco Insulation, Inc. policies to Texas Mutual.

Because workers’ compensation insurance premium is based, in part, on payroll, this type of scheme results in an employer being charged a lower premium than it actually owes. By hiding payroll, an employer can gain an unfair advantage over competitors.

Houston Man Pleads Guilty to Hiding Payroll from Texas Mutual

Texas Mutual Insurance Company reported today that Marvin Solano of Houston pled guilty to workers’ compensation fraud-related charges. A Travis County district court ordered Solano to pay $140,038 to Texas Mutual, pay a fine of $1,000, serve 10 years of deferred adjudication and perform 300 hours of community service.

Solano owned Elamar, Ltd., doing business as Mastercare Gardens. He obtained workers’ compensation coverage through Texas Mutual from February 2006 to May 2008. During that time, he concealed payroll through various family operated companies he controlled.

Because workers’ compensation premium is based, in part, on payroll, this type of scheme results in an employer being charged a lower premium than it actually owes. By hiding payroll, an employer can gain an unfair advantage over competitors.

Workers’ Comp Fraud Scheme Costs Texas Business $149K

Texas Mutual Insurance Company reported today that Granbury Contracting & Utilities, Inc. of Granbury, Texas pled guilty to workers’ compensation fraud-related charges. A Travis County district court ordered the company to pay $149,000 in restitution to Texas Mutual.

Granbury Contracting & Utilities, Inc., owned by Wayne Wienecke, obtained workers’ compensation coverage through Texas Mutual from November 2003 to April 2008. During that time, Granbury Contracting & Utilities, Inc. misrepresented numbers of employees and payroll to Texas Mutual.

Because workers’ compensation insurance premium is based, in part, on payroll, this type of scheme results in an employer being charged a lower premium than it actually owes. By hiding payroll, an employer can gain an unfair advantage over competitors.

Preventing Workers’ Comp Fraud

The majority of workers’ comp claims filed in Texas and other states stem from real instances of on-the-job injuries. Unfortunately, the people who cheat the system drive up costs for employers, consumers and insurers.

As a corporate executive once noted, if workers’ comp fraud were a legitimate business in the United States, it would rank among the Fortune 500 companies. Indeed, according to the National Insurance Crime Bureau, workers’ comp fraud totals $7.2 billion a year. The Texas Department of Insurance notes that insurance fraud is the second most profitable crime after drug trafficking.

Fraud is

Fraud is lying for financial gain. Claimant fraud is the most common type of fraud. Claimant fraud happens when workers:

• Fake or exaggerate injuries
• Collect benefits for injuries that were not work-related
• Double-dip, or continue to collect benefits after returning to work
• Engage in activities that are inconsistent with their injuries

Fraud is not

Delayed recovery. Some injured workers take longer than expected to recover and return to work. This is not fraud. Injured workers do not have to return to the job until their treating doctor releases them.

Recreational activities. Injured workers can participate in recreational activities that are consistent with their medical restrictions.

Suspicion without evidence. To prove fraud, a carrier must have evidence that the injured worker knowingly collected benefits he or she was not entitled to. Evidence includes medical records, witness testimony, business records and surveillance video.

Village Mills Man Sentenced to Jail Time for Workers’ Comp Fraud

Texas Mutual Insurance Company reported today that a Travis County court sentenced Clifford K. Franklin of Village Mills, Texas on workers’ compensation fraud-related charges. Franklin fraudulently received $1,453 in benefits. The court sentenced Franklin to 180 days in jail and ordered him to pay court costs.

Franklin reported a job-related injury while working as an equipment operator for Odin Demolition and Asset Recovery, Inc. in Deer Park, Texas. He claimed he was unable to work as a result of the injury, and Texas Mutual began paying income benefits to him.

Meanwhile, Texas Mutual uncovered evidence that Franklin was working as an equipment operator for another employer while receiving income benefits.

Investigators call this type of scam double-dipping because the claimant collects benefits for being too injured to work when he or she is, in fact, gainfully employed. Texas law requires claimants to contact their workers’ comp carrier when they return to work.

Left unchecked, double-dipping and other workers’ comp fraud can lead to higher premiums for all Texas employers.

Premium Fraud Indictments

A Travis County grand jury recently indicted Premrock Commercial Drywall Ltd. Co., Timothy Castonguay of Arlington and Carlos Aguilar of Ft. Worth on workers’ compensation fraud-related charges.

Castonguay and Aguilar own and operate Premrock Commercial Drywall Ltd. Co., a Dallas- area drywall contractor. The indictments allege that the individuals intentionally misrepresented the payroll of Premrock Commercial Drywall Ltd. Co. between December 26, 2006, and May 14, 2007. The misrepresentation allowed the company to fraudulently obtain lower premiums from Texas Mutual.

Workers’ compensation insurance premium is based, in part, on payroll. An employer who intentionally underreports payroll is charged a lower premium than it actually owes. By fraudulently concealing or underreporting payroll, an employer gains an unfair advantage over competitors.

If you’re interested in learning more about the fight against workers’ comp fraud, visit the Fighting Fraud section of our website.  It includes fraud articles, red flags for fraud and copies of our FraudStoppers posters in English and Spanish.

Note: A grand jury indictment is a formal accusation, not a conviction, of criminal conduct.

Recent Premium Fraud Conviction

A Travis County district court recently sentenced Ellynn A. Ogilvie of Houston to five years of probation, 450 community service hours and a $2,000 fine for workers’ compensation fraud-related charges.

Ogilvie, who owned United Crane, Inc. and multiple related companies, was indicted in March 2009 for her role in concealing payroll and employees from Texas Mutual Insurance Company from August 16, 2001 to October 11, 2004.

Because workers’ compensation insurance premium is based, in part, on payroll, this type of scheme results in an employer being charged a lower premium than it actually owes. By hiding payroll, an employer can gain an unfair advantage over competitors.

Texas Mutual previously reported that Gary C. Quintinsky, who was also a participant in the scheme, was sentenced in March and received a two-year prison term for his role.

In 2007, a Travis County jury awarded Texas Mutual more than $5 million in actual damages and $2.5 million in punitive damages in a civil judgment against Quintinsky. The case was the largest premium fraud case in Texas Mutual’s history.

Doctor and Daughter Indicted on Felony Workers’ Compensation Charges

Texas Mutual Insurance Company announced that a Travis County grand jury indicted Howard T. Douglas, III M.D. of Hurst; his daughter, Barbara A. Douglas of Denton; and her company, Western Medical Evaluators, on felony workers’ compensation fraud-related charges. The indictments were the results of an investigation conducted by Texas Mutual.

Western Medical Evaluators provided functional capacity evaluations to injured workers in Texas. The indictments allege that between February 2007 and July 2008, Douglas, his daughter, and Western Medical overbilled Texas Mutual for the time taken to perform evaluations.

The Western Medical Evaluators investigation was part of the Texas Mutual zero tolerance for fraud policy. Texas Mutual maintains three teams of investigators permanently assigned to investigate every report of suspected fraud.

Note: A grand jury indictment is a formal accusation – not a conviction – of a criminal conduct.