Every year, bad weather destroys or damages crops grown by thousands of American farmers. In 2010, insurance payments on crop losses during the growing season reached nearly $3.7 billion, according to the U.S. Department of Agriculture.
Most crop insurance claims are legitimate. But some swindlers are harvesting a bumper crop of money through crop insurance fraud plots.
In North Carolina, for instance, 22 people have pleaded guilty in connection with a conspiracy to defraud insurers of at least $22 million by falsely claiming bad weather destroyed their tobacco crops.
The Federal Crop Insurance Corp., managed by the Department of Agriculture, provides crop insurance to farmers and ranchers to offset losses caused by bad weather and other natural disasters. Farmers and ranchers also insure their crops through private insurance. In all, the Federal Crop Insurance Corp. has issued about 1.1 billion policies that insure more than 250 million acres on farms and ranches nationwide.
The insured value of that acreage? About $78 billion.
Just as some fraudsters see opportunity in auto, life and workers' compensation insurance schemes, others -- like former North Carolina insurance agent Robert Stokes -- reap ill-gotten gains from insurance claims tied to tobacco, corn, wheat, oranges, tomatoes and other crops.
In the North Carolina case, Stokes was sentenced Jan. 14, 2011, to 30 months in prison and ordered to pay $16.6 million in restitution for his role in a wide-reaching scam. Stokes owned a company that sold federal and private crop insurance. From 2003 to 2006, Stokes recruited farmers to make false insurance claims, then hide their tobacco production by selling the crops, according to court records. In effect, the farmers were double-dipping -- getting paid once by filing a phony insurance claim and again by selling the tobacco.
“Honestly, when it comes to farmers, the rural and agrarian myth is in place here,” says Kent Politsch, chief of public affairs for the Department of Agriculture’s Farm Service Agency. “These are good, solid citizens, and when there is a bad guy in the mix, he stands out like a sore thumb.”
When crop insurance fraud does occur, it often produces a bushel of cash. For example:
• In 2005, North Carolina tomato farmers Robert and Viki Warren destroyed their plants with ice cubes, snapped photos of the damage, then submitted claims purporting their crops were destroyed by cold weather and a hail storm. Through the scam, which lasted from 1997 to 2003, they defrauded the Federal Crop Insurance Corp. and a few private insurers of more than $9 million. The Warrens got 66 months in a federal prison.
• Connie and David Finneman of Rapid City, S.D., pleaded guilty in 2005 to conspiracy to bilk the government out of more than $1.3 million in crop insurance benefits. The Finnemans received assistance from the Federal Crop Insurance Corp. When their annual benefits ran out, according to court documents, they created a few fake farms and signed up three relatives to receive insurance benefits for those operations. The couple was sentenced to 37 months in federal prison and agreed to pay $1 million in restitution.
“Sometimes people will just plant crops at the edge of a thousand-acre field and say they have one thousand acres of crops when, in fact, there is nothing in the middle of the field,” says John Brown, a private investigator who has testified for the federal government in numerous cases of crop insurance fraud.
“If an adjuster is standing in the middle of the road, he only sees the crop on the edge of the field and he’ll say, ‘You’re right. You’ve got one thousand acres.' Some insurance adjusters are fantastic and catch everything. Others are a little more lax.”
The federal government is fighting back against farm fraudsters, though. In 2005, it instituted several programs to ward off fraud and abuse in the crop insurance program. Among the measures, the Department of Agriculture beefed up its remote sensing and imaging efforts, allowing the use of Landsat satellite imagery to detect fraud. You'll find the same technology at NASA.
When Brown is hired to investigate a questionable crop insurance claim, he can view high-tech satellite images to determine whether a farmer planted what he said he planted. If the images don’t support what the farmer reported, Brown presents that evidence in court.
“Farmers are fed up with people who steal,” Brown says. “I’m a farmer myself, and it's hard to make a living if your neighbor is stealing, which makes it a greater likelihood that people will turn them in. These crooks are going to jail now. That’s a pretty big deterrent.”