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Write legislators now, shut down storm chasers

At least 20 states have enacted stricter laws protecting consumers and insurers from shady roofing contractors in recent years. Dishonest storm chasers prey on consumers whose homes were damaged by rain, wind, hail, fire and other natural disasters.

More states require more transparency from roofing contractors, and have empowered homeowners to back away from contracts they were duped into signing.

New York is in the crosshairs of enacting roofer reforms before Albany shuts down soon. It’s urgent we act right away.

New Yorkers should write your legislators now — urging your home-district legislators to support much-needed reform bills. It’s our last chance this year.

Assembly and Senate measures would: limit repair deposits to 50 percent of the contract … forbid roofers to act as illegal public adjusters … forbid contractors to dangle rebates to lure consumers for repair jobs … and let homeowners cancel contracts for unneeded repairs.

Albany needs to hear from New Yorkers now. Everyone in New York can send letters. We’re building a groundswell of support that tells legislators these bills deserve “Yes” votes.

An alliance of committed insurers, consumers and other groups is seeking to put crooked roofers out of business.

If you’re a New Yorker, send a letter today. Ask your New York colleagues to send a letter as well — just forward them the link to the letter-writing engine.

Together, we can pull the roof off roofer cons!

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Pedestrians grievously hurt drivers speed away, lie about collisions

Pedestrians grievously hurt, drivers speed away, lie about collisions

Dazed and fumbling after drinking at a party all night, Maxwell Materazzi-Hatala made a dumb choice to drive home.

The Scranton, Pa.-area man rammed into a trash collector and crushed the city worker’s legs. Materazzi-Hatala then lied to his insurer about the collision. It was a desperate bid to fool his insurer into paying for repairing his Toyota’s crumpled front end, and throw police off the track.

Hit-and-run drivers sometimes use insurance scams to camouflage their mistakes and avoid responsibility for the grievous injuries they cause innocent people trapped in the onrushing car’s path. The contrived insurance claims often quickly break down under methodical scrutiny by fraud investigators.

Materazzi-Hatala bore down on trash collector Steven Pierson around 6 a.m. The truck’s driver saw the onrushing headlights. He warned Pierson and another worker at rear of the truck. Too late. Materazzi-Hatala never braked. He crashed into Pierson, crushing his legs against the truck.

Materazzi-Hatala bolted the scene without stopping, leaving Pierson writhing on the street in agony.

Damaged parked trailer

Desperate for a way out, he deliberately rammed the Toyota into a parked transport trailer. Materazzi-Hatala then made a false damage claim with his insurer, lying he had a regretful run-in with the trailer. He hoped to convince his insurer to pay for the repairs, and explain away the damage.

Police found parts of a headlamp that seemed merely tossed on the ground — including plastic pieces with blood on them.

Nor did the Camry’s heavy front-end damage track with Materazzi-Hatala’s version of the crash. He was handed 18 months in prison plus seven years of probation in May 2017 — for insurance fraud, causing serious bodily injury, and other crimes.

Pierson needed more than 200 stitches, a skin graft plus rods and plates. He lost 1¾ inches in height on his right leg, and requires lifts in his shoe — yet he’s finally walking again. Pierson hopes he’ll return to work.

“It is very fortunate for you that Mr. Pierson survived,” Judge Margaret Bisignani Moyle said at Materazzi-Hatala’s sentencing. “If he did not, you would be standing in a very different place.”

Driver hits pedestrian

Other hit-and-run drivers have used insurance scams to hide their roadway mistakes.

High-school student Devaughn Moore was crossing a street in Amherst, N.Y. when Kevin Ford hit him and sped away. He left Moore lying in the street with a serious head injury. Ford then set his car afire in a field, and called his insurer to falsely report that someone stole the vehicle.

The shell of a broken, gray side-view mirror was left at the hit-and-run scene. Investigators determined it came from a 2006 Chevy Impala.

A police license-plate check of cars fitting that description revealed Ford’s car was reported stolen the night of the hit-and-run. Investigators found the burned car at an insurance impound lot. Ford received up to three years in prison. Moore was hospitalized for four weeks before learning to walk again.

Rams truck carrying women

Thomas Douglass was a police officer for the City of Newburgh, N.Y. His truck hit a car carrying five women.

Douglass roared off. He left the women alone to die, for all he knew. In fact four were injured. One woman was trapped in the wreckage with a broken vertebrae, permanently injured.

Douglass told his insurer that he hit a deer. He received up to three years in prison.

These misguided drivers may hit-and-run, but they can’t run far.

Can insurers fight fraud while privacy vanishes?

A billionaire tossed a verbal stone into an electronic pond, causing ripples worldwide.“ All these concerns about privacy tend to be old-people issue,” LinkedIn founder Reid Hoffman proclaimed about the new world of electronic communication.

However Hoffman defines “old people,” today’s electronic communication-linked world is raising privacy concerns across all generations. From retail breaches such as Target Corporation, through the credit-card account fiasco engulfing Wells Fargo, privacy invasions and protection are key topics.

Fraud investigations are a big part of the privacy conversation. Many tools used by investigators today were only Star Wars technology a generation ago. Predictive modeling, tracking cell conversations and the ever-expanding world of social-media probes all help battle insurance fraud. Some consumer groups and trial attorneys representing insureds express concern about how insurers use technology to redefine the relationship between insured and insurer. Many concerns have merit because the relationship between insurance carrier and policyholder derives from a written policy contract.

Insurers routinely invoke policy language. They cite the “duty to cooperate” or “duties in the event of loss.” Yet most policy language was written before cell phones and social media. Insurers are woefully deficient in updating policies to keep pace with rapidly changing electronic communication and a data-driven society.

Insurers and related organizations finally are addressing how privacy, claim investigations and policy contracts must be adapted for this new era. How well it is done will define how emerging technology is used in fraud investigations for future generations.

Fraud fighters must set standards so data and technology are properly used and guard personal privacy rights. Otherwise, courts and legislatures will impose those standards. That could have a profound impact — positive or negative — on the fraud fight.

