The Scheme: them thats got and them thats not – the monopoly game (Chapter 6 Qui Tam)

Money, youve got lots of friends
Crowding round the door

Strategically, it was a brilliant move. Hidden in the last place anyone would think to look for evidence of fraud – the scheme is in the technology the insurance industry uses to identify fraudulent claims.  The best place to hide a needle is in a haystack of needles.

Them thats got shall get
Them thats not shall lose

350px-gem_monopoly_boxLike Monopoly the game, the monopoly game played in the scheme, takes its name from the economic concept:

domination of a market by a single entity.

Players compete to acquire wealth through stylized economic activity…buying…and trading…using…paper money. The supply of money is theoretically unlimited; if the bank runs out of money the players must make do with other markers…

The term “Monopoly money” has been used to refer to currencies which cannot be used to purchase goods and services on the free market.

Technology dominated the market for handling claims of property damage following Hurricane Katrina with an on-going off-board version of the monopoly game – played with the insurance industry’s usual three-pronged response when a significant liability risk begins to emerge:

monopoly-money-five-hundred-dollar-sm4…limit its financial exposure under policies it has already sold by mounting an aggressive litigation campaign against coverage;

monopoly-money-five-hundred-dollar-sm5…influence public policy and legislation in a manner that limits its potential financial and legal exposure to such claims; and

monopoly-money-five-hundred-dollar-sm6…begin developing new insurance products to maximize profit opportunities from the emerging risk.

Mere mention of the word fraud has a Viagra-like effect on the brain of the male WASP. If the thought stays up more than 36 hours, policyholders will get screwed – concurrently – by court order, regulatory change and legislation.

Boardwalk, Park Place and a surge of litigation

Yes, the strong gets more
While the weak ones fade

With the Six Sigma metric system built into the innovative software products and IT systems of the insurance industry, nothing is by chance – including decisions the industry makes about litigation.

For example, wind versus water damage relative to anti-concurrent causation had surfaced as a legal issue prior to Katrina (August 2005).  In early February 2004, a case management software module, Legal Matter Manager, was introduced.

The new case management software automates the entire legal process from electronic assignment of cases to counsel to final disposition, giving case managers real-time information about the workload, qualifications and performance of their in-house and outside attorneys. Case management features include interactive budgeting and planning; client-configured online case assessment and evaluation reports; online settlement history and management; collaborative document management and end-of-case legal performance review. In addition, LA/CM users can monitor legal bill submissions against approved budgets, rates and staffing plans.

monopoly-money-five-hundred-dollar-sm7LitigationAdvisor, which has helped clients in the United States and Europe reduce their legal case management costs by 10 percent or more, is the industry’s most comprehensive strategic planning and legal process management software. (emphasis added)

With the addition of the Legal Matters Manager module, the software was packaged as Legal Solutions Suite.

…Legal Solutions Suite simplifies the billing process, tracks outside counsel performance and promote best practices in managing legal matters. Its three components, Legal e-Bill, Legal Bill Analyzer and Legal Matter Manager, work together to create an end-to-end legal management process. Or they can operate as individual software products that integrate with existing case, claims and accounting systems.

RISKMASTER is an example of individual products integrated into a system.

RISKMASTER’s processing capabilities go beyond risk and claims management. RISKMASTER also helps organizations manage outside legal counsel and provides tools for OFAC, fraud and fault evaluation — streamlining core business processes to save time and money.

Fraud Evaluator is among the other products included in RISKMASTER.

Inaccurate fault assessments can drive up your claims costs. Claims adjusters typically find insureds either 0 percent at fault or 100 percent at fault, and little consideration is given to comparative negligence. Laboring under heavy workloads, many adjusters simply lack the time— and sometimes the experience — to complete a proper evaluation

Claims departments that enhance their processes to determine the significance of various fault factors add consistency and reduce subjectivity in the fault determination process. CSC’s Fault Evaluator™, formerly known as @Fault, helps accurately manage bodily injury and property damage costs according to specific guidelines set by your organization.

