Insurance FraudBlog

In courtrooms, attorneys tell jurors about the duty of insurers to protect consumers from higher premiums wrought by fraudulent claims. No matter what your background or perspective, that’s hard to disagree. I’ve just completed 32 years of legal practice, and often spoke those words to judges and juries. The “real world” of denying an insurance claim for fraud, however, is far different.

Insurers make mistakes, and should pay a fair price for missteps. Yet denying a claim — even for insurance fraud — is never the easy way out. Nor, do consumers or insurers often truly “save” money. Denying a claim almost guarantees a lawsuit. In most states, the plaintiff seeks damages for both breach of the insurance contract and bad faith. The latter is a tort that can open the door to unlimited monetary damages.

Insurers thus are risk-adverse. Denying a claim for fraud often is much-riskier than simply paying the claim. Some multi-million-dollar fraudulent claims are denied, yet the vast majority of claim denials involve suspicious lower-value thefts, injuries and smaller residential arsons.

Rarely do insurance-fraud cases, even if they are “victories” cover an insurer’s attorney fees, depositions, expert testimony and litigation expenses. So from a purely financial standpoint, it can be cheaper for an insurer to pay a suspicious claim than challenge and deny coverage.

Good plaintiff attorneys represent their clients well. They diligently review the claim, and can show legitimate weaknesses in the insurer’s investigation and actions. Those claims rightly should be paid. Bad-faith damages also should be factored in, if warranted. However, too many of these cases are exceptions rather than the rule.

More often, even strong fraud cases die a slow death. One or more causes typically factor in: Plaintiff attorneys take on any case, even when blatant fraud is evident. … Defense lawyers simply go through the paces to rack up fees, then claim“new information” to justify a settlement. … Insurers start strong, then back off when costs mount or they face a possible jury trial with judges who force unfairly large settlements.

Fraudsters often are the biggest “winners” — they receive insurance money they don’t deserve. Lawyers on both sides also win with fees they’re paid. The clear losers are honest consumers who pay the price when legal fees, expenses and payments raise premiums. So are Insurers that invest personnel time and monies to investigate, deny and litigate the claim — then still end up paying a bogus claim.

So what’s the answer? Perhaps everyone in the fraud-fighting community should look in the mirror and ask ourselves, “What I can do better today?”

About the author: Matthew J. Smith serves as general counsel and director of government affairs for the Coalition Against Insurance Fraud.

Fraud of the Month


Earl O’Garro had it all — and more. The young insurance broker was a rising prodigy in a city known for insurance stars.

O’Garro owned Hybrid Insurance Group, which specialized in expensive, high-risk coverage for businesses and others. He opened Hybrid in a modest suburban office. His business quickly seemed to take off like a flashing comet. One client was the city of Hartford, with O’Garro supposedly buying several liability policies.

Indeed, life seemed good. O’Garro paid himself a high six-figure salary, and bought a six-bedroom mansion in a tony suburb. O’Garro threw himself and hundreds of guests a spectacular wedding at the Ritz Carlton in Jamaica. He had his suits tailored in his office, drove a $100,000 sedan, moved into an $8,000-a-month office suite in Hartford, and hung out at the city’s priciest watering holes. Not to mention the $19,000 of private-school tuition for his toddlers, and soul-food restaurant he bought for his wife.

Upscale lifestyle was addictive, and O’Garro lived far beyond the income he brought in. The grand spending stretched O’Garro dangerously thin. He was sinking in debt, his business was failing.

Spent premiums on luxury

O’Garro began stealing client premiums, using the money for luxury instead of buying his clients their the promised insurance. Trusting businesses had no coverage; they were dangerously exposed if they had to pay for a serious injury or other loss.

He kept spending on high living even as his agency cracked. The breaking point came when he bought a $1-million, 4,000-square-foot waterfront condo in the Dominican Republic. He had to make a series of $100,000 payments that came due within weeks of closing. He didn’t have the money.

Nor was O’Garro paying office rent, his home mortgage, or state loans he took out to hire more employees and move his business into Hartford. Some office staff also was being stiffed.

Turned brokerage into Ponz

O’Garro frantically tried to keep his creaking house of financial cards intact — and avoid having client’s policies cancelled for lack of payment.

His brokerage became a Ponzi scheme as he juggled client premium payments. He stole some of the money to pay for other client premiums and overdue business loans. O’Garro’s accountant quit after being showered with notices from insurers that they were canceling client policies because premiums weren’t paid.

The city of Hartford had paid O’ Garro $900,000 for liability coverage. He diverted the most of the money to pay for his bling lifestyle and other premium payments.

O’Garro desperately invented clients to trick a lender into forking over nearly $850,000 for insurance premiums on fake policies. He hired a design firm to create a phony email address for a real insurer. Posing as an employee of the insurer, he forged email that seemingly verified the policies and convinced the lender that O’Garro needed the loan to help his so-called clients pay for expensive premiums.

His would-be empire collapsed in a smoldering heap. O’Garro stole more than $2 million in premiums and business loans. The house, his agency and reputation vaporized. All he had to show was a large stack of federal charges.

O’Garro offered no defense at trial, and didn’t even testify. A jury needed just an hour to convict O’Garro in 2015. It was one of the fastest decisions in memory. He was handed 6 1/2 years in federal prison. A federal court quickly tossed aside his appeal in November 2017.

“Apologizing and admitting what you’ve done after you’ve already been caught doesn’t mean there’s no crime,” said federal judges Avi Perri said at his 2016 conviction. “In fact, it’s pretty good evidence that there was a crime.”