Privacy issues facing fraud investigators today stretch far beyond social media. While Facebook, Twitter, Instagram and other platforms create a treasure trove of information for fraud investigations, the future bodes an entire new realm of data unlike any we have known. Welcome to the world of “big data.”

Big data involves data sets that go beyond the ability of commonly used software to capture, analyze and process.

The world’s technological per-capita capacity to store information has doubled every 40 months since the 1980s, and has grown exponentially since 2012.  Big data today is measured in zettabytes. That is one sextillion bytes of information — a “1” followed by 21 zeroes. The entire World Wide Web contained half of one zettabyte of data in 2009.

Billions of devices leave clues

Data collection no longer derives from human interactions. The Internet of Things (IoT) is an ever-growing worldwide network of non-human physical objects that feature an IP address for internet connectivity. They can communicate information without human assistance. Many trace the birth of IoT to 1982 when a Coke machine was modified at Carnegie Mellon University. The machine reported its inventory and temperature to a remote location.

Today the IoT collects data from items as simple as toasters, home thermostats, and washers and dryers to entire electrical grids and transportation systems for the world’s largest cities. IoT devices will top 50 billion by no later than 2020. These devices collect, share and retain data without human interaction.

For insurance-fraud investigations, the Internet of Things moves from a worldwide data cloud to retrieving valuable information: black box data concerning vehicle speed, braking and other information relevant to how an auto accident occurred to security panel downloads identifying who entered a building, and at what time before a major fire loss happened. How this data is authorized to be collected, what type of analysis is needed to ensure accuracy, and whether and how it is admissible in court are all issues that involve fraud investigators today.

Each of these these billions of devices leaves a data trail while communicating with each other throughout the world. Linking these electronic bits of evidence allows this information to be captured, analyzed and sold for its analytical value. Big-data analytics alone are valued at more than $100 billion and its growth rate exceeds10 percent a year. That is more than double the pace of “traditional” software business analysis.

How does big data help investigate insurance fraud? A telling case comes from Middletown, Ohio.

A fire broke out in Ross Compton’s home on Sept. 19, 2016. Compton frantically called 911. He reported the fire. He claimed he packed a few belongings in a suitcase, grabbed his computer, used his cane to break out a window, and hurled items out of the house before rushing out to save himself.

Investigators determined the fire was intentionally set. They subpoenaed the data from Compton’s pacemaker and heart monitor. A cardiologist showed Compton allegedly was not doing the strenuous physical activity he claimed during the 911 call. He was indicted for arson.

Insurance investigators use data analytics for purposes ranging from predictive models of workers-compensation injury red flags to vehicle license-plate reader reports purchased from databases containing billions of “hits” tracking vehicles as they move through public highways, parking lots and garages.

How data is being secured equally involves a number of options.They range from court-ordered subpoenas to companies providing access to databases and personal information with programs built for predictive modeling or claim investigations.

While the universe of data changes constantly, unchanged are authorization forms and out-of-date insurance-policy language. Virtually no policy contains provisions relating to compiling, using or analyzing personal data or big data for investigating fraud. This leaves a wide gap for attorneys and consumer advocates to assert insurers already are going too far

U.S. lags in privacy laws

Many Americans believe a right of privacy is enshrined in the Constitution. Privacy actually traces back to 1890. Samuel D. Warren and Louis D. Brandeis published “The Right to Privacy.” They advocated for a general common-law privacy protection. No U.S. court recognized such a right at the time.

Brandeis was a Supreme Court Justice when he authored the majority opinion in Olmstead vs. United States. 8 The court laid out a constitutional right “to be let alone.” Now every jurisdiction in the U.S. recognizes some form of a constitutional, common law or statutory right of privacy.

That right, however, has limits. Hoffman’s quote about privacy being for “old people” partially derives from the willingness of Millennials to give up more personal data than any generation before. In exchange, they gain the ability to readily access online information. Thus there is equally the right to surrender private data and information for some benefit or information.

A privacy right also may be surrendered by contractual agreement. This is where many insurers find themselves today, either through claims authorizations or using broad, archaic policy language to incorporate electronic data access.

The U.S. Congress and virtually all 50 state legislatures are considering updated privacy legislation. The U.S. lags behind many nations in establishing privacy laws. More than 80 countries have adopted comprehensive data protection laws. The U.S. remains notable for this gap.

Canada adopted the Personal Information Protection and Electronic Documents Act in 2001. Privacy protections for data processing in Europe were concluded within the Council of Europe in 1981. European citizens’ rights to data privacy also are protected under the European Convention on Human Rights. It protects an individual’s “private and family life, home and correspondence.”

The closest U.S. national protection is the Gramm-Leach-Bliley Act. Corporations, including insurers, must provide customers a written “privacy notice” advising how personal data and information are used. Supporters of the legislation could not foresee the dramatic rise of “big data” the new millennium would bring.

Insurers annually provide policyholders a federally compliant privacy statement. Many insurer fraud fighters, however, have no input into their company’s privacy language.

Often these statements contain lukewarm language such as: “We will not use your personal data for any purpose other than underwriting and setting of a fair premium. Attorneys in a lawsuit thus can assert impropriety when personal data is used to investigate claims. Insurers must do a better job of including language regarding insurance fraud in the permitted scope of private information and data collection.

Insurers should work cooperatively with groups such as the Coalition Against Insurance Fraud and National Insurance Crime Bureau on legislation impacting use of private data.

These organizations help draft legislation, and lobby statehouses, to ensure legislation is fair and equitable to all parties. The Coalition and NICB also monitor court cases affecting fraud investigations, including privacy issues. Both organizations file amicus curiae briefs with state and federal courts, seeking fair application of the law in combating fraud. The Coalition is uniquely positioned to be a strong — and balanced — privacy advocate with its insurer and consumer members.

Legislation and court decisions ahead will dramatically define the scope of what personal data may be used, and how, in all aspects of our society — including insurance fraud.

Facebook clues discoverable

Key criminal cases offer a guide for the future of insurance fraud investigation.