The impact of this focus on litigation is evident in marketing messages that promote a software application as defensible.

monopoly-money-five-hundred-dollar-sm8…carriers have effectively recovered at least $8 billion in previously “lost” premium on an annual basis from use of Total Component Estimating.In the hard fought battle after Hurricane Katrina of homeowner versus insurance company, it at first appeared the policyholder would prevail. But time has shown that, on appeal, the insurer almost always wins.

Answers to common Katrina questions are suggested by this information – questions about first-time decisions such as ordering an assessment from Haag Engineering, developing a wind-water protocol, requiring an engineer’s report on property reduced to slabs or popcicle sticks.

Conversely, the information raises new questions about Katrina litigation.  One that comes immediately to mind is if judges, not just attorneys, are tracked since these systems are predictive of risk.  In other words, did the system predict an approach that would result in Judge Acker’s orders or how far to push Judge Walker?

Rebecca Mowbray took a look at judicial decisions last August

Initially, the court victories came easily. On the stand, telling their tales of battling to get their insurance claims paid, the homeowners almost always won, often with bad-faith penalties.

But on appeal, in both federal and state courts, insurers prevailed, winning key legal precedents and knocking down monetary judgments if the parties had not settled…

In Louisiana, most of the major questions of insurance law have been decided, and courts sided with the industry.

Mississippi, on the other hand, has a major question of law pending in Corban v USAA.

This case is important because the Mississippi Supreme Court is going to rule on how anti-concurrent causation language is interpreted. Previously, only federal courts have made such rulings. Mississippi Court’s ruling is binding on federal courts and can overrule the Fifth Circuit’s poorly reasoned decisions in Broussard and Leonard. img_client_year_compphp-chamber3

The Supreme Court in both states, as well as the Fifth Circuit, has a decidedly pro-business majority – but assuming none came to the bench from insurance defense firms or have other personal ties, the most likely reason are efforts of the business community to influence court composition reported by Open Secrets.

monopoly-money-five-hundred-dollar-sm9 $57,965,000

Total Lobbying Expenditures 2007 US Chamber of Commerce

Subtotal for Parent US Chamber of Commerce: $38,310,000
Subtotal for Subsidiary US Chamber Institute for Legal Reform: $19,610,000
Subtotal for Subsidiary Institute for 21st Century Energy: $30,000
Subtotal for Subsidiary Essential Worker Immigration Coalition: $15,000

In the monopoly game, New Orleans was Boardwalk and the Mississippi Coast, Park Place – locations where damage was most likely to result in litigation.  Clearly, the insurance industry rolled the dice, landed on Chance.

350px-gem_monopoly_box-chance-smaller-2Them thats got shall get
Them thats not shall lose
So the Bible said and it still is news

Virginia Avenue and a surge of lobbying

Empty pockets dont ever make the grade.

$1,136,697,438 is not exactly empty pockets.img_client_year_compphp

It is exactly, however, the total amount the insurance industry reported spending to lobby Congress from 1998 to 2008 YTD – a level earning the industry the number two spot on Open Secret’s ranked list of industries by amount of reported spending.

Money, youve got lots of friends
Crowding round the door
When youre gone, spending ends
They dont come no more

The influence of the insurance industry on the total is illustrated when the spending of three leading img_client_year_compphp-allstate2insurers is viewed separately.
Spending peaked in 2007 – obviously, having Congressman Gene Taylor on the other side can be expensive. Allstate’s reported expenditures on lobbying for the year 2007 were $4,820,000 – almost doubling the $2,855,504 reported by State Farm and slightly lessimg_client_year_compphp-state-farm3 than half of the $10,529,000 recorded for AIG.img_client_year_compphp-aig1

Mama may have, papa may have
But God bless the child thats got his own.

Luxury tax and a surge of new products

Rich relations give
Crust of bread and such
You can help yourself
But dont take too much

Regular readers of SLABBED are familiar with new insurance products to maximize profit opportunities from the emerging risk – the illusion of coverage known as a hurricane policy and the all too real hurricane deductible.

