Note: The following is intended as an informational article only and should not be construed as legal advice.

Body shop owners and employees at every industry conference have plenty to say about the practices of insurance companies they feel are absolutely illegal, immoral and downright disheartening – such as steering, insurer-required discounts and new kinds of policies that cost less if a policyholder agrees up front to use a body shop chosen by the insurer. Admittedly, these are problems to worry about.

But, in legal terms, there’s the clean-hands doctrine, which means that if you’re going to claim foul on the part of another, then you had better cast that first stone without having exhibited any behavior that puts your actions in a bad light. Unfortunately, the daily operations of most body shops are ripe with instances that would be a technical violation of a state or criminal fraud statute, not to mention fertile ground for consumers bent on civil legal action.

What Is Fraud?
Conduct described by the term "fraud" assumes many forms and doesn’t lend itself to an exact definition. Because the ways to commit fraud are almost limitless, courts have been unwilling to restrict the meaning of the term, recognizing that, as technology advances and imagination increases, some new method of unfair dealing may be devised that isn’t currently covered by the definition.

Fraud can be a violation of state or federal criminal laws, for which a guilty party can be imprisoned or fined – or both. It can also be the basis for a civil action, where a suit is brought by one party against another for monetary damages.

Generally, fraud includes four major elements: the making of a false statement concerning a material fact; knowledge by the person making the statement that it’s false; an intention that the representation induce another to act on it; and consequent injury to the party acting in reliance on the representation.

Some states have general criminal fraud statutes; in other states, fraud statutes can be exceedingly specific. In Florida, for example, there’s a specific statute prohibiting receiving money or property upon false promises of services as a seaman or sponge fisherman. Another Florida provision deals with "procuring assignments of produce upon false representations." Still another Florida statute is titled "fraudulent issue of certificate of stock of corporation." All of these, and more, are ways to be guilty of fraud in just one state.

Each state has its own method of describing offenses, and the penalties vary from place to place. But a typical fraud statute is Title 18 , United States Code, Section 1001, which deals with statements and entries generally. This federal law reads:

"Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined under this title or imprisoned not more than five years, or both."

You may think from this wording that you’re home free because in changing that repair order, you did nothing that involved the government, so the United States can’t prosecute you. However, the jurisdictional element is easy to satisfy. Almost anything that you can think of is under the jurisdiction of some department or agency of the United States. For example, the purchase of that hamburger you buy at McDonald’s every day has been found to invoke federal jurisdiction because its tomatoes may have been shipped from another state. Arguably, if any part you replace on a vehicle ever moved in interstate commerce – and it’s difficult to imagine a part that wasn’t manufactured in another state and shipped to your local parts supplier – you could be charged with a federal criminal offense.

How Fraud Is Committed
How can a body shop be guilty of committing fraud? If a body shop owner replaces a customer’s damaged door with a used and straightened door when the adjuster writes for a new OEM door, the shop owner has probably satisfied all the required elements of fraud when he bills the insurance company or customer for the new door.

First, the shop owner has stated in his invoice that a new door was used, when in fact it wasn’t. This is a false statement that concerns a material fact, assuming the door is a key portion of the repair. Second, he knew a new door wasn’t placed on the vehicle, so the action isn’t a simple error; it’s a knowing action. Third, he made the representation in an attempt to get the insurance company to pay for a new door, so he satisfies the requirement of inducing another to act in reliance on the false claim for the new door. And fourth, he injured the insurance company and, arguably, the customer by diminishing the value of the automobile and by not providing the agreed-upon quality of work.

Regardless of where you might be prosecuted, the core element of fraud, then, is knowing something is false and doing it anyway. The statute doesn’t contemplate prosecuting someone for a mistake of little consequence. Its target is the person who’s, frankly, trying to get away with something. This differs from a breach of warranty, where repairs simply aren’t what they were guaranteed to be, perhaps because of a mistake or even negligence but not because of a deliberate attempt to deceive.

While fraud usually requires a false statement to exist, a knowingly withholding a fact can also be fraud. But active concealment is required – something like painting a used door to hide the fact that it wasn’t new.