The New York Court of Appeals issued a decision involving Facebook on April 4, 2017. The New York County DA issued 381 warrants seeking access to user account information involving a criminal investigation of alleged Social Security disability fraud. Facebook moved to quash the warrants. It argued the warrants were constitutionally defective, over-broad and that Facebook’s users were entitled to personal privacy protection. The trial court directed Facebook to immediately comply with the warrants.

Facebook appealed. The New York high court upheld the warrants. Recognizing today’s world of electronic data, the court noted a traditional search warrant authorizes law enforcement to enter, search and seize property.

“These differences in execution, however, can be easily explained by the nature of the materials sought. The service provider is more likely to be better equipped to access and conduct a search of its own digital information than law enforcement personnel, and the data may be stored in different locations,” the court noted.

Arkansas saw a dispute arising from a search warrant issued by the Bentonville Police Department to Amazon.com. The defendant James Andrew Bates allegedly murdered Victor Collins, whose body was found at Mr. Bates’ residence.

Crime investigators noted an Amazon Echo device in his home. The Amazon Echo or “Alexa” device is wireless equipment containing seven microphones equipped with sensors that use beam-forming technology to hear users from any direction.

Alexa can analyze speech, answer questions or respond to directives — including to other internet-connected devices. Bates also owned numerous Wi-Fi connected devices, including a “Nest” thermostat, home alarm system with door-monitoring alarms and motion sensors, weather monitor and remote-control lighting. Collectively, these devices can be remote controlled by cellphone, computer or similar devices. The court approved a search warrant directing Amazon to provide access to all information Alexa recorded during the time surrounding the murder.

As more homes become digitally equipped, more requests for stored data will arise for fraud investigations. The Facebook decision confirms that courts will allow securing such data when appropriate steps are taken to secure release of information.

Insurers seeking the same data may not enjoy the same privileges as law enforcement. Instead, they must rely upon updated policy language and re-drafted authorization forms to conform with today’s world of technology. Unless insurers do so, very relevant documents may not be discoverable.

Must ensure data admissible

Big data, the Internet of Things and the new world of communication information are breakthroughs in the fraud fight. We have at our fingertips today more information than anyone would have imagined a generation ago. At risk is whether insurers are moving promptly enough, and in the right direction, to ensure data and information are obtainable and admissible in court.

In addition to updating policy language and forms, insurers and consumer advocacy groups must work together to develop best practices for collection and use of this data.

Historically, insurers often moved in an authoritative, corporate manner. Courts thus found insurance policies to be unfairly one-sided “contracts of adhesion.” Insurers today face a unique opportunity to work cooperatively to adopt fair and equitable best practices and write new policy language that allows reasonable collection and use of data for underwriting, premium determination, claims and fraud investigation.

Insurers and consumers should develop mutually acceptable standards and practices as the world of big data evolves, rather than face a patchwork of 50 or more differing rules, regulations and laws.

Whether those standards are developed as a model act for state legislation or through appropriate channels as accepted industry standards also needs deciding.

Insurers can work cooperatively with consumer-advocacy groups and legislatures in a forward-thinking manner. Or they can simply wait and “see what happens.” Yet doing nothing is not an option. Decisions today will guide how this valuable treasure trove of information is used, or lost, for generations of insurance fraud investigators to come.

About the author: Matthew J. Smith, Esq. is associate director of government affairs for the Coalition Against Insurance Fraud, and Of Counsel to the law firm of Smith, Rolfes and Skavdahl, Co., LPA, which he founded in 1989. Mr. Smith is a frequent lecturer on insurance law matters across the U.S.

Minors set-up in crashes, murders & health scams for insurance payday

“I believe the children are the future. Teach them well and let them lead the way,” the late Whitney Houston sang in the iconic R&B hit Greatest Love of All.

Those words generally resonate with anyone who has or knows a young son, daughter, brother, sister, niece or nephew. Or just simply knows an awesome and impressionable child.

Who would want to hurt an infant or toddler?

Or make the battle of puberty more challenging for juveniles and adolescents?

Or even ruin a child’s life, right?

Greedy insurance scammers do. More cases of children being exploited for insurance scams are making the news rounds lately.

Here are just some of the latest abuses:

Joaquin Rams no longer wanted his child. He had been having financial problems and planned on moving out of his home. The Manassas, Va. dad took out $524,000 of life-insurance policies on his 15-month-old infant son Prince. Hard-up for money, Rams either suffocated or drowned the toddler though the cause of death could not be determined. Rams received life in prison for his terrible parenting skills and murder.

Troy Leonard sexually abused eight child patients. The Newton, N.J. special-ed consultant sexually assaulted the children under age 13 multiple times, then billed insurers for bogus treatment services he never provided the children. Nor was he even licensed to provide the counseling he advertised. Leonard received 10 years in prison and lost his license.

Dayton home-health provider Mollie Parsons was supposed to take care of 14-year-old Makayla Norman. The bedridden child had severe cerebral palsy and couldn’t move or talk. Parsons let Norman starve to death while billing Medicaid for no-show home care — sometimes on days she was on shopping sprees. Makayla was a skeleton, infested with lice and with a soiled diaper. Parsons received only 10 years in state prison and will serve up to five years in federal prison afterwards.

“Mother” Ana Ovando cared less about her children and more about her loyalty to a staged crash gang. The South Florida mom abused her children. She then packed them into cars as part of 3 staged crash wrecks so she could make false whiplash claims. The children even begged their mom to stop the crash cons. Although the children survived unharmed, Ovando asked them to lie for her in court about the crashes when caught. The kids’ rehearsed pleas and tears to let their mother go didn’t work: Ovando received 6.5 years in jail.

These are just a few of the awful insurance plots that victimized children.

You’d think there would be stronger procedures, laws or regulations preventing abuses of kids for insurance. While some exist, fraudsters always find loopholes … or better yet, a child to fill that loophole.

Regardless, children are the true victims. The physical and emotional scars from being used as collateral damage for insurance grabs can inflict years of psychological damage on the young.