Few, however, are likely to recognize this new product.


What is it? It’s a slabber.

Mama may have, papa may have
But God bless the child thats got his own.

350px-gem_monopoly_box-go-sm-2It’s also a visual representation of what can be done if you first do this.


The company that began building this architecture in 1995 wanted its software systems to be able to “talk” across platform – something fairly common nowadays as this description of RISKMASTER indicates. Remember, the data come from many sources.

  • Data Director: Accurately move claims data from legacy systems into RISKMASTER, avoiding  unnecessary custom programming and facilitating both one-time and ongoing conversions.
  • Data Extractor System: Selectively extract claims from your database in a format that can be delivered to a third party for import into its system or another RISKMASTER system.
  • Data Import System: Easily import data directly into RISKMASTER without having to re-key, including information on employees, organizational hierarchy, funds transaction and vehicle description, as well as entity and policy records.
  • Entity/Code Cleanup Utility: Merge duplicate entities and their associated records, as well as duplicate codes, resulting in more accurate data.
  • Rules Scripting Engine: Programmatically design your workflow or business rules in Visual Basic.

Six Sigma involves taking claims operations to the next level by looking beyond just expenses and making paid loss a focal point of cost control. The slabber puts the capacity to calculate risk to capital at the finger tips of decision makers who, in turn, make data-based decisions to control loss.

Yes, the strong gets more
While the weak ones fade
Empty pockets dont ever make the grade

monopoly-money-five-hundred-dollar-sm10While promoted as a benefit to policyholders, in practical application the paid loss is recovered by reducing the amount paid policyholders filing claims – an example:

  • The system could calculate an insurers total exposure from an event like Katrina and then calculate the percentage that would reduce risk to an “acceptable level” – perhaps resulting in a decision to pay 85% instead of the 100% due the policy holder.
  • Once that decision was made, all other functions controled by the system could be reset to produce those results.
  • Date generated by the integration of Six Sigma would measure and report based on that goal -to the extent it could even influence settlement offers on individual cases, suggesting the reason so many are sealed.

monopoly-money-five-hundred-dollar-sm11Taking that example a step further , a second example illustrates the range of the system. If no settlement could be reached and the claim dispute results in litigation, the system can produce reports of the risk involved.

  • In this situation, the risk-of-loss indicators could be expanded to data predictive of the outcome of the litigation.
  • Such predictive data indicators might include everything from data on on the background of plaintiff’s attorneys and the judge that will hear the case to the results of a deeper investigation into the policy holder’s personal history.
  • Another indicator that could be factored into the calculation of risk could be an analysis of the allegations made in the complaint.
  • In this situation, the amount involved could be secondary to the risk of setting a precedent that would apply to other disputes over potentially larger amount – suggesting here the reason an insurer might spend more than the disputed amount defending a case.

Always lurking in the background of claim disputes is the industry’s heavily promoted campaign about high rates of insurance fraud and the resulting increase in rates all policyholders pay for insurance. Merlin law blog has a current related post Are insurance fraud rates fraudulent?

…A highly respected claims expert, Gary Fye, has suggested to me that the insurance industry propagandists are engaged in a wrongful attempt to create a culture where society suspects all claims are fraudulently created or inflated. It does not take a genius to figure out why insurance companies would love to encourage this myth among the general populace…

Still, there is great danger in an insurance culture where the investigators and public view all claims as possibly fraudulent.  It is sort of like saying otherwise patriotic citizens are no longer patriotic because they question a war or government decision.  Yet, from what many of us see in the claims environment, some Special Investigative Units (the fraud department) treat their insurance customers as guilty crooks before analyzing any evidence. They have a ‘guilty until proven innocent’ mentality in their treatment of their own customers.

The bottom line is that an insurance customer is every bit as good a customer after a loss as when the insurance company was pleading for the premium…

While insurance fraud is a problem and should be punished, the insurance industry owes its customers and society in general an apology for providing unsupported statistics which cast dispersions on honest customers.  If the industry truly believes the fraud numbers they cite are accurate, it should prove them.

