The first whiff of fraud came from an innocuous auto accident claim form.
The claim was from "a 21-year-old kid in downtown Philadelphia driving a new Porsche in a neighborhood where the car would've been stripped in minutes," recalls Frank Agan, head of USF&G; Corp.'s Security Audit Department, the company's fraud cops.
A claims processor in Baltimore checked the serial number on the car and found it was fake. That meant the claim was fraudulent -- and so were the damage appraisal and police accident reports. Further snooping confirmed that the addresses three other drivers involved in the "accident" were fake, too.
Mr. Agan and his partner, security auditor Jerry Landsman Jr., followed the trail to a USF&G; claims processor in Philadelphia. He confessed soon after being presented with the evidence, and gave information that led USF&G; to a ring of more than 65 people in Pennsylvania and New Jersey.
That case, triggered by a clerk's sharp eye in October 1989, became the largest case of automobile and property fraud ever prosecuted in New Jersey -- and the biggest victory to date in USF&G;'s war on fraud.
Fraud costs property/casualty companies such as USF&G; as much as 10 percent of claims, or about $18 billion each year nationally, says Sean Mooney, a senior vice president with the Insurance Information Institute in New York. That would amount to $208 million of USF&G;'s $2.08 billion in property/casualty claims last year.
And consumers end up footing most of the bill. The New Jersey scheme, for example, added about $90 to every New Jersey driver's auto insurance premium, the state attorney general estimated.
So, as state and federal law enforcement find their resources diminished by budget constraints, many insurers are paying people like Mr. Agan and Mr. Landsman to do their policing.
Mr. Agan, 47, left a 20-year career with the Independence, Mo., police force to start USF&G;'s security audit department at the company's Mount Washington center five years ago. (The department now has three people, the two investigators and a third person doing compliance work and studying how to audit USF&G;'s outside legal billings.)
"After 20 years, you kind of get to the point where a siren doesn't raise your blood pressure anymore," he says.
And insurance fraud is much more challenging. The class of criminal has changed -- Mr. Agan no longer is dealing with street crime, and the college-educated crowd that he tracks is often far better at covering up their crimes.
"I'm glad I made the change," he says. "The bad part of it is, there's a lot more paperwork."
Not as much as he could have had, though. After two decades on the force, Mr. Agan was studying at night for a master's degree in accounting and was headed toward a second career as a CPA.
Mr. Landsman, 38, a former Hagerstown police investigator, came to USF&G; last year, even though he'd just been promoted to sergeant.
Leaving the force wasn't easy for someone with police department blue in his blood. Mr. Landsman's grandfather was a district lieutenant in Baltimore, his father is a retired city homicide lieutenant, his uncle is a city cop, and his brother is a lieutenant in Baltimore County.
"It was something that I grew up with, and went to college to study," Mr. Landsman says. "But I have a family, I have three kids, and you always want something better for your family."
Though he misses the camaraderie of the force -- the idea that "I could depend on the people I work with to back me up in a tough situation" -- he likes handling white-collar investigations full-time. Frank convinced me that USF&G;'s policy was not going to be just a lapdog, but that we'd be [able] to do the job in an effective way," Mr. Landsman says.
"We've been given the resources under [chairman and chief executive Norman P.] Blake to go out and solve the problems," says Mr. Agan. This year, for instance, the unit's travel budget alone has quadrupled to $120,000.
The fraud cops say the money is well spent.
For example, the New Jersey ring, which included auto appraisers and adjusters, body shop owners and several policemen, was charged with stealing more than $1.1 million in fraudulent claims from at least seven insurance companies. USF&G; was the hardest hit, at more than $1 million. And no one can estimate how much the group actually skimmed since it started working in 1985.
New Jersey started handing down indictments in March, and ultimately 44 people were implicated. The Philadelphia-based claims processor who was involved in the scam is in jail, and USF&G; now receives three or four checks and money orders a day as restitution, Mr. Agan says.
"We recover far more than we spend on our investigations," he says. Last year alone, Mr. Agan and Mr. Landsman's department helped recover more than $3 million in fraudulent claims for USF&G.;
Lately they've gotten some help from the state. Last fall, Gov. William Donald Schaefer created an anti-fraud bureau within the state insurance division, funding it initially with donations from the industry. The General Assembly this year authorized about $290,000 a year in state money for the bureau, and moved its jurisdiction to the attorney general's office, which could give it sharper enforcement teeth.
Unfortunately, local, state and federal authorities aren't always equipped to deal with the complications of insurance fraud, says Mr. Mooney of the insurance institute. "The type of expertise, the type of training, the type of thinking you use for an insurance fraud case is a lot different than what you use to browbeat a rapist into a confession."
The New Jersey state police and attorney general's office, on the other hand, "did a great job," Mr. Agan says. It didn't hurt that Mr. Agan and Mr. Landsman had done most of the spadework on their own and presented the authorities with much of the evidence they would need to pursue the case.
One of the most powerful weapons in USF&G;'s arsenal is the federal Lanham Act, which allows judges to issue warrants in civil lawsuits for immediate searches and seizures to protect trademarks and copyrights, says John D. Corse.
He came up with the idea of using the act more than a year ago. A former Piper & Marbury attorney, Mr. Corse is an in-house attorney at USF&G; and helps coordinate anti-fraud efforts.
Fraudulent bonds seized
The act was crucial in stopping a fraud scheme in Baton Rouge, La.
A USF&G; agent in Mississippi called to ask why a Louisiana agent, although terminated years earlier, was selling USF&G; surety bonds that the company wasn't supposed to be marketing. Mr. Agan and Mr. Landsman flew to the two states, investigated, and when the Lanham Act lawsuit was filed, the company persuaded a judge to issue a search warrant.
The first hint that insurance agent James Brunson had of the investigation was in February 1992 when "U.S. marshals were knocking on the door with a seizure notice," Mr. Corse says. The agents seized 205 fraudulent bonds.
Mr. Brunson pleaded no contest to six criminal charges last month and still faces several federal charges. He settled USF&G;'s complaint last year for $53,000.
For ex-cops such as Mr. Agan and Mr. Landsman, the work isn't much different from the white-collar criminal investigations they conducted in Independence and Hagerstown -- except for the higher pay.
But both thrill in the chase.
"It's like a chess game," Mr. Agan explains. "It's rewarding when you win the game."