A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

A recent news piece highlights a boom in insurance fraud brought on by the recession that has crippled the U.S. economy.

In 2008 there were 75,000 questionable claims filed, a number that increased to 85,000 claims in 2009. Whether or not the increase is stastically significant enough to warrant the conclusion that the recession is linked to a higher number of fraudulent insurance claims is a question I leave to others, though the author of the article reaches this conclusion.

In any case, insurance fraud by consumers and other members of the public remains exceedingly rare. The article states:

To keep it in perspective, roughly 48 million insurance claims are made each year in the U.S. and less than one-quarter of 1 percent are referred to the nonprofit National Insurance Crime Bureau for investigation of possible fraud.

What first may come to mind when hearing the phrase “insurance fraud” are criminal enterprises such as those that stage fake car accidents or policyholders who intentionally damage or destroy insured property in order to collect the insurance proceeds. Yes, that is part of what’s going on.

In addition, unscrupulous companies have been peddling insurance policies that are nothing but pure scams.

Leading the way are business entities that sell fraudulent health insurance plans. Most are marketed via fax to government offices, businesses and homes. What has happened is that people are offered tantalizingly cheap health insurance plans and buy them, only later to discover after they become sick or injured that the plan is worthless.

What follows is a lengthy passage from the article that is demonstrative of this problem and also of what I have been saying all along about the misalignment of incentives in life insurance sales; agents, who are concerned about selling the policy and earning a commission, don’t explain exactly what it is you are filling out and what they are selling–and when that happens, unsophisticated consumers can end up getting the short end of the stick when it comes time to file a claim.

Last August, the state of New York fined the American Medical and Life Insurance Co. $700,000 and barred it from selling limited-benefit plans in New York after numerous complaints from consumers.

In one instance, a Rochester woman bought an American Medical plan, paying $419 a month in premiums. When her hospital bills totaled nearly $28,000, the policy paid only $1,164 of her bill, state officials said. A 36-year-old man who suffered a stroke had a similar experience when his plan paid only $250 toward his $30,000-plus hospital bill, state officials said. The company eventually paid in full after the state insurance department got involved.

John Ollis, the president of the American Medical and Life Insurance Co., said independent agents who sold the policies didn’t properly explain their benefits. Ollis said the company agreed with state officials that the policyholders wouldn’t have bought the plans if they’d known of the coverage limitations.

State officials are reviewing a company proposal to retrain its agents and to comply with other state rules. If it’s approved, the company can resume sales of limited-benefit plans in New York, Ollis said.

See what I mean? In a court of law, unfortunately, the entire burden for any misrepresentation in obtaining the policy would fall squarely on the consumer–at least in states like New York and New Jersey, that is, which are largely pro-insurance. Reform should be enacted to these laws and to the oversight mechanism of insurance agents.

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