The truth will be in the criteria defining the numbers.  What the system defines as fraud will be reflected in the indicators and numbers of the related database. Like anything else measured, an increase or decrease in the the numbers for an indicator will change the results.

Domination of a market by a single entity – monopoly – the scheme playing the monopoly game.

Mama may have, papa may have


But God bless the child thats got his own.


Next in the scheme: the final curtain – who done it?

Them thats got shall get
Them thats not shall lose

Introduction: The Scheme: you lived the movie

Chapter 1: The Scheme: the best place to hide a needle

Chapter 2:The Scheme: first there were just word games

Chapter 3:The Scheme: fingerlickin chickinpickin meat city mind games

Chapter 4: The Scheme: what’s the first case on the docket

Chapter 5:The Scheme: oh, lord I want to be in that number

18 thoughts on “The Scheme: them thats got and them thats not – the monopoly game (Chapter 6 Qui Tam)”

  1. Wow.
    It is 2:30 am and This is so good I gotta smoke a joint and read it a 3rd time. Hell yeah, nice shot of Turkey too. I don’t care. There I admitted it. Sometimes you folks throw down so hard one has to just sit with it for a few hours…and hang on…

    After spending all day working the relationship between the Corps of Engineers and the Times Picayune (at times even clocking attorneys) into a more palpable bit of jailhouse punkery I now call: Ethics Privatization, Editilla found ourself dejected from all categories, hence listless and headed for Nap Time. –But the Scheme was awake, afoot like a game of Ma Jong Qui Tam.
    Billy Holliday had arrived
    and Editilla slept a fitful dream of engineers in suits and nice shoes floating in the sky above the MRGO…serving a communion of crusts of bread and such…

    Ain’t often you meet someone who you realize that you will remember them when.

    I will not die until you write my epitaph, preferably with illustrations and a tombstone slabber.
    Tombstone Slabber… I like that.
    Band name?
    Soppin Doucy and the Tombstone Slabbers?

    It is greatly hoped that you goddamn plan to write a book of this Scheme.

    Duly hung by da’Ladda wit’care and:

  2. That’s right Editilla, Ed Rust sits in Bloomington and plays with his dashboard. Whether you get timely paid or not on your claim depends on how he sets the dials.

    Great stuff Nowdy!


  3. But to be clear: if a claim isn’t covered, then the carrier shouldn’t pay, right?

    Could it be that carriers are good at understanding policy language? That would explain why they win coverage cases: the jury is sympathetic to the claimant for their loss, but the Court has to follow the law (and therefore the policy language) and, however reluctantly, does the right thing.

    Nothing juicy there, though. No conspiracy theory, no headline. Just judges doing the right thing.

  4. You’re kidding right, sop?
    That thing isn’t real… is it? The slabberrrrator?
    Come on this ain’t funny…
    How does he hook it up, like, on a policy holder’s finger tips? skull cap? What would happen if you hooked the slabberrrrator up to plants?
    Really, is that an actual thing? Thing?

    claimsguy, I will accept your bourgeois naivety for now as an ace master of sarcasm in full bling fling and say only that juicy is as juicy fruits.

  5. Editilla:

    Trust me on this: I know way more about the coverage litigation process than you do. It is the accepted wisdom in the business that juries will do what they do (lean hard towards the policyholder) out of sympathy and out of a general inclination to side with the individual in any “individual v business” situation. That is simple fact.

    But matters of policy interpretation are questions of law for judges to decide, and constrained by precedent, they usually do the right thing. This is especially true at the appellate level, where judges are a little more insulated from the demands of electoral politics.

    And the more predictable the result of the policy interpretation process, the better the carrier can predict it and conform to it. No carrier has an interest in litigating policy issues and getting beat. That is an expensive and painful process. You do not litigate losers. To behave otherwise is to risk several kinds of bad outcomes: bad faith awards, higher damage amounts, tons of transactions costs and making bad law, just to name a few. To risk such bad results on cases you are unlikely to win would be foolish on several levels. So carriers don’t do that.

