Coalition Against Insurance Fraud: New Jersey court gets it right about insurer/fraud bureau partnership

But too close a relationship could harm public interest

Accused fraudster Harshad Patel said his rights were violated because New Jersey’s anti-fraud agency works too closely with insurers to root out fraud. The Office of Insurance Fraud Prosecutor “outsources” investigations to insurers because it lacks financial resources to fully investigate on its own, Patel contended.

So he sued the state, alleging his constitutional rights were violated.

A U.S. Court of Appeals tossed the case this week. Patel didn’t prove he was harmed by the relationship between the fraud bureau and insurers, the court ruled. But the judge left the door open to revisit this issue in the future.

Other fraud defendants have claimed a fraud bureau has gotten too chummy with insurer investigators to beat up on citizens. Yet their legal challenges all failed.

Still, future challenge could succeed if fraud bureaus and insurers cross a line in working together. As state agencies, fraud bureaus need to make their own decisions about which cases to investigate. And they must conduct their own investigations.

Insurers can and should provide case information and offer assistance, such as providing pretext policies and bait cars.

But insurers should never attempt to direct a fraud bureau investigation or in effect, become an investigative arm of the state. It’s bad public policy. The legal and public-relations consequences also could be disastrous.

Patel’s ill-conceived challenge was a stretch. Yet it reminds us that state and private investigators must stay vigilant.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.