New York Business Lawyer Blog

June 4, 2013

Investigating Insurance Fraud: Does Technology Hurt Or Help?

by The Law Firm of Grasing & Associates

There has been a lot of discussion recently about the advantages of technology when it comes to fighting fraud in general and insurance fraud in particular. The analysis of large amounts of digital information in a relatively short time can lead to better, more informed, decisions by businesses large and small, and provide a better means to ascertain, and prevent, fraudulent behavior. The increased use of digital information leaves a bigger trail. Social media, emails, digital photos, all leave noticeable footprints with more information than the creator may know, or may have intended. It can be used to track fraud, but it also can be used to track the tracker.

There were two recently published articles that relate to this problem; one from a business, and one from a scientific, point of view.

The first article, published in the June 1-2 Weekend Edition of the Wall Street Journal and written by Justin Baer, William Launder, and Matthias Rieker, concerned the dispute Goldman Sachs Group Inc. and J.P. Morgan Chase & Co., have had with Bloomberg LP over the sharing of customer data. Both Goldman Sachs and J.P. Morgan Chase subscribe to Bloomberg’s financial terminals, found on trading floors, which provide real-time financial data and analytical tools, as well as news and a messaging function that allows traders to chat in real-time with other traders logged onto the terminals. According to the article, Bloomberg allowed reporters in its news division to access the subscriber usage data for the terminals, which let them see which individual subscribers were logged on at any given time, when a subscriber was last logged on, and how often he accessed certain functions. The Bloomberg reporters used this customer data as a basis to question Goldman Sachs and J.P. Morgan Chase on major news events regarding each. For example, in 2012, J.P. Morgan Chase suffered big trading losses in its London office. Bloomberg reporters used the fact that some employees involved in the losses had not logged on to the Bloomberg terminals, as a basis to question J.P. Morgan about whether those employees had left the company. Similarly, a Bloomberg reporter called Goldman Sachs’ Hong Kong Office this past April to ask about a partner at the firm that had not recently logged on to the Bloomberg Terminal. As a result of the disputes, J.P. Morgan reportedly removed some of the data terminals from its trading floors, though Goldman Sachs has not done so.

May 31, 2013

What Does It Take To Become A Great Trial Attorney? Practice Is Not Enough

by The Law Firm of Grasing & Associates

There is no shortage of trial attorneys in New York, or around the country. What makes a good trial attorney, however, is open to debate. How to become one is even more difficult to define. Is it something you can master through hard work and perseverance; is it something you have to have a natural aptitude for; or is it some combination of both? As we previously discussed, there is a lot of practice involved in trial practice. It is important to practice and to do it in the right way; but is it enough?

People believe they know a good trial attorney when they see one and often even when they don’t. Most people base their opinion, in large part, on results. Many believe that a good trial attorney is the lawyer who wins huge verdicts, defeats frivolous lawsuits, repeatedly gets his indicted clients off with not guilty verdicts or hung juries (Bruce Cutler comes to mind), or a prosecutor who finally does send the bad guy away for an extended prison stay (Andrew J. Maloney and John Gleeson sound familiar). Judging trial attorneys based on results alone is at least somewhat misleading. It ignores the fact that lawyers can only play the hand they’re dealt; it’s what they do with that hand that’s important. Would anyone argue that Johnnie Cochrane was a better trial attorney than Clarence Darrow, even though Darrow lost one of the most famous trials in modern history?

Even if the characteristics of a great trial attorney are hard to define, there most certainly are a large number of lawyers who would like to be one, and no shortage of qualified consultants to help them achieve success in any given case. The question is, can this be done and who, if anyone, can do it?

May 28, 2013

WHAT CAN BE DONE TO FIGHT INSURANCE FRAUD? THE USE OF TECHNOLOGY

by The Law Firm of Grasing & Associates

In our last article, we began a discussion about insurance fraud. It comes in many shapes and sizes, infects many different types of claims, and is hard to eradicate. Like the Hydra of Greek mythology, every time you prevent a fraudulent claim from being paid, many more raise their ugly heads.

