Making Fraudulent Insurance Claims Can Land You in Jail

Insurance adjusters know fraud when they see it. A fraudulent claim can follow you for years, resulting in much higher rates and even canceled policies.

A woman's hands grip the bars of a jail cell.
(Image credit: Getty Images)

“Bernie,” an adjuster for a major auto insurance company phoned, wanting to discuss a fraudulent insurance claim “that would be a great story for your column.”

“Our insured says her work truck was stolen under what clearly appears to be suspicious circumstances, and I had to control myself from laughing as she explained what happened. I suspect she was given some very bad advice and really don’t want to report her for making a fraudulent claim. I am about to retire, and this could tie me up for quite a while if law enforcement is involved. I suggested that she speak with you, as perhaps you can help her see how she is skating on thin ice and may wish to drop the claim. May I have her call you?”

I never refuse a good story idea, and within a few minutes, I was on the phone with “Carol.”

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“So, tell me about your stolen truck.”

“It was parked outside our office. Two guys jumped in and drove it away. I am really angry because it had a tracking device that had stopped functioning. If it were working, I could have notified the police as to where it was, and I want to sue the car dealer who installed it and the device manufacturer. I lost my tools and $20,000!”

“How did the thieves get your truck started?”

“My keys were in it, and it was unlocked. My purse was on the front seat.”

“You mean there was $20,000 in your purse, in an unlocked vehicle with the keys in it?”

“Yes, but the money was in the truck. It was to pay my employees.”

“You pay them in cash? Why?”

“I hire people standing outside of Home Depot.”

“And you also make no deductions for taxes, Social Security, and I’ll bet you have no workers’ compensation insurance. Right?”


Tracking devices and their consequential damages exclusion

Vehicle-tracking devices are great when they work, and depending upon the vehicle’s location, they just might not work. Warranties for every tracking device I’ve ever seen are perfect examples of “the big print giveth, and the fine print taketh away.”

The manufacturers, and car dealers that sell new vehicles with built-in devices or add-ons, almost always limit their liability to repair or replacement of the device and exclude consequential damages, including loss of the vehicle, its contents or lost business income.

I explained these warranty exclusions to her, adding, “Neither I nor your claims adjuster believe you. This has ‘insurance fraud’ written all over it, as no one in their right mind leaves $20,000 in an unlocked vehicle with the keys in it! If that is true, you invited the theft, and that could also be the basis to deny the claim.”

At that point, she began screaming, “You’re a no-good lawyer! A lawyer should believe their client! Besides, I have plenty of money, and don’t need this crap anyway.”

My final statement to her was, “If you pursue this claim, from my experience, expect a visit from law enforcement and possible prosecution for insurance fraud. Additionally, you face the possible cancellation of your auto and business insurance, or huge rate increases.”

Insurance adjusters give their opinions

I ran Carol’s story by experienced claims adjusters from three separate auto and business insurance companies. Each described similar claims they had handled, but without the added element of a vehicle-tracking device. All three found Carol’s story to be “completely unbelievable.” Each underscored they would have referred this to their company’s Special Investigation Unit, as it falls into the “hard fraud” category, where someone comes up with a plan to create an incident so that they can claim a payout from their insurance company.

They all underscored that her adjuster, Bernie, was doing her a tremendous favor by not immediately escalating the claim to his company’s fraud unit.

Interestingly, one adjuster shared a “gotcha” tactic used by her company in which they issue a check to the insured, and when they come into the claims office to pick it up, law enforcement is waiting, as the prima facie elements of a felony were established. She noted how the fraudsters go from smiles to utter disbelief when they’re arrested.

Insight from an insurance broker

I reviewed Carol’s claim with a friend of this column, Los Angeles-based Karl Susman, an insurance broker for over 30 years and an expert witness in lawsuits involving coverage and agent malpractice issues.

Susman cautions anyone thinking of making a dubious or fraudulent claim: “Making a fraudulent or highly suspicious insurance claim can have long-lasting implications, as insurance companies file them with the National Insurance Crime Bureau’s Questionable Claims Database. This information stays active in their files for several years and can greatly impact the rates you will pay for insurance and, in the worst cases, if you can even obtain certain types of coverage.”

He adds, “Use common sense with your vehicles and property. We all have a duty to not increase a risk of loss or injury by being careless or negligent.”

You can watch Susman and Beaver discuss this case (and other issues) on Susman's YouTube show, Insurance Hour.

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to And be sure to visit

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

H. Dennis Beaver, Esq.
Attorney at Law, Author of "You and the Law"

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, "You and the Law." Through his column he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."