Greater legal and consumers protections are needed to safeguard children from becoming victims and pawns of insurance greed. Insurers, legislators, fraud fighters and consumer advocates should consider the following:

  • More states should limit the age of kids for whom parents can take out life insurance. Few states have such limits. A recent Washington Post oped citing Dennis Jay highlights other needed reforms. Insurers should be alert to fraud when a parent buys a life policy on a child;
  • Consumer education will help alert parents of red flags for inflated, invasive and worthless treatment by shady dentists and docs; and
  • Laws and regulations should be enacted to prevent children from being exploited for insurance money. Maybe make exploiting a child for insurance fraud a specific crime, or a specific crime of child abuse;

“Show them all the beauty they possess inside,” Whitney continued to sing in The Greatest Love of All. “Give them a sense of pride to make it easier.”

Whitney is right. Every child deserves a chance to live and explore life and the beauty within themselves. Free of abuse and harm.

About the author: Elijah Mercer is research associate of the Coalition Against Insurance Fraud.

 

Doctor fakes death in Russia to avoid U.S. health charges

Just a small favor, Dr. Tigran Svadjian begged the feds. He was cornered for allegedly stealing nearly $2.5 million from California’s state-run health insurer. He was mixed up with a suspected Armenian mob-related medical fraud ring.

The Newport Beach physician told prosecutors he’d plead guilty, and agreed to go undercover by wearing a wire in conversations with suspected ring cohorts.

He just needed time to visit his ailing mother in Russia. Sure, why not, the feds agreed. So Svadjian hopped a flight to Moscow. The feds soon received a death certificate from Russia. Svadjian suddenly died of pneumonia on a Moscow street. Case over, end of a convincing health-fraud prosecution, it seemed.

In fact, Svadjian faked his death to avoid being hauled into the courtroom. He went on the run for 10 years — even starting a new family — before being snagged in the Ukraine for using a fake passport.

Mixed up with mob figures

Let’s start at the beginning. … The Armenian immigrant got mixed up with medical providers that had suspected ties to the Armenian and Russian mob in California. The state was probing their operation allegedly for falsely billing Medi-Cal $13 million for medical tests and procedures.

Svadjian denied wrongdoing, yet provided only a handful of the 200 medical records the state requested. Nor could he account for 94 percent of his claimed medical treatments, officials say. Some patients he claimed to treat were dead. The feds soon investigated before allowing his fateful escape.

Once in Moscow, Svadjian bribed a Russian police officer $200 to get a fake death certificate from a Moscow morgue. More bribery earned him a new identity and passport as Vasily Petrosov.

His grieving wife Emilya, meanwhile, received what she believed were Svadjian’s ashes and death certificate. He left her to battle creditors trying to liquidate assets to pay off his debts.

Had child with Russian

Svadjian set himself up as a scuba instructor in an Egyptian resort town on the Black Sea coast. He fell for a Russian woman, and they had a child. Another child was on the way.

She flew back to Russia for a Caesarian childbirth. Svadjian wanted to join her. He forged yet another passport as Viktoras Cajevkis, a Lithuanian. Authorities in the Ukraine spotted the fake document and shipped him back to Egypt. Suspicious, Egyptian investigators dug into his records and discovered his real identity. Svadjian was packed off to the U.S. for prosecution.

He was inches from a fraud guilty plea before pulling that harrowing escape from the judge’s gavel back in 2002.

Svadjian made a second escape back in California after his re-arrest. Prosecutors thought he’d died, and they discarded the fraud evidence they’d carefully built up. So the federal judge instead handed Svadjian just 2 1/2 years in federal prison in March 2017 — for fleeing justice.

“Did the defendant get away with his (health-fraud) scheme? Yes, Mr. Svadjian, to a degree you were successful,” Judge Michael Fitzgerald said in a downtown Los Angeles courtroom. “You deserve 60 months.”

Why was baby insured for $500,000 of life insurance?

A father’s greed for $500,000 of life insurance ended the short life of smiling toddler Prince McLeod Rams.

His father Joaquin drowned the doe-eyed Washington, D.C.-area tyke, who was just 15 months old.

How could Joaquin get away with buying a fortune worth of life insurance on an infant?

Life insurance can keep a family running if a spouse dies of cancer, or a business afloat if a key partner has a heart attack. These are valid reasons for insuring someone’s life. It’s called an insurable interest. It’s a standard requirement that helps keep life policies from becoming murder weapons.

Yet Rams hoodwinked the life-insurance system.

In applying for coverage, Rams lied that the boy’s estranged mother was dead in order to avoid telling her about his plans to insure Prince’s life.

Simply trying to insure a newborn also should’ve raised red flags when Joaquin sought the coverage. His shaky finances gave him yet a deeper murder motive.

Rams was blowing through money. He even planned to move out of his Northern Virginia home to rent it out and make his mortgage payments.

His suspicious behavior finally did him in. Rams told his Realtor right after Prince died that he was moving back home. He said he was buying new appliances and re-painting his home, even though his finances were on quicksand at the time. Detailed forensics also revealed Prince was drowned.

Did any insurer check whether Prince’s mother was alive? Did they check Rams’ finances? Did the mere fact of a young father insuring a newborn’s life trigger enough alarm bells for a deeper look at his motives?

We need a high standard of scrutiny for insuring the precious lives of toddlers and other youths. That responsibility extends from life insurers to insurance agents to state laws that permit such sales.

Little Prince never had a childhood. But his death can help other kids live their childhoods. We must tighten a life-insurance system that sadly allowed Prince to perish all too young.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Study: Fraud spreading while insurer technology use increases

Kenny Allen helped launch one of the largest  documented insurance-arson rings in U.S. history, according to the U.S.  Attorney’s Office. Allen’s ties to this group were really not complex. He just  knew a lot of people, and had many family and friends willing to set fires for  potentially large insurance payouts.

This ring staged at least 73  fires and masterfully exploited gaps in how insurers investigate fire claims.

It is a miracle nobody died in  the flames engulfing homes, cars and commercial buildings throughout the  region. Fortunately, only one firefighter was injured.

Allen could have finished his  criminal career bitter and unapologetic, tossed into prison after a double-life  caught up with him. Yet he was a walking contradiction to those who knew him  best. He attended church on Sunday, ran inner-city basketball programs, and  received awards from the mayor for community involvement. Allen also set fires  for money, arranged to have fires set for others, and dealt narcotics.