    They DO, on the other hand, litigate coverage cases when they think policyholders are trying to get them to pay a non-covered claim, so long as (consistant with the above) they think their policy language is solid. To fail to do so would be to allow a de facto amendment of the policy, paying for losses which the carrier never intended to cover and for which it collected no premium.

    Believe me: there is no sarcasm or naivete in my judgment. Just truth born of hard experience.

  6. Yep Editilla the Slabberator is very real. All a discriminating insurance exec has to do is adjust the controls and out spits the numbers. Dial up the ol reinsurance meter and the GAAP Impairment control moves down as risk is reduced. That impacts capital including it;s costs so the the economic capital meter changes too.

    Think hurricane season is going to be bad where you have policies written? Set the level of Cat Event exposure to high and watch all the outputs change. Take the data to the state commish’s office and tell them you need a 47% rate up for your hurricane exposure.

    Take a gander at this post Editilla.

    Claimsguy good to have you back.


  7. I’m not sure I understand the issue with the “control panel”. If what it does is make it easier to understand the economic variables that surround a given book of business, particularly as they interrelate with one another, how is that bad?

    There was a time where the automakers did their initial production run planning by creating a huge set of spreadsheets on a bunch of blackboards. As they tried to determine their pricing, they would change inputs (size of production run, product mix, product costs, etc…) and then recalculate the boards manually, a cell at a time. The process was extremely laborious, error-prone, slow and crude, but that’s how they did it. Until Visicalc. (Then Lotus, then Excel, etc…)

    Post-Visicalc, they could do the same process in a day, with greater accuracy and flexibility. That’s a good thing, right? (I leave aside, for obvious reasons, the other misfortunes that have befallen automakers.)

    How is this different? It looks like an easier way to see the relationship between (for example) reinsurance purchasing , downside cat exposure and upside profit potential. (We all understand intuitively that if you buy more reinsurance, you limit your downside AND your upside. But by how much? How do you find “the sweet spot” that gives you the best balance?) Assuming your formulas and inputs are right, it just makes the planning process faster and more intuitive. How is that bad? Aren’t carriers supposed to plan rationally and try to make money? Aren’t better tools a good thing? Do you really prefer the blackboards?

  8. claimsguy,
    The Katrina experience is about insurers confidence that the MS & LA Insurance Commissioners, the Bush Administration NFIP & DOJ, and the Republican Congress would not investigate, regulate, or otherwise challenge their claims denial practices.
    State Farm in particular overreached and went beyond anything they had done before or since. Their ACC interpretation, the wind/water protocol, the coercion of engineers, were all supremely arrogant actions that suggest they believed they were safe from legitimate oversight.
    Note that they changed strategies and started negotiating claims settlements right about November 2006 when the Democrats won control of Congress.

  9. Last time I checked, coverage litigation was done in courts, not in front of insurance commissioners, the DOJ, the Bush administration, Dick Cheney, Donald Rumsfeld, or whatever other boogieman you want to invoke. That’s courts. Judges and juries. Not Homeland Security, not the Corps of Engineers, not Congress. All of those other agencies are simply ways to try and get around the legal process. (Don’t like the terms of the policy? Try to get a bureaucrat to lean on the carrier to amend it post-loss! If it works, you get free money! If it doesn’t work, you haven’t lost anything.)

    It is really pretty simple: if the carrier is wrong, they will get beat in court in a painful and expensive way. If they are right, they will win.

  10. There was no new law here.
    They also knew the 5th Circuit was in their pocket.
    The courts can’t handle thousands of cases efficiently. They defied all the precedents that said they had to prove the exclusion. They defied the NFIP regulations that said they had a fiduciary duty to taxpayers and a responsibility to handle the flood claim as they would their own claim.
    We raised these issues with anyone with any jurisdiction and got no response until the 2006 election.

