Fraudian slips: in desperate times, people do desperate things. But all who pay a premium pay a price for insurance scams.

• Author: Martin, Edward
• Position: FEATURE

As the autumn sun warms the woods, Michael Duke settles in for another day. On assignments like this, he sometimes dons a ghillie suit, the tattered camouflage that snipers wear to blend into underbrush. On other jobs, he sits in his car staring at video images from a tiny camera secreted a quarter-mile away. At 47, he still carries some heft left over from lifting weights when he was a drug-enforcement officer, but he is soft-spoken. When frustration mounts on days like this, he coaches himself. "Patience," he says.

The house he's watching sits off a paved road in rural Granville County, north of Raleigh. The yard is clipped, the chrysanthemums tended. On his second day, she emerges, a middle-age woman, purse draped on her arm. She drives to a bank, then to Kmart, where she pushes a cart up and down aisles, shopping before returning home. The next day, a rented truck, a stick-on logo identifying it as a utility contractor's, parks on the road near her house. Like an early riser's yawning stretch, its bucket arm slowly flexes up. Now with a clear view of the back- yard, Duke videotapes the 52-year-old hoeing her garden, tugging a heavy hose, lugging a yard wagon loaded with potting soil and stooping to plant bulbs. For good measure, he shoots similar activities over two more days.

Duke turns over his tapes to the insurance company that hired him. They become evidence in a hearing before the N.C. Industrial Commission, the state agency that adjudicates workers' compensation cases. It denies the woman's claim that she had been disabled by an on-the-job injury moving boxes at a chain drugstore. "A false claim like that might run $25,000 to $50,000 for the insurer," Duke says, "so $600 a day for a few days of surveillance, including travel time and everything, is a pretty good investment." His Charlotte-based Carolina Surveillance & Investigations Inc. employs five to 10 private investigators, depending on the caseload.

A dime of each dollar paid in premiums is lost to fraud, state Insurance Commissioner Wayne Goodwin estimates. Carolina Surveillance's speciality, like that of several dozen similar companies across the state, is workers' compensation fraud. But that's just part of a framework that includes health-insurance scams, staged automobile accidents--officials say North Carolina is experiencing a near epidemic of those--and bizarre property-and-casualty claims. In 2008, P&C fraud losses alone approached $1 billion in North Carolina, which ranked eighth nationwide, says Frank Scafidi, spokesman for the National Insurance Crime Bureau in Des Plaines, Ill. Employers, motorists, homeowners --everybody who buys insurance--pick up the tab.

In May, N.C. Department of Insurance investigators charged a Northampton County farmer after he claimed someone stole a $12,300 machine for removing chicken manure. They allege that he previously claimed lightning knocked out the fans in his poultry house, suffocating $2,700 worth of chickens. Lightning...