The extent of the problem is illustrated by the complex fraud rings that have made the news recently. A multi-year, multi-agency investigation, named Operation Sledgehammer, in Dade and Palm Beach counties in Florida, just led to the arrests of 26 people in an insurance fraud ring. The defendants allegedly staged accidents to collect personal injury protection benefits which would be split among the recruiters, those allegedly injured, the medical professionals who allegedly treated them, and the owners of the clinics where they were treated. According to news reports, those arrested were charged with having billed more than $20 million to insurance companies in the scheme. Earlier this month, Allstate Insurance Company filed its third insurance fraud lawsuit of 2013. This one, filed in the United States District Court for the Eastern District of New York, seeks to recover $3.8 million from five medical professional corporations and six physicians for allegedly fraudulent medical billing related to no-fault claims. It alleges that the defendants submitted bills for examinations and testing that were not performed, not necessary, or not designed to benefit the patients who allegedly were treated.

In order to fight insurance fraud, insurers need to be as flexible and adaptable as the perpetrators. One way to do this is through the effective use of the vast amounts of information already within the carrier’s control.

The term “Big Data” has been used a lot recently, within both the scientific and business communities. It’s defined as a huge amount of digital information, so big and complex that normal database technology cannot process it. Computers can handle large amounts of information, much more than any single person could analyze; Big Data is many times bigger. Think of the well-publicized human genome project, in which scientists mapped human DNA. They first had to identify each piece of information before they could try to figure out what each part is used for and how it affects the others. Or consider the case of retailers who now analyze customer data to decide on the types and amounts of inventory they need to stock and the price points or sales they need to run in order to sell it. They need to gather, and integrate, the data regarding their customers from myriad sources, before they can analyze and make intelligent decisions based on it.

Identifying information is hard enough, even if you already have it. Figuring out what each piece of information means can be daunting, especially when there are so many to sift through. There is a lot of information to work with: Of all the data that currently exists in the world, 90% has been created in the last two years. How that data can be, and is, used is the key.

Insurance carriers have a lot of information at their disposal. How many claims does a large insurer handle a year and how much information is gathered on each? Should that information be kept isolated, or should it be integrated to help make intelligent decisions about fraud investigations?

A September, 2012 study, entitled “The State of Insurance Fraud Technology,” which was conducted by the Coalition Against Insurance Fraud, with technical assistance from SAS Institute, found that most insurers now use technology to assist them in determining which claims to investigate:

When it comes to technology, most insurers’ anti-fraud efforts begin with rules-based systems. These systems test and score each claim against a predefined set of business rules and report the results to the SIU teams that look suspicious due to their aggregate scores or relation to threshold value.

May 24, 2013

WHAT IS INSURANCE FRAUD? THE CLAIMS TELL THE TALE

by The Law Firm of Grasing & Associates

Insurance fraud is a widespread problem, in New York, throughout the United States, and around the world. It involves many different types of insurance claims. Insurance fraud can be found in first-party claims, where the insured is seeking to recover more than he otherwise would be entitled to under his own policy, be it a homeowner’s, business owner’s or other commercial lines policy, or an automobile policy. It also can be found in third-party claims, where claimants seek to recover from the insured’s liability carrier for loss or damage that did not occur, which the insured did not cause, or for exaggerated or pre-existing damage or injuries. Its impact is well known: Insurance carriers incur higher costs, including expenses to investigate and defend against fraudulent claims, higher claims payments and lower premium income. The Coalition Against Insurance Fraud estimates that insurance fraud schemes steal approximately $80 billion a year. Policyholders are forced to subsidize, through higher premium payments, the claimants who collect on fraudulent and/or exaggerated claims. The National Crimes Bureau estimates that insurance fraud adds $200-$300 per year to an individual’s insurance premium. The fraud is attempted through everything from complex schemes to mundane lies. What makes it important is not so much how it’s done, but its prevalence.

Sometimes the insurance fraud schemes are ingenious. In March 2013 an upstate New York man was arrested because he was found in possession of a tilt bed truck and vehicle identification number, both of which were stolen. Even though he was caught and arrested, the man still could be considered clever: The truck he was found with actually was built from two other, stolen trucks.

Sometimes the insurance fraud schemes are mundane. In March 2013 an Oneida County, New York, man was arrested for insurance fraud. He made a claim under his homeowner’s policy with Liberty Mutual Insurance Company to recover $11,779 for water damage to his residence, and submitted a sworn statement in proof of loss in support of the claim. It turned out, however, that there was substantial evidence that the water damage he tried to recover for was actually pre-existing damage; it was there before the date of the claimed loss. As it turns out, that was neither clever nor effective.