Arrest  and redemption

I arrested Allen as a Special  Agent with the Bureau of Alcohol, Tobacco and Firearms and Explosives (ATF).  Since then, I have become his friend and supporter.

Allen spent nearly four years  in federal prison. He often told me prison was the best thing that ever  happened to him. He became an uplifting model of personal redemption. Allen now  lives an honest life with a decent job. More importantly, he voluntarily gives  workshops and speeches to public- and private-sector investigators around the  U.S.

Allen tells how  easily he and his cohorts gouged 22 insurers out of more than $4 million.  Insurer arson investigations were spotty, hurried and piecemeal. Allen says he  found systemic weaknesses in claim systems, and easily took advantage of the  openings.

“Allen’s  saga convincingly shows how the claim system broke down …”

He personally set 15 fires and  arranged others. Many observers still say his four-year sentence was too  lenient, that his large-scale crime deserved a longer jail term.

Yet Allen made a wise tradeoff:  He fully cooperated in a 2 1/2-year investigation that uncovered the 73 arsons.  Investigators considered only two fires “incendiary” until Allen revealed the  truth. His own sister Vanessa set 40 fires. She was among the arsonists he revealed.  She was unapologetic, told the judge that insurance companies have a lot of  money, and she was just “helping” people. She spent 10 years in federal prison,  and should have done more.

Allen’s saga convincingly shows  how the claim system broke down, and how insurance companies  can strengthen their defenses against costly insurance arsons of all sizes.1

Arson ring  broken up

Allen’s downfall and road to redemption began on  the same date: Jan. 29, 2006. A Nationwide Insurance agent grew suspicious after seeing the same names appear in fire  claims. She handed SIU investigator Princess Spencer a paper grocery  sack with three claim files. Spencer soon grew certain she was onto a major  case. She contacted the federal Bureau of Alcohol, Tobacco, Firearms and  Explosives (ATF) in Indianapolis.

The ATF and Muncie Police Department soon  launched an investigation.

Thousands of pages of insurance documents and  hundreds of fire- department reports were reviewed over the next year. More  than 100 criminal reports were run and analyzed. Dozens of interviews were  conducted with witnesses and claimants. Federal and state prosecutors regularly  met. They also maintained a close liaison with the insurance industry.

The first arrest was of public adjuster Douglas  Haynes in 2007. His name appeared in many insurance claims being investigated.  He also was a leading associate of Kenny Allen and his arson ring. Allen bribed  Haynes to officially classify most of his own arsons as accidental home fires.  Fingering Haynes would help investigators get to ringleader Allen.

Allen actually called the  Indianapolis ATF office on his own, the day after Haynes was arrested. His  conscience got the better of him. He wanted the fires to stop and to provide  information, yet wasn’t ready to admit his involvement.

He gradually revealed the details of his massive  scam — who set what fires, when, and how the fires were staged as accidental.  He also identified other ring members and their roles. His arson scheme spread  throughout Muncie, then to Indianapolis. Allen’s ring members thought insurance  fires meant easy money, and for several years they were right.

The confession rate of ring members soon hit  nearly 100 percent once suspects learned Allen was cooperating.

“His cooperation helped convict nearly  50 defendants.”

Allen helped identify the 73 insurance arsons  — 62 involved homes and other buildings, and 11 were vehicles. Many more  arsons likely were staged, and missed by investigators.

His cooperation helped convict  nearly 50 defendants. The investigation also resulted in multiple narcotics  arrests, and the arrest of two suspects in a home-invasion homicide. Vanessa  Allen received 121 months and was ordered to repay nearly $2.3 million. She was  released in late December 2015. Haynes was found dead in a homeless camp the  week he was to be sentenced and jailed. 2

Kenny Allen is likable,  animated and explicit about how easily his fraud ring exploited gaps in the  insurer claim system.

As he saw it: Insurance fires  were safer than what he called the “dope game,” which he also knew well. Nobody  was likely to get shot committing “insurance fires,” he reasoned.  Fire losses resembled easy lottery wins. Insurance checks with his name were his money — payments he believed insurance  companies owed him.

Adjusting insurer adjusters

Frontline insurer claims adjusters were the  biggest gaps, Allen says. Insurers considered their staff adjusters primarily  an arm of the customer-service operation instead of rigorous scrutinizers of  claims. Adjusters should be the insurer’s first line of anti-fraud defense.  “Trust but verify” should be their motto.

Hurried. Allen often targeted  larger insurers — they typically assigned too many claims to each adjuster.  Allen was a master manipulator. He knew most insurer adjusters were  over-worked, hurried and wanted to clear claims with maximum speed and ease.  The adjusters thus avoided confrontation and digging into claims that would  complicate their jobs.

Adjusters usually asked only  the standard, cursory form questions to confirm Allen’s expensive claims.

Phones. Adjusters rarely asked about his telephone records. Those  records could have verified who was speaking with whom before, during and after  fires. The records also potentially could have verified his locations and  provided other clues.

Allen began using inexpensive throw-away phones  after an adjuster finally asked about his calls. Still, insurers never  questioned Allen about his prolific use of throw-away phones, either. The  devices were strong clues of potential fraud.

Bluster. Bluster  was an important tactic that intimidated adjusters. Allen correctly gambled  that adjusters did not want policyholders to accuse them of bad customer  service. This tactic succeeded when he demanded more insurance money, or just  wanted to speed the payout.

He routinely  threatened to go over the head of adjusters who questioned him too closely. A  typical threat: “I want the name and phone number of your boss. I want to speak  to him or her about how badly you’re treating me.”

Public  adjusters a red flag

Claimants using a public adjuster or attorney to  push for large fire payouts is a big warning sign, Allen advises. Claimants  with legitimate fire losses do not need a public adjuster or attorney.

Allen bribed public-adjuster  Haynes to help maximize claim payouts by rubber-stamping arsons as accidental  fires. That tactic succeeded. He also provided Haynes narcotic painkillers.

