Evidence Needed to Prove Fraud
Posted on November 22, 2021 by Barry Zalma    

A Video Explaining Direct & Circumstantial Evidence and The Proof Required

See the full video at https://rumble.com/vpmdg8-evidence-needed-to-prove-fraud.html?mref=6zof&mrefc=2 and at https://youtu.be/ChhfxqPsUWQ

To properly prepare a case for trial an adjuster or SIU investigator must understand evidence and that evidence is broken into two major categories: direct and circumstantial.
Direct Evidence

Direct evidence is proof that tends to show existence of a fact in question without the intervention of the proof of any fact.  It includes testimony that tends to prove or disprove a fact in issue directly, such as eye-witness testimony or a confession.

Sometimes, direct evidence may not exist because records have been destroyed in a fire, destroyed by water, stolen, discarded, or eaten by vermin.

As important as direct evidence is to the proof of fraud or attempted fraud, courts have noted that it can be difficult to obtain direct evidence of something so internal as intent to commit fraud. [United States v. Washington, 715 F.3d 975, 980 (6th Cir. 2013)]. Jurors are therefore free to consider circumstantial evidence and draw reasonable inferences from it.  In United States v. Hawkins (6th Cir., 2019) circumstantial evidence was sufficient to allow a jury to convict. Courts are often called upon to rule what direct evidence may be admitted. In one case the Government was allowed to introduce tax evidence, the asset transfer evidence and the ‘salacious acts’ evidence as direct evidence to prove a crime. In addition, the Government was allowed to introduce, under Rule 404(b), evidence concerning Mr. Brooks’ alleged insurance fraud and the stock purchases by Mr. Brooks’ family members. [United States v. Hatfield, 685 F.Supp.2d 320 (E.D. N.Y. 2010)]

A court stated it was mindful that there was no direct evidence that any of the plaintiffs here knowingly participated in any insurance fraud scheme, or even suspected one. But where a loss is caused by the fraud of a third party, in determining the liability as between two innocent parties, the loss should fall on the one who enabled the fraud to be committed. [Fidelity Natl. Tit. Ins. Co. of N.Y. v Consumer Home Mtge., 272 AD2d 512, 514 [2d Dept 2000].] Although any fraudulent conduct of the assignors might not be “properly imputed” to plaintiffs plaintiffs would be among the primary beneficiaries of the fraud [Chubb & Son v Consoli, 283 AD2d 297, 299 [1st Dept 2001]). [A.B. Med. Servs v. State Farm, 7 Misc.3d 822, 795 N.Y.S.2d 843, 2005 NY Slip Op 25089 (N.Y. Civ. Ct. 2005)]
Circumstantial Evidence

If direct evidence does not exist for any reason, circumstantial evidence must be produced to prove the fraud. It is direct evidence if a witness sees a jet plane fly across the sky and it is circumstantial evidence if the witness sees a jet’s contrail but not the jet itself. [People v. Rios (Cal. App. 2015)]

Circumstantial evidence is all evidence of an indirect nature when the existence of the principal fact is deduced from evidentiary facts by a process of probability reasoning.  The investigator takes circumstantial evidence and uses deductive reasoning to reach a conclusion.  Circumstantial evidence and the deductions of a professional investigator are often more reliable than direct evidence like eye-witness testimony.  Circumstantial evidence is sufficient to establish proof of arson and other criminal activities.  [Hoosier Insurance Company, Inc. v. Mangino, 419 N.E. 2d 978, 986 (Ind. App. 1981)].

Many fraud cases are proved entirely by circumstantial evidence, or by a combination of circumstantial and direct evidence, but seldom by direct evidence alone.  Fraudulent intent, the most difficult element to prove in many fraud cases, is usually proven circumstantially, and necessarily so, because it is impossible to produce direct evidence of the defendant’s state of mind, absent a confession or the testimony of a co-conspirator.