May 20, 2013

A NEW YORK TRIAL ATTORNEY

by The Law Firm of Grasing & Associates

Did you ever wonder what makes a trial attorney? Trials are strange, unique things that everyone seems to have an opinion on: An opinion on the outcome, the evidence, the witnesses, the jurors, and the lawyers; especially the lawyers. They did a good job; they did a bad job; can you believe they asked that question? How could the lawyer let that witness testify? What was he thinking? Everyone has heard the criticism, the Monday morning quarterbacking. Has anyone really thought about what goes into actually conducting a trial; the planning; the execution? Watching and learning from what others do, how they do it, what they do right and what they do wrong, all help you become a better trial attorney; but in the end it’s up to you and you alone. That’s what makes it great.

Being a trial attorney is something you either love or hate. If there is one word that sums it up, that word is intense. It’s nothing if not intense. You are the one calling the shots, executing the game plan, calling the audibles trying to anticipate the defense. Everyone is looking at you, looking to you, during the entire process. There’s pressure: What happens if you make a mistake, flub a direct examination, or go too far in your opening? What if you don’t listen closely enough during the direct examination of your opponent? What if you miss something during your cross-examination of the same witness, and mistakenly give him a pass on a point crucial to your case? These can keep you awake at night, both in the days leading up to the trial and, most definitely, in the nights during the trial. It’s not always easy to relax during the trial. When you’re on trial, it’s not easy thinking of anything else.

But what if you get it right, nail the cross of your adversary’s main witness and blow his case out of the water? What if you pick up something that the other side said inadvertently and use that little opening to wedge through your main point? What happens if all of your preparation and hard work allow you to improvise and react seamlessly, gain the respect of the jury, get them to listen, not just hear, what you’re saying and win them over? What happens if you actually do your job well, do it right, and win? When all the eyes are upon you, when everyone is waiting for you to make a mistake, what if you actually come through in the clutch? That is something you remember, always.

May 10, 2013

WHEN A NEW YORK ATTORNEY IS ASSIGNED BY AN INSURANCE COMPANY TO REPRESENT AN INSURED, WHO’S THE CLIENT?

by The Law Firm of Grasing & Associates

When an insurance company provides liability coverage, in New York or elsewhere, it most often provides an attorney to defend its insured against lawsuits for risks covered under the policy it issued. This is true whether the insured is covered by an automobile policy, homeowner’s policy, business-owner’s or BOP policy, or title insurance policy; if the allegations against the insured are covered by the policy, the insurer will retain counsel to defend the insured against those same claims. The attorney can be in-house counsel or outside counsel retained by the insurance company on a case by case basis. Who this counsel, often called “retained counsel” or “assigned counsel” represents, may surprise you. The answer is something every carrier, claims adjuster, and policyholder in New York should remember: The insured. In assigning counsel to defend an insured, the insurance company should be careful to select one that knows, and follows, this rule.

The case law in New York is clear. The Court of Appeals, in Feliberty v. Damon, 72 N.Y.2d 112, 120, 527 N.E.2d 261, 265 (1988), stated it best:

First, the duty to defend an insured is by its very nature delegable, as all the parties must know from the outset, for in New York–as in California–an insurance company is in fact prohibited from the practice of law (Judiciary Law § 495). Accordingly, the insurer necessarily must rely on independent counsel to conduct the litigation. Second, the paramount interest independent counsel represents is that of the insured, not the insurer. The insurer is precluded from interference with counsel’s independent professional judgments in the conduct of the litigation on behalf of its client (Trieber v. Hopson, 27 A.D.2d 151, 153, 277 N.Y.S.2d 241; American Employers Ins. Co. v. Goble Aircraft Specialties, 205 Misc. 1066, 1075, 131 N.Y.S.2d 393; see also, Code of Professional Responsibility EC 5-17, 5-21, 5-23).

May 3, 2013

TRIALS IN NEW YORK: PRACTICE MAKES PERFECT

by The Law Firm of Grasing & Associates

Trial practice is well-named; it involves a large amount of practice. How you practice and prepare, though, is often just as important as whether you do so at all.

As any trial attorney will tell you, preparation is important. A trial attorney will map out what he wants to say and how he wants to say it; all the while trying to figure out the best way to win over the jury. He will prepare his opening statement, the direct examinations of his witnesses, the exhibits he wants to get admitted into evidence through them, the cross-examination of his adversary’s witnesses, and his closing argument. Even after he prepares them, after he writes numerous drafts of each until he is completely comfortable with them, the trial attorney often will say them; learn them; memorize them; i.e., he will do a dry run of each. His colleagues may get annoyed; even if he closes the door to his office, they can still hear him. His family may not want to listen to one more rendition of his closing argument; no matter how eloquently he sums up, they just are not interested in all the reasons why the insureds intentionally set fire to their house to collect on their homeowner’s policy of insurance and stop foreclosure. As the trial attorney drives to the courthouse, talking and gesturing to himself as he rehearses his opening statement one last time, the people in the cars around him probably think he’s a crazy person arguing with himself.

