As some people struggle to pay their expenses and debts, they may be looking for “alternative sources” of income. one such source has been the filing of fraudulent insurance claims. however, recently, insurance companies have seen a growing trend of policyholders submitting fraudulent receipts to support their claims for recoverable depreciation or additional living expenses on otherwise legitimate claims.
Insurance companies pay policyholders for their additional living expenses (ALE) when a covered cause of loss, such as fire, makes their residences or premises unfit for occupancy. The amount paid for an insured’s beer is generally for any necessary increase in living expenses incurred in order for the insured’s household to maintain its normal standard of living. For example, to justify increased living expenses, an insured submits receipts to the insurer documenting the purchase of groceries or restaurant meals while displaced due to the fire. As some insurers are learning, these receipts can be fraudulent.
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An insured recently submitted receipts documenting not only purchases made by non-family members, but also purchases paid for with more than 40 different credit and debit cards. some of these receipts documented the name of the credit card holder who was not a member of the insured’s family, and many of the receipts did not reflect the name of the credit card holder.
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The insured testified that they only had two debit cards associated with their two bank accounts. however, they stated that the other 40 cards consisted of prepaid debit cards that the family used to pay their living expenses. careful review further revealed several receipts from dinners involving more than the insured’s immediate family. receipts were also presented for numerous transactions in a single day allegedly related to meals away from home and grocery purchases by the family. however, the times and places of the purchases documented on the receipts did not support the possibility that the insured and his family could have incurred all of them.
For example, one day’s receipts showed that, in just over an hour, the insured and his family allegedly ate twice at a local Italian restaurant, once at a fast food restaurant and once at a specialty store. the receipts produced also showed that the family had allegedly eaten on two other occasions at the same local restaurant that same day. the insured had no explanation other than to claim that he had lost the receipts documenting his actual expenses and that he had obtained the other receipts from the restaurant manager to represent the “similar” amounts that he and his family had incurred.
In addition to the question of whether or not the insured or someone else had incurred the expenses reflected in the receipts, the insurer also found that the insured had altered the amount of the receipts submitted in support of his beer claim. The insurer compared the amount of the receipts with the documented debit transactions in the insured’s bank records and found more than 100 cases in which the insured claimed an amount greater than the amount verified by the documented debit card transaction. Consequently, when reviewing beer receipts submitted by an insured, insurers must confirm that the receipts actually document the correct amounts and expenses incurred by the insured and their family.
Insurance companies must also verify the receipts an insured submits to support a claim for recoverable depreciation. If replacement cost coverage is provided under the terms of the policy, reimbursement generally begins with an advance payment to the insured for the actual cash value (ACV) of the item. ACV represents the amount of an item’s replacement cost less the item’s depreciation value based on the age and wear and tear of a damaged or stolen item at the time of loss. if the insured replaces the damaged property, he can claim the recoverable depreciation within the term established in the policy.
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Some policyholders are now submitting fraudulent receipts for recoverable depreciation when they have not actually incurred the required replacement cost. For example, an insured recently submitted numerous receipts for recoverable depreciation on items damaged as a result of a fire. The adjuster immediately noted that the receipts reflected nearly $100,000 worth of electronics replaced over a two-week period. one of the receipts presented by the insured was for an online purchase for a total of $34,265.13 in electronics. the insurer sought verification with the electronics store and learned that none of the items were delivered to the insured. in fact, the store reported that it had issued a credit to the insured, returning the full amount of the purchases to the insured’s credit card six days later.
The insured not only allegedly made purchases online, but also made numerous purchases on the same day and at multiple stores located within the same mall. verifying purchases with these stores, the insurance company found that the insured, either on the same day of purchase or the next day, returned the items to the stores. Instead of receiving a refund or credit to his credit or debit card for store purchases, the insured opted to receive a cash refund, likely to avoid any record of his returning the items. Months later, knowing that he had returned or canceled the purchase orders, the insured proceeded to claim the replacement costs from the insurer. based on its investigation which revealed that the insured had failed to replace the items, the insurer not only denied his replacement cost claim, but also denied the entire claim and sought to recover money previously paid to the insured as a result of a loss for fire.
In light of this recent trend, insurance companies need to take a closer look at the receipts that policyholders submit to verify that they are not attempting to defraud the insurer on a valid claim.
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