Capitol Ideas: Status of Fraud Legislation in Eastern States

Several eastern states are trying to clamp down on spreading staged accidents. Bills are being debated in New York, Massachusetts and the District of Columbia. The main point of attack: Make it a crime to be a so-called “runner” in New York and the District, and beef up penalties in Massachusetts.

Rationale: Runners are a staged accident ring’s street bosses. They recruit fake passengers for bogus car crashes. The passengers then make large — and phony — injury claims against auto insurers. Staged accidents force auto premiums higher, and can kill or injure innocent motorists who are targeted. Being a runner, however, usually is only a misdemeanor with light penalties, if there’s any law at all. But the threat of a longer jail term can intimidate runners into cooperating with law enforcement. Runners can help bust an accident ring’s kingpin in exchange for lenience. Prosecutors also would have more incentive to chase down runners; light sentences usually aren’t worth their time.

The outlook: New York’s legislature is mired in gridlock (see page 62), so passage is far from assured. Prospects in the District look good, but are unclear in Massachusetts for now.

Vermont is debating making insurance fraud a specific crime. Vermont is one of just a handful of states without an insurance-fraud law that would make it easier to convict insurance swindlers. Vermont’s bill is based on a model developed by the Coalition Against Insurance Fraud. Another bill would ratchet up jail time and fines for workers comp fraud. It passed the House and is in the Senate. The outlook: Time is running out, since the legislature closes in May.

New York is debating a few more surprises for staged accident rings. Anti-fraud reforms would allow insurers to delay longer in paying suspicious claims while they investigate. There are minor differences over how much interest insurers would pay to policyholders if the claim checks out. Another bill would forbid medical providers convicted of felonies from receiving insurance money for treating accident victims. The outlook: Much like the anti-runner bills, these reforms are stuck in gridlock and die.

In New Jersey, the state’s office of fraud prosecutor has proposed a regulation requiring auto insurers writing more than $2 million in the state to file closed auto claims either with the prosecutor’s office or through ISO’s Universal Format database. Claims must be filed within 30 days.

The Massachusetts legislature has effectively killed a bill allowing fraud victims (including insurers) to sue perps in civil court. The measure would’ve created a state false claims act but legislative leaders deep-sixed it by sending it to a study committee.

The Maryland legislature passed two anti-fraud bills just before closing for the year in mid-April. One bill extends the statute of limitations for prosecuting misdemeanor fraud cases to three years from one year. Another bill requires the state workers comp commission to report suspected swindles to the fraud unit. The governor is expected to sign both bills.

In Virginia, the state’s insurance fraud unit would be divided into seven regions, or “barracks,” under a proposed reorganization by the state police. It’s designed as an efficiency move.

The Coalition Against Insurance Fraud is a national alliance of insurers, consumer organizations and state agencies combating insurance fraud (www.InsuranceFraud.org). Contact Howard Goldblatt at 202-393-7332 or howard@InsuranceFraud.org.