A recent scientific study published in the peer-reviewed online journal Behavioral and Brain Functions, suggests that adding movement to “dry run” rehearsals in disciplines where such rehearsals are routinely used, significantly improves performance. The study involved a group of 12 high jumpers and compared the performance of those who only pictured themselves going through a high jump, with those who added certain “dry run” or limited physical movements to their mental rehearsal. In this case, the high jumpers, though standing still, added arm movements while imagining themselves executing a high jump. The study was based, at least in part, on the fact that picturing yourself performing a task, i.e., mentally executing it without any physical movement, can improve your ability to perform that task, and that such imaging uses a similar part of the brain as actual physical practice. The study found that mental rehearsal alone increased performance by 35%, but adding simple physical “dry run” movements to the mental rehearsal, increased performance by 45%.

April 26, 2013

EXPERT WITNESSES IN NEW YORK II – BASIC FACTS NEED NOT APPLY

by The Law Firm of Grasing & Associates

In our last article, we spoke about expert witnesses and how they play an important, if often misunderstood, role in trials in New York. Their main function is to provide opinion evidence about important issues that may be beyond the understanding of the average person, because of the specialized skill or training involved. Scientists, engineers, forensic accountants, and doctors, each can be expert witnesses under the right circumstances. They will not be able to testify as expert witnesses merely because of their title or because of their superior knowledge. The jury actually has to need them to shed some light on an issue important to the case that is simply beyond the knowledge and experience of the average juror. Many times, if a jury can figure it out on their own, the trial court will let them do just that and prevent an expert from testifying on the given subject.

A few interesting cases clearly show the limits of expert testimony in New York. In Ferguson v. Hubbell, 97 N.Y. 507 (1884), the main issue was whether the defendant was liable for two fires that had been intentionally set to clear brush and vegetation off his land. The fires had spread, after the wind kicked up, to plaintiff’s land and destroyed plaintiff’s house and barn. The plaintiff claimed that the fires should not have been set because it was too dry and too windy to control them. At trial, the defendant established all the facts the jury needed in order to decide whether the fires had been properly, and safely, set. He and his witnesses testified about the weather conditions, the speed of the wind, and the condition of the land at the time of the fires. The defendant, however, evidently succumbed to the urge to overplay his hand. He and his witnesses offered their opinion that it was proper to set the fires when they did. This was based on their supposed superior knowledge and experience in clearing land as farmers. The defendant won at trial; the jury ruled in his favor. The verdict, however, was overturned on appeal. The court held that no one should have been allowed to offer their opinion as to whether the fires had been properly set; that was the central issue the jury had to decide. According to the court, the jury had the common knowledge and experience with fire, brush, and timber, necessary to determine, based on the evidence presented at trial, whether the fires had been properly set. The important thing was not that the defendant and his witnesses had superior knowledge; it was that there was no need for their superior knowledge. The jury had a sufficient understanding of the issue to allow it to make a rational, reasonable, and just decision, without the help of expert opinions.

The much more recent case of Christoforatos v. City of New York, 90 A.D.3d 970, 935 N.Y.S.2d 641 (2nd Dept. 2011), dealt with a situation which is more common today than the burning of a fallow field: The plaintiff slipped and fell when he was entering a portable restroom in a New York City park. He claimed that he slipped on a bare patch of ground that had become slippery in front of the entrance to the restroom. The plaintiff sought to offer expert testimony about whether it was proper to place the portable restroom on grass, rather than pavement, where people walking to and from the restroom could cause a bare spot that could become slippery when wet. The appellate court upheld the decision of the trial court to exclude the offered expert testimony because it was unnecessary; bare spots being caused by large numbers of people walking on grass and those bare spots becoming slippery when wet, was something well within the knowledge and experience of most jurors. It did not matter that the plaintiff’s expert might have superior knowledge regarding the propensity of grass to wear out and die when trampled upon by a sufficiently large number of people or of the particular viscosity of the resultant bare ground when it became wet and turned to mud. What mattered most was that just about everyone has seen bare spots on grass, be it a self-made walking trail across a field in a park or a worn out section of a baseball field; everyone understands that the bare spots become slippery when wet; and jurors do not need an expert to tell them what this means or what can happen as a result.