“Allen bribed  public-adjuster Haynes to help maximize claim payouts …”

Insurers routinely paid claims  once fires were classified as accidental. This is a well-defined cause  classification. It is hard for insurers to rebut once “accidental” is  officially declared by a hired origin-and-cause investigator. This especially was  an issue with the ensuing criminal investigations. Three levels of federal  prosecutors repeatedly said they had no case because the fires were classified  as such.

Stronger  origin-and-cause needed

Insurer adjusters and others  who worked Allen’s claims knew too little about arson investigations and fire  science to see behind the ruses of a clever and manipulative crime ring. Too  few questions thus were asked of the experts insurers hired to investigate.

Training  needed. Adjusters should receive, at  least, basic training in origin-and-cause fire investigations. The same holds  true for insurer investigators and claims managers. All should be qualified to  ask pertinent questions of their vendor investigators,  especially if any doubt about the fire’s cause.

Grow assertive. Insurers should commit to more-assertive origin-and-cause investigations when troubling clues begin surfacing. Insurers  routinely avoided this step in their desire to settle Allen’s fire claims  quickly and keep policyholders happy. If not more-assertive, insurers at least  should be more discreetly skeptical.

Among the schemes insurers  might have discovered if staff adjusters were better trained — and  assertive — in origin-and-cause investigations:

Electrical  fires. Allen set “seasonal” fires. His  ring members started electrical and cooking fires in summer and spring months.  He placed space heaters next to combustibles such as a bed or a sofa during  colder months. He also staged Christmas tree fires to look accidental.

Vanessa later said she simply  plugged several appliances into a power strip, using a cheap extension cord.  She then placed clothing and/or other readily available items around and over  the cords — simulating sloppy housekeeping. She next slit the insulation  of the power or appliance cord to expose bare conductors, then ignited the  combustibles. She knew electrical arcing would occur.

Fire crews and investigators  typically found evidence of electrical arcing on the conductors. They correctly  determined a fire’s general area of origin. However, they inaccurately  attributed the fires to electrical fault, or overloaded circuits and sloppy  housekeeping. Thus, the fires were considered “accidental.”

Rented  homes. Ring members often rented  houses or apartments to exploit renter insurance policies. Vanessa Allen, for  example, installed straw renters who never lived in the homes. She and the  “renters” went out on garbage-collection day. They scavenged old furniture and  personal belongings to spread inside the rentals, making the places appear  lived-in. They also bought inexpensive things from the Salvation Army or  Goodwill.

The “renters” made plausible —  and inflated — claims for the junk possessions after staging the fires.

Receipts. Vanessa purchased receipts from friends and acquaintances  for more-expensive items such as televisions. She convincingly presented the  receipts to insurers after the setup fires. Insurers typically accepted and  reimbursed them at face value, with little verification.

Grease  fires. Kenny Allen preferred kitchen  fires. He placed chicken wings in a pot on the kitchen counter. He put a pan of  grease on the stove, then left after turning the burner onto a high setting.  The grease eventually ignited, and flames spread to cabinets and other nearby  combustibles.

Allen once again bullied  adjusters and investigators during claims: “Who are you to say this wasn’t an  accident? I was preparing to fry up some wings, got distracted and left the  grease on stove too long.”

Keeping policyholders happy  usually trumped detailed claim scrutiny. Origin and cause was easy to determine  — grease on the stove. But how do you prove intent? Not knowing intent, how can  a fire be classified as accidental or otherwise?

More  gaps to close

Insurers are steadily improving  their investigations, though have a long way to go. Many gaps when Allen’s ring  reached peak productivity remain exploitable even today. Among other  opportunities to tighten the claims system:

Vendor  investigators. Insurer personnel should  carefully vet fire investigators they hire for qualifications such as  expertise, qualifications and previous expert witness testimony.3 4 An error caused by lack of training or proper understanding  of fire science could cost the insurer considerable money in payouts. This also  could cause great harm to the insured.

This is especially true when  there is any question about a fire’s cause. If something seems wrong, then it  probably is. Only two of Allen’s 73 fires were classified as intentionally set;  2.7 percent is an unacceptably low percentage. Just as important, what criteria  do origin-and-cause investigators use to classify a fire?

Data  analysis. Origin-and-cause  investigations should go well beyond examining burned rubble. Data analysis is  equally crucial. Carefully interviewing claimants and witnesses is integral to  data analysis.

Does the story match the fire  dynamics? Does the timing of events (as told by the insured or witnesses) line  up with the damage? These kinds of questions rarely surfaced after fires.

Better  communication. Adjusters and other  insurer staff working his claims often didn’t communicate well or share clues  up and down the claim assembly line. Insurers also were unlikely to compare  fire claims and clues among each other. Insurers thus should better compare  notes.

EUOs  needed. Insurers rarely wanted to spend  extra money to hire an attorney for examinations under oath, Allen successfully  gambled. The information from EUOs could have taken Allen’s crime ring apart.

Insurance fraud is a crime of  constantly shifting tactics. Fraudsters defraud, insurers adjust, and scammers  try new approaches when insurers start catching old methods. Rarely has a  master fraudster such as Kenny Allen been so forthcoming, prolific and public  about how such an epic arson spree — and how insurers can shut down scams like  his.

It is notable that — in my  experience — many insurers still have similar soft spots in their claim  systems a decade after Allen’s ring was shut down. It is equally notable that  Allen’s workshops are standing-room-only. As arson science and investigative  techniques advance, insurers are working to ensure more arson rings like this  flame out before they burn through insurance money.

About the author: Mike Vergon is an IAAI-CFI, and owner of Vergon & Associates Fire Investigation LLC, in the Indianapolis area. Prior, he spent nearly 24 years with the ATF. Vergon also was a regular instructor at the ATF National Academy (teaching fire investigation), and has taught at the National Fire Academy. He also instructs a course called “Complex Fire Investigation for the Insurance Industry.” It is coordinated by the ATF and the International Association of Arson Investigators. Vergon has worked some of the largest and most-complex fire investigation cases in the U.S.

