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Whose Side Is Your Insurance Company On?

car insurance application form with car model and key remote on desk.
By Christopher Coble, Esq. on August 19, 2019 12:00 PM

We normally think of insurance companies as helping us when we get into trouble. Sick? They can help with medical bills. In a car accident? They can help with repairs. But it turns out that some insurance companies are working to get their customers into trouble, rather than out of it.

A new report from BuzzFeed News shows that Erie Insurance, State Farm, and Farmers actively worked with law enforcement and prosecutors -- sometimes even paying part of their salaries or investigation costs -- to accuse their own customers of insurance fraud, exposing them to criminal charges, trials, and jail time.

Claims and Crimes

BuzzFeed highlighted the case of Harry Schmidt, a veteran who reported his truck stolen only to find himself charged with insurance fraud. His insurance company Erie, paid part of the salary of the lead detective who investigated Schmidt's claim, and that of the prosecutor who filed charges against him. A judge ultimately found Schmidt not guilty, but not before he sold off many of his possessions to cover thousands of dollars in legal fees.

And rather than just call it a day, Erie then sued Schmidt in civil court for fraud. When discovery in that case revealed the insurer's close ties to law enforcement and disproved expert witness testimony in his criminal trial, Erie finally settled with him for an undisclosed sum, without admitting it had done anything wrong.

And Schmidt is far from alone:

BuzzFeed News examined 27 cases around the country in which people were falsely charged with felonies based in whole or in part on evidence insurers provided to law enforcement. In Indiana, State Farm helped detectives craft an arrest warrant for a contractor who was charged with 14 felonies. All charges were ultimately dropped when the evidence turned out to be deeply misleading — but not before the insurance giant’s allegations had destroyed his business. In Georgia, a local prosecutor relied on lab tests provided by an insurer to charge a woman with arson, resulting in a three-year ordeal in which she ended up homeless, only to drop the charges when the test results proved unreliable. And in Wisconsin, a man spent nearly three years in prison based on now-discredited science used by an insurance investigator until his conviction was overturned.

Sides of the Story

Insurance companies, on the other hand, contend that rooting out fraud is critical to keeping policy rates low, even if it means funding police and prosecutors, and referring criminal cases to them. Of course, it also saves those companies money in the long run -- up to seven times the amount that such fraud protection measures cost, according to some estimates.

But at what expense to customers? Some of them may end up on the wrong end of insurance fraud accusations, even if their claim is perfectly legitimate. That's why it's always important to have an attorney on your side -- and not one paid for by your insurance company. If an insurance company has refused to pay out your claim, or worse, if they accuse you of insurance fraud, contact an experienced insurance lawyer right away.

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