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A staged car accident in Brooklyn may seem meaningless to you in Western New York.

It isn't.

You're paying at least $60 more a year for your car insurance because of a ballooning fraud industry. Despite an all-out offensive against it, losses and rates could go higher.

Once a local scam concentrated in New York City, the crooked business is spreading across the state as perpetrators take advantage of quirks in state laws, investigators say.

And that puts you at risk of paying even more for it, with your money or your well-being.

Fraud used to be a haphazard occurrence involving a couple of people here and there trying to fool their insurers and get extra money for injuries, an accident or a fake theft.

But in the last five years, it has mushroomed, especially in New York City, into a billion-dollar industry. The scams now feature organized rings of doctors, lawyers and often dozens of willing victims and coordinators.

They deliberately cause minor accidents, steer participants to purported medical clinics, run up charges for services that aren't used or needed and then bury the insurers with paperwork.

Even organized crime smells the money and is into the act, insurers and law enforcement officials say. Schemes often include "runners," people who set up an accident and steer victims to fraudulent medical clinics.

"Drug dealers have gotten out of the drug business and into the runner business because the money is just as good and penalties are fairly non-existent," said Bill Melchionni, director of New York government relations for Nationwide Financial Services, the nation's No. 5 auto insurer.

Auto insurance fraud in New York State totaled $432 million -- $1.2 million a day -- in 2003, and losses have been mounting, according to the industry-sponsored National Insurance Crime Bureau. Total fraud losses are more than $2 billion, the group says, and the Insurance Information Institute estimates as many as one in four no-fault claims are fraudulent.

The institute projects that insurance premiums in the state -- already the second-highest in the country -- will likely rise to $1,332 per vehicle next year, including about $75 because of fraud.

"Regardless of where it's happening, everyone in New York State pays for it in the long run because we pay higher auto insurance premiums," said Kathy Weinheimer, senior vice president of industry relations for the Independent Insurance Agents and Brokers of New York. "That's a lot of money that you and I are paying for this."

More than money

The risk can be more than financial. As scams spread to Western New York, innocent drivers can be caught in staged accidents. In an oft-cited case by the industry, an elderly New York City woman, Alice Ross, was killed when a scam participant struck her from behind, forcing her off the road and into a tree. And a staged accident in California in 1997 killed a young family of three.

Experts say staged accidents have occurred upstate, and several investigations are under way.

"There are some major cases going down very shortly out of Buffalo," said Randy Raab, director of the special investigation unit at Merchants Insurance Group in Buffalo.

"What has worked in the New York City area has been attempted and is being attempted in upstate and Western New York," said Buffalo insurance attorney Roy A. Mura.

The insurance industry is taking the battle to the public.

It has sponsored a $1 million marketing campaign in the last two months aimed at getting consumers to report fraud. Ads sponsored by the five-year-old New York Alliance Against Insurance Fraud have been running on radio, cable television and billboards.

"The insurance market in New York is broken. It's in disrepair and in need of being fixed," said Tom Fatzynytz, New York special investigative unit section manager for State Farm Mutual Automobile Insurance Co., the nation's biggest auto insurer.

Not everyone agrees. Fraud is a problem, but some consumer advocates say solutions must work to lower premiums, not just boost insurer profits at the expense of consumer protections.

"We're opposed to fraud, too. The only people who support it are organized crime. But what's important is how you go about it," said Blair Horner, legislative director of the New York Public Interest Research Group, which battles with the insurance industry over proposed legislative changes in Albany. "We would agree that there needs to be reforms, but typically the reforms the insurers want are not the ones we do."

The "no-fault" trap

New York's "no-fault" auto insurance system has created a fertile environment for the fraudsters. About 58 percent of the 29,705 reports of suspected fraud to the state Insurance Department last year involved no-fault fraud. Authorities made a record 811 arrests last year, including four police officers and at least one reputed mob crime family member.

The problem, according to insurance company officials, stems from the state's effort in 1973 to stem the tide of frivolous small-claims lawsuits by setting up what's called the "no-fault" system in the state. Simply put, that means that each insurance company pays for injuries for its own policyholder and anyone else in that car up to $50,000, regardless of who was at fault.

Lawsuits are barred unless a victim is seriously disfigured or claims exceed the $50,000 "personal injury protection."

Insurers say time constraints hinder their ability to combat fraud. Companies must request any additional information within 15 days and pay or deny a claim within 30 days. Otherwise, the companies forfeit their rights to contest the claim, even if there is fraud.

Fraud rings take advantage by flooding insurers with paperwork in hopes that companies will have little choice but to pay.

"They'll often bury us in a boxful of bills at the end of their deadline to submit them to us, and then we have a very limited opportunity to cull through them," said Nationwide's Melchionni.

How it works

An organized fraud ring typically involves doctors or a medical clinic, lawyers, collision-repair shops and "runners" or "cappers," whose job is to recruit participants, stage accidents and direct people afterward to a particular clinic for treatment.

Car accidents can be staged in which one or both drivers are participants and one slams into the other. Sometimes the accidents can be legitimate, and a "runner" can get a police report and solicit the victims afterwards to go to the clinic or lawyer. There's minimal risk, too, since being a runner is not a felony.

When patients come into the clinic -- referred to as "medical mills" by insurers -- the "doctor" prescribes them a series of treatments, specialist referrals, drugs and diagnostic tests like MRIs, up to the $50,000 level. People have testified in court that they've been visited by multiple specialists but never actually received any treatment in such clinics.

In response, insurers are increasingly comparing notes with each other and with regulators and collaborating on investigations.

"If ABC Clinic is defrauding us, they're very likely defrauding State Farm and Allstate and Geico and Progressive," Melchionni said. "We work together to get them out of business."

But that works both ways. The fraudsters have also learned how to use the rules to avoid being caught, such as stalling the insurers and using lawyers. They're also mobile enough to reopen under new names or in new areas if authorities get too close.

Still, the effort is having some effect. Last December, Nationwide teamed up with Allstate Corp. to file the largest no-fault auto insurance fraud lawsuit in state history, using the Racketeer Influenced and Corrupt Organizations Act originally intended for organized crime.

The $100 million suit involved thousands of claims and targeted 74 defendants, who were accused of staging accidents, laundering money, bribing police administrative aides for false police reports and taking kickbacks for patient referrals to bogus medical clinics. More than 50 people had previously been arrested in September.

The insurers have also won some victories in their efforts to change the rules. The state regulation governing submission of claims, for example, was altered so that a victim now has 30 days to submit a claim -- down from 90 and a medical provider has 45 days to submit bills -- down from 180.

Doctors, lawyers and consumer groups challenged that change, which they called an anti-consumer amendment, saying the short deadlines could cause honest consumers to lose all benefits for an accident simply by not giving notice to the insurer in 30 days.


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