April 19, 2013

EXPERT WITNESSES IN NEW YORK – NOT JUST THE FACTS

by The Law Firm of Grasing & Associates

Trials are fascinating. People love to watch them. Crime dramas, police stories, and shows that feature the ins and outs of a law firm, and the lawyers that make it work, have filled prime time TV for generations. Just about everyone has their favorite. Trials, which form a big part of each, are just as interesting from the inside. In New York, there are intricate rules of evidence; the subtleness of persuasion without overt argument, as in a finely hewn opening statement; the art of insightful cross examination; and the passion of a good closing argument. But one of the most often misunderstood aspects of the trial is the expert witness, and the role she plays in persuading a jury and winning the case.

Every trial has witnesses. Some give live testimony. You get to hear what they say as they say it; watch their facial expressions and their body language as they testify; actually see how they react to tough questions. Others merely have their deposition testimony read. You get to hear a lawyer read what the witness testified to when she was deposed, when the attorneys questioned her before the trial even began; not exciting, but often necessary. Witnesses most often testify about facts, about what they saw, what they heard, or what they did. The reason for this is fairly simple: When witnesses testify falsely about facts, it is much easier to show they are lying, and to punish them accordingly, than if they testify falsely about their opinion. See Ferguson v. Hubbell 97 NY 507 (1884). It is one thing to show that an opinion is wrong; it is much more difficult to demonstrate that the person who gives an opinion does not really believe it.

Sometimes witnesses can testify as to their opinions. An expert witness can offer her opinion about why certain things happened. When a case involves an important matter involving art, science, or technical knowledge that requires special skill or knowledge that the average person does not normally have, an expert is allowed to give her opinion to help enlighten the court and the jury. An expert will not be permitted to offer her opinion at trial merely because she has greater knowledge or experience in a given area than the average juror. Her opinion also has to help clarify an important issue which is beyond the understanding of the average juror. See De Long v. Erie Cnty., 60 N.Y.2d 296, 307, 457 N.E.2d 717, 722 (1983). In other words, it’s not enough that an expert is an expert; the jurors must need her opinion in order to be able to make informed judgements upon something that is beyond their knowledge and understanding.

April 12, 2013

Subrogation In New York V – Teamwork In Action

by The Law Firm of Grasing & Associates

We are going to pick up where we left off in our last article on subrogation in New York. We were talking about a subrogation case I had that showed how to overcome an exculpatory clause in a contract that absolved one of the parties from liability for its own negligence. In my case, it was an alarm company that monitored a warehouse that had a break-in in which clothes valued at several hundred thousand dollars were stolen. If the alarm company’s actions in responding to the alarms at the warehouse amounted to ordinary negligence, the subrogation action would fail because the insured, who signed the contract, could not recover, and therefore neither could the insurer. There could be a recovery, however, if the alarm company’s actions amounted to gross negligence because, at least in New York, a party cannot absolve itself from liability for its own gross negligence. See Sommer v. Fed. Signal Corp., 79 N.Y.2d 540, 554, 593 N.E.2d 1365, 1370-71 (1992).

According to the court, the basic facts were undisputed. The alarm company received alarms that something had happened at the warehouse, and notified the police and the designated representative of the business, as it was supposed to do. The police never arrived. The warehouse representative was told only that the alarms had been received. He thought they might be false alarms, as had happened in the past, and waited approximately a half hour for the alarm company guard to get to the warehouse, investigate, and call him back to let him know whether there had been an actual break in. When he did not get a call back, he went to bed. The alarm company, however, waited until the next shift, approximately three hours after it received the alarms, to have one of its guards respond to the warehouse to investigate, and it never told anyone from the warehouse that it would not be able to respond for so long; both were violations of its own guidelines. It also only had only a small number of guards on duty to respond to calls in a very large, populated area. In order to enter the warehouse the guards first had to travel back to the central station, get the key for the warehouse, and then drive a long distance back to the warehouse. Only then would they be able to investigate the alarms.

The key was not any one thing that the alarm company did wrong with this particular break in. The fact that it waited three hours to have a guard investigate the alarm, when it stated the guard would respond in 15 minutes, was not, by itself, gross negligence. Instead, I argued the evidence of gross negligence was found in a system that inevitably caused such delays: The evidence of the low number of guards on duty; the large area they had to cover; the long distance from the guard station to the warehouse that made it difficult even on a good night to make it to the warehouse in time; and the violation of its own guidelines. This was evidence of the gross disregard for the rights of others, of actions that smack of intentional wrongdoing, which is required to get to trial on claims of gross negligence.
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