  11. claimsguy,
    whilst I and other policy holders were “loaning” you and your industry millions of dollars to illegitimately re-invest in this financial meltdown we have now, you should have as my friend and investment partner said: “Editilla, since you are obviously a total dumbass please note here in this tiny fine print thus and such which means when the storm takes your life away we aren’t going to pay you back Dick.” You have a humane obligation to have said:
    “Trust me on this: I know way more about the coverage litigation process than you do.”
    But you did not and neither did your industry. You took our money for decades and ran with it and when the shit literally hit the fan You have said fuck off rate payer. That is what all this means to me.
    Fun is fun but never laugh in my face about this tragedy.
    That is bourgeois naivety.
    Say hello to the Bourgeois Nievete.

  12. Claimsguy:

    I bet I have way more experience litigating Katrina cases, including coverage issues, than you do. I particularly like when the jury gets to decide the coverage issue. Maybe you will tell me your real name and I’ll be wrong and surprised.

    But until then, Brian is spot on and you are spot wrong.

  13. Editilla:

    You make a mistake many others make: that what you paid for your coverage last year has anything to do with this year. Every year you pay a premium to cover that year’s risk. At the end of the year, the transaction is over. You can re-up or not, but neither party owes the other anything. (On the commercial side, the relationship might be more complicated than that, but for this discussion we are talking personal lines only.) You are both starting over. The “I paid for 30 years and therefore I am entitled to have a non-covered claim paid” argument is fallacious. It’s as if you went to your corner Exxon and said “I’ve bought gas here for 30 years, so I am now entitled to a year’s worth of free gas.” Try that some time and let us all know how it goes for you.

    And if you are one of those that somehow missed the fact that homeowners insurance doesn’t cover flood, you are one of the few. You missed all the PSAs and didn’t bother to read the policy or ask your agent or take advantage of lots of other ways to discover that very simple fact.

    You and others like you wanted to rewrite the policy post-loss to cover what wasn’t covered. You wanted coverage you didn’t pay for. To the extent that I seem unsympathetic to that effort, it is because I don’t like welchers.

    Trahant: as you know, juries do facts, judges do law. Coverage cases usually (but not always) present both types of questions. The eternal tug of war in such cases is between the policyholder lawyer, who wants to make everything factual, and the carrier lawyer, who thinks everything is a pure question of law.

    Martin: You casually defame the Fifth Circuit. The fact that they actually pay attention to the law and the policy language doesn’t mean they are in anyone’s pockets. It means they are doing their jobs. That you or your political masters disagree with that outcome is beside the point.

    And finally, for all of you, I note no substantive disagreement with my comments regarding the “control panel”.

  14. Claimsguy:

    Your statement: “juries do facts, judges do law” is not completely accurate. In almost every Katrina case tried to a jury, coverage is at issue and is decided by a jury applying the law (jury charges) to the evidence adduced at trial, including the policy language. And, when certain judges really want to boot issues (for example, bad faith claims) they do so on motions for summary judgment by deciding the facts.

    And then there are companies like AAA, which sued some of their own insureds in declaratory judgment actions on Katrina claims so that the court could interpret AAA’s policy language. I cannot imagine why, if the exclusionary language is so clear, an insurer would have to file a dec. action.

  15. Trahant:

    Carriers file dec actions when they know that litigation is inevitable and they want some tactical advantage from filing first. It might be to choose the courthouse, it might be to combine a bunch of claims into one suit. But if you know you are heading to court, you naturally think about what side of the caption you want to be on. But it does NOT mean that you doubt your policy language, just that you know a dispute exists about that language that you need the Court to resolve.

    Having said that, I have never seen it done in the personal lines arena, so what AAA did IS unusual.

  16. Of course, the reason is the exclusionary language is as clear as the mud concurrent with water damage. Can only assume it also muddied the perspective of judges. Am guessing the slabberator calculated the risk – not that is should take one to figure out odds are better where there are fewer than 12 deciding.

  17. Yep, it’s even more unusual to sue your customer, without notice, shortly after their property has been completely destroyed. See Auto Club Family Ins. Co. v. Ahner, 05-5723, E.D. of La.

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