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To the editor: The June 16 article "As If Fraud Weren't Expensive Enough," reports on the annual meeting of the International Assn. of Insurance Fraud Agencies. At the meeting, Sheila J. Carpenter stated that despite immunity statutes, the exposure of an insurer to "policyholder suits can be expensive" and that "one bad verdict can wipe out all of your savings on fighting fraud."

I must take issue with this speaker's conclusions. In my experience as New York state's superintendent of insurance and in my capacity as counsel to many insurers, the contrary is the case. Insurers are the first to be aware of insurance fraud and, therefore, are the first form of defense against insurance fraud. Insurers face more exposure from bad faith claims in defending or denying claims than in reporting criminal insurance frauds. The worst-case scenario described by Ms. Carpenter is not based upon a false report of fraud but relates to egregious claims handling by the insurer.

New York Insurance Law, Article 4, was first enacted during my term as superintendent of insurance. The statute mandates that any licensee of the department who has reason to believe that an insurance transaction is fraudulent or has knowledge that a fraudulent insurance transaction is about to take place, or has taken place, shall report the facts of the transaction to the department's Fraud Bureau. The report is confidential, privileged and, absent bad faith, the entity making the report shall be immune from prosecution. The licensees, therefore, are under a statutory mandate to make the report or face a disciplinary action that could include the loss of license and/or a fine.

This law has been an effective deterrent to insurance fraud, and I know of no action against a person making the required report since 1981, when the statute was passed.

If insurers that are protected by immunity statutes are deterred from notifying law enforcement agencies or insurance departments of fraudulent transactions, then the fraudsters will have an open field to defraud insurers and thereby increase the premiums charged to law-abiding policyholders.

The International Assn. of Insurance Fraud Agencies would do well to encourage insurance legislation that mandates privilege, immunity and confidentiality to insurers, managing general agents and other licensees who report insurance fraud, and to fight insurance fraud by being vigilant in reporting insurance fraud to regulatory authorities and to law enforcement entities.

Albert B. Lewis


D'Amato & Lynch

New York