In a circumstantial case, the court may instruct the jury that the prosecution or the insurer must exclude all inference from the facts other than its determination of fraud.  If the trier of fact can infer a legitimate rather than fraudulent explanation for a series of events, the insurer’s defense or the prosecution will fail.  Even if no such instruction is given, the investigator and adjuster should apply the same standard when preparing a circumstantial case for trial.

It is clear the elements of the offense, including intent to defraud and deceive, may be proved by circumstantial evidence. [Bryant v. State, 982 S.W.2d 46, 49; Beets v. State, 767 S.W.2d 711, 734-39 (Tex. Crim. App. 1987)] holding circumstantial evidence was sufficient to sustain conviction for murder for remuneration where defendant allegedly committed murder to obtain insurance proceeds. A culpable mental state is nearly always proven by circumstantial evidence. [Dillon v. State, 574 S.W.2d 92, 94 (Tex. Crim. App. 1978); Parrish v. State, 950 S.W.2d 720, 722 (Tex. App.-Fort Worth 1997, no pet.)]; Obigbo v. State, 6 S.W.3d 299 (Tex. App. 1999)]

Occasionally, as in the Indiana case of Hicks v. State of Indiana, 510 N.E. 2d 676 (1987), a thief will attempt to defeat a burglary claim by claiming it was part of an insurance fraud scheme. If the victim instigated the crime as part of an insurance fraud, there can be no conviction of burglary.  However, adjusters, like the prosecutor in the Hicks case, should be leery of such “confessions” as they may often be fabricated.  An insured should never be accused of fraud based on an accused felon’s statement unless independent, innocent witnesses corroborate the felon’s charges.
“Clear and Convincing” Standard of Evidence

The “clear and convincing” standard is a very difficult and stringent standard to establish.  In New Jersey, in the case of Italian Fisherman, Inc. v. Commercial Union, 215 N.J. Super. 278, 521 A. 2d 912 (1987), the court refused to accept the clear and convincing evidence standard of proof proposed by the plaintiff in an insurance fraud defense, pointing out that proof of fraud by a preponderance of the evidence (50 percent plus one, which is much easier to establish than the “clear and convincing evidence” standard) renders the insurance policy void from its inception.  As another New Jersey Court stated:

“This court has previously addressed the nature of the arson defense and the quality of the evidence necessary to support that defense.  See Italian Fisherman, Inc. v. Commercial Union Assurance Co., 215 N.J. Super. 278 (App. Div.), cert. denied, 107 N.J. 152 (1987); Olesak v. Central Mutual Ins. Co., 215 N.J. Super. 155, 160 (App. Div. 1987) (“The arson defense is most accurately viewed as an allegation that the insured purposely created the loss and therefore should not benefit from it.”)  See also Alexander v. Tennessee Farmers Mut. Ins. Co., 905 S.W. 2d 177, 179 (Tenn. Ct. App. 1995) (“To succeed on a defense of arson, an insurance company must show by a preponderance of the evidence (1) that the loss was due to a fire of incendiary origin, (2) that the insured had an opportunity to set the fire, and (3) that he had a motive to do so.”)  It matters not whether the jury determines that the insured personally set the fire or did so through the acts of another.  The key is that the insured caused the fire to be set.  See Don Burton, Inc. v. Aetna Life and Cas. Co., 575 F. 2d 702 (9th Cir. 1978); Crossley, supra, 362 N.W. 2d at 762.  In Don Burton, the Ninth Circuit explicitly rejected “the notion that a defense of arson can be defeated by a failure to prove that the insured himself was the incendiarist. . ..”  575 F. 2d at 705.  Rena Inc. v. Brien, 310 N.J. Super. 304, 708 A. 2d 747 (N.J. Super. App. Div., 1998).”

If sufficient facts are present, it is easier to prove rescission than an accusation that the insured committed the criminal act of insurance fraud.  Rescission, in many states, can be had even if the insured had no intent to defraud the insurer.  To prove the crime of fraud, on the other hand, the prosecutor is required to prove an evil or criminal intent.

© 2021 – Barry Zalma