Insurers learn burning secrets of arson crime lord

Kenny Allen helped launch one of the largest documented insurance-arson rings in U.S. history, according to the U.S. Attorney’s Office. Allen’s ties to this group were really not complex. He just knew a lot of people, and had many family and friends willing to set fires for potentially large insurance payouts.

This ring staged at least 73 fires and masterfully exploited gaps in how insurers investigate fire claims.

It is a miracle nobody died in the flames engulfing homes, cars and commercial buildings throughout the region. Fortunately, only one firefighter was injured.

Allen could have finished his criminal career bitter and unapologetic, tossed into prison after a double-life caught up with him. Yet he was a walking contradiction to those who knew him best. He attended church on Sunday, ran inner-city basketball programs, and received awards from the mayor for community involvement. Allen also set fires for money, arranged to have fires set for others, and dealt narcotics.

Arrest and redemption

I arrested Allen as a Special Agent with the Bureau of Alcohol, Tobacco and Firearms and Explosives (ATF). Since then, I have become his friend and supporter.

Allen spent nearly four years in federal prison. He often told me prison was the best thing that ever happened to him. He became an uplifting model of personal redemption. Allen now lives an honest life with a decent job. More importantly, he voluntarily gives workshops and speeches to public- and private-sector investigators around the U.S.

Allen tells how easily he and his cohorts gouged 22 insurers out of more than $4 million. Insurer arson investigations were spotty, hurried and piecemeal. Allen says he found systemic weaknesses in claim systems, and easily took advantage of the openings.

“Allen’s saga convincingly shows how the claim system broke down …”

He personally set 15 fires and arranged others. Many observers still say his four-year sentence was too lenient, that his large-scale crime deserved a longer jail term.

Yet Allen made a wise tradeoff: He fully cooperated in a 2 1/2-year investigation that uncovered the 73 arsons. Investigators considered only two fires “incendiary” until Allen revealed the truth. His own sister Vanessa set 40 fires. She was among the arsonists he revealed. She was unapologetic, told the judge that insurance companies have a lot of money, and she was just “helping” people. She spent 10 years in federal prison, and should have done more.

Allen’s saga convincingly shows how the claim system broke down, and how insurance companies can strengthen their defenses against costly insurance arsons of all sizes.1

Arson ring broken up

Allen’s downfall and road to redemption began on the same date: Jan. 29, 2006. A Nationwide Insurance agent grew suspicious after seeing the same names appear in fire claims. She handed SIU investigator Princess Spencer a paper grocery sack with three claim files. Spencer soon grew certain she was onto a major case. She contacted the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) in Indianapolis.

The ATF and Muncie Police Department soon launched an investigation.
Thousands of pages of insurance documents and hundreds of fire- department reports were reviewed over the next year. More than 100 criminal reports were run and analyzed. Dozens of interviews were conducted with witnesses and claimants. Federal and state prosecutors regularly met. They also maintained a close liaison with the insurance industry.

The first arrest was of public adjuster Douglas Haynes in 2007. His name appeared in many insurance claims being investigated. He also was a leading associate of Kenny Allen and his arson ring. Allen bribed Haynes to officially classify most of his own arsons as accidental home fires. Fingering Haynes would help investigators get to ringleader Allen.

Allen actually called the Indianapolis ATF office on his own, the day after Haynes was arrested. His conscience got the better of him. He wanted the fires to stop and to provide information, yet wasn’t ready to admit his involvement.

He gradually revealed the details of his massive scam — who set what fires, when, and how the fires were staged as accidental. He also identified other ring members and their roles. His arson scheme spread throughout Muncie, then to Indianapolis. Allen’s ring members thought insurance fires meant easy money, and for several years they were right.

The confession rate of ring members soon hit nearly 100 percent once suspects learned Allen was cooperating.

“His cooperation helped convict nearly 50 defendants.”

Allen helped identify the 73 insurance arsons — 62 involved homes and other buildings, and 11 were vehicles. Many more arsons likely were staged, and missed by investigators.

His cooperation helped convict nearly 50 defendants. The investigation also resulted in multiple narcotics arrests, and the arrest of two suspects in a home-invasion homicide. Vanessa Allen received 121 months and was ordered to repay nearly $2.3 million. She was released in late December 2015. Haynes was found dead in a homeless camp the week he was to be sentenced and jailed. 2

Kenny Allen is likable, animated and explicit about how easily his fraud ring exploited gaps in the insurer claim system.

As he saw it: Insurance fires were safer than what he called the “dope game,” which he also knew well. Nobody was likely to get shot committing “insurance fires,” he reasoned. Fire losses resembled easy lottery wins. Insurance checks with his name were his money — payments he believed insurance companies owed him.

Adjusting insurer adjusters

Frontline insurer claims adjusters were the biggest gaps, Allen says. Insurers considered their staff adjusters primarily an arm of the customer-service operation instead of rigorous scrutinizers of claims. Adjusters should be the insurer’s first line of anti-fraud defense. “Trust but verify” should be their motto.

Hurried. Allen often targeted larger insurers — they typically assigned too many claims to each adjuster. Allen was a master manipulator. He knew most insurer adjusters were over-worked, hurried and wanted to clear claims with maximum speed and ease. The adjusters thus avoided confrontation and digging into claims that would complicate their jobs.

Adjusters usually asked only the standard, cursory form questions to confirm Allen’s expensive claims.

Phones. Adjusters rarely asked about his telephone records. Those records could have verified who was speaking with whom before, during and after fires. The records also potentially could have verified his locations and provided other clues.

Allen began using inexpensive throw-away phones after an adjuster finally asked about his calls. Still, insurers never questioned Allen about his prolific use of throw-away phones, either. The devices were strong clues of potential fraud.

Bluster. Bluster was an important tactic that intimidated adjusters. Allen correctly gambled that adjusters did not want policyholders to accuse them of bad customer service. This tactic succeeded when he demanded more insurance money, or just wanted to speed the payout.

He routinely threatened to go over the head of adjusters who questioned him too closely. A typical threat: “I want the name and phone number of your boss. I want to speak to him or her about how badly you’re treating me.”

Public adjusters a red flag

Claimants using a public adjuster or attorney to push for large fire payouts is a big warning sign, Allen advises. Claimants with legitimate fire losses do not need a public adjuster or attorney.

Allen bribed public-adjuster Haynes to help maximize claim payouts by rubber-stamping arsons as accidental fires. That tactic succeeded. He also provided Haynes narcotic painkillers.

“Allen bribed public-adjuster Haynes to help maximize claim payouts …”

Insurers routinely paid claims once fires were classified as accidental. This is a well-defined cause classification. It is hard for insurers to rebut once “accidental” is officially declared by a hired origin-and-cause investigator. This especially was an issue with the ensuing criminal investigations. Three levels of federal prosecutors repeatedly said they had no case because the fires were classified as such.

Stronger origin-and-cause needed

Insurer adjusters and others who worked Allen’s claims knew too little about arson investigations and fire science to see behind the ruses of a clever and manipulative crime ring. Too few questions thus were asked of the experts insurers hired to investigate.

Training needed. Adjusters should receive, at least, basic training in origin-and-cause fire investigations. The same holds true for insurer investigators and claims managers. All should be qualified to ask pertinent questions of their vendor investigators, especially if any doubt about the fire’s cause.

Grow assertive. Insurers should commit to more-assertive origin-and-cause investigations when troubling clues begin surfacing. Insurers routinely avoided this step in their desire to settle Allen’s fire claims quickly and keep policyholders happy. If not more-assertive, insurers at least should be more discreetly skeptical.

Among the schemes insurers might have discovered if staff adjusters were better trained — and assertive — in origin-and-cause investigations:

Electrical fires. Allen set “seasonal” fires. His ring members started electrical and cooking fires in summer and spring months. He placed space heaters next to combustibles such as a bed or a sofa during colder months. He also staged Christmas tree fires to look accidental.

Vanessa later said she simply plugged several appliances into a power strip, using a cheap extension cord. She then placed clothing and/or other readily available items around and over the cords — simulating sloppy housekeeping. She next slit the insulation of the power or appliance cord to expose bare conductors, then ignited the combustibles. She knew electrical arcing would occur.

Fire crews and investigators typically found evidence of electrical arcing on the conductors. They correctly determined a fire’s general area of origin. However, they inaccurately attributed the fires to electrical fault, or overloaded circuits and sloppy housekeeping. Thus, the fires were considered “accidental.”

Rented homes. Ring members often rented houses or apartments to exploit renter insurance policies. Vanessa Allen, for example, installed straw renters who never lived in the homes. She and the “renters” went out on garbage-collection day. They scavenged old furniture and personal belongings to spread inside the rentals, making the places appear lived-in. They also bought inexpensive things from the Salvation Army or Goodwill.

The “renters” made plausible — and inflated — claims for the junk possessions after staging the fires.

Receipts. Vanessa purchased receipts from friends and acquaintances for more-expensive items such as televisions. She convincingly presented the receipts to insurers after the setup fires. Insurers typically accepted and reimbursed them at face value, with little verification.

Grease fires. Kenny Allen preferred kitchen fires. He placed chicken wings in a pot on the kitchen counter. He put a pan of grease on the stove, then left after turning the burner onto a high setting. The grease eventually ignited, and flames spread to cabinets and other nearby combustibles.

Allen once again bullied adjusters and investigators during claims: “Who are you to say this wasn’t an accident? I was preparing to fry up some wings, got distracted and left the grease on stove too long.”

Keeping policyholders happy usually trumped detailed claim scrutiny. Origin and cause was easy to determine — grease on the stove. But how do you prove intent? Not knowing intent, how can a fire be classified as accidental or otherwise?

More gaps to close

Insurers are steadily improving their investigations, though have a long way to go. Many gaps when Allen’s ring reached peak productivity remain exploitable even today. Among other opportunities to tighten the claims system:

Vendor investigators. Insurer personnel should carefully vet fire investigators they hire for qualifications such as expertise, qualifications and previous expert witness testimony.3 4 An error caused by lack of training or proper understanding of fire science could cost the insurer considerable money in payouts. This also could cause great harm to the insured.

This is especially true when there is any question about a fire’s cause. If something seems wrong, then it probably is. Only two of Allen’s 73 fires were classified as intentionally set; 2.7 percent is an unacceptably low percentage. Just as important, what criteria do origin-and-cause investigators use to classify a fire?

Data analysis. Origin-and-cause investigations should go well beyond examining burned rubble. Data analysis is equally crucial. Carefully interviewing claimants and witnesses is integral to data analysis.

Does the story match the fire dynamics? Does the timing of events (as told by the insured or witnesses) line up with the damage? These kinds of questions rarely surfaced after fires.

Better communication. Adjusters and other insurer staff working his claims often didn’t communicate well or share clues up and down the claim assembly line. Insurers also were unlikely to compare fire claims and clues among each other. Insurers thus should better compare notes.

EUOs needed. Insurers rarely wanted to spend extra money to hire an attorney for examinations under oath, Allen successfully gambled. The information from EUOs could have taken Allen’s crime ring apart.

Insurance fraud is a crime of constantly shifting tactics. Fraudsters defraud, insurers adjust, and scammers try new approaches when insurers start catching old methods. Rarely has a master fraudster such as Kenny Allen been so forthcoming, prolific and public about how such an epic arson spree — and how insurers can shut down scams like his.

It is notable that — in my experience — many insurers still have similar soft spots in their claim systems a decade after Allen’s ring was shut down. It is equally notable that Allen’s workshops are standing-room-only. As arson science and investigative techniques advance, insurers are working to ensure more arson rings like this flame out before they burn through insurance money.

About the author: Mike Vergon is an IAAI-CFI, and owner of Vergon & Associates Fire Investigation LLC, in the Indianapolis area. Prior, he spent nearly 24 years with the ATF. Vergon also was a regular instructor at the ATF National Academy (teaching fire investigation), and has taught at the National Fire Academy. He also instructs a course called “Complex Fire Investigation for the Insurance Industry.” It is coordinated by the ATF and the International Association of Arson Investigators. Vergon has worked some of the largest and most-complex fire investigation cases in the U.S.