How Fraud Cases Are Made
Usually, fraud prosecutions, as distinguished from a civil action, involve a pattern of behavior. A one-shot fraud is usually defensible as an "honest mistake." For example, if Body Shop A charges the insurance company $1,195 for a $195 part and it only happens once, then perhaps it’s arguable that the clerical staff made a human error while inputting the information into the computer. But, if over time, parts charges are consistently entered incorrectly with an additional digit or a specific additional percentage, things begin to look suspicious. And if many estimates begin to have the exact parts marked up the same way, it begins to look like a scheme, another key to proving a "knowing" violation of the statute.

Could you be prosecuted for one instance of fraud? Absolutely. Most governments, at whatever level, don’t have the philosophy of giving every citizen one free crime. Will you be prosecuted for one instance of fraud? Probably not because your local district or state attorney is too busy prosecuting more high-profile violent crimes or organized efforts at fraud that result in million-dollar losses, like Medicare, Medicaid or welfare fraud schemes.

But before you breathe a sigh of relief, a word to the wise: If an irate citizen were to go to the district attorney and complain loudly enough about some questionable practice of your body shop, such as putting on a used door in place of a new door, then it’s certainly possible that a case could be filed, depending on how consumer-oriented (read "political") that local district attorney might be.

And Then There’s Civil Fraud …
There’s also civil fraud to consider. An irate citizen who can’t convince a district attorney or, ultimately, a jury that you’re guilty of a crime can always, as in the O.J. Simpson case, go the civil route and sue you for monetary damages and even punitive damages under some deceptive-practices statutes. And given the growing litigious nature of our society and the popularity of Judge-Woppner-like television, many people like being their own attorney.

For a filing fee of around $100, a litigant can get into small-claims court, where not only could you be found liable for damages of up to that court’s jurisdictional amount – usually several thousand dollars – but you’d have to waste valuable work time in court – where cases are often re-set – defending yourself and bringing employees to substantiate your position. Or, even worse, you might have to hire an attorney to do it for you.

"But I Have to Commit Fraud to Survive!"
One body shop owner said he’d "never make any money" without doing some of the fraudulent things mentioned in this article, and some of his cohorts present similar defenses.

Some of the often-heard excuses for committing fraud:

Excuse No. 1: I just own a small body shop and they’re a big insurance company. That extra $100 means a lot to me and nothing to them.

Excuse No. 2: The customer insisted she wanted the car on Friday afternoon so she could go on a vacation, and I didn’t have time to wait for a new part.

Excuse No. 3: The labor rate the insurance company pays is unfair. I’m just compensating for that by fixing the old part instead of replacing it with a new one.

While each of these arguments may have merit in a forum on the status of the body shop industry today, they don’t carry much weight in court. Fraud begins with an intentional untruth between parties to a transaction, and none of the excuses above would negate that element.

The best procedure is certainly to avoid any situation in which the slightest deceit is involved. Inevitably, it comes back to haunt you. If a body shop put on the repair order that a new door was obtained and used when, in reality, an old door was found and straightened, that repair order could be discoverable by the opposition in a lawsuit. On that repair order, for all the world to see, would be the shop owner’s own handwriting stating that he bought and installed a new door, which would prove to be excellent evidence against him that no "mistake" was made but rather deliberate fraud was committed.

Defending Yourself
Are there any defenses a shop owner can use if unjustly accused of fraud? Assuming that no pattern of deceptive practices is involved, not every false or improper statement of representation constitutes fraud on which a prosecution or civil claim for relief can be based.

One defense is mistake: The employee in the back of the shop, for example, got mixed up and thought he was supposed to straighten the bumper on the Toyota and replace the bumper on the Honda, when, in fact, the repair orders called for just the opposite actions. A showing of the existence of two similar jobs in the shop at the same time would probably negate the element of a knowing falsehood in this instance.

Another defense is that the fraud, even if it did exist, wasn’t material. Suppose, for example, the total amount of the job was $8,900, and the shop owner substituted a $15 aftermarket part for a $30 OEM one. Arguably, the deviation was so small that the fraud, if any, wasn’t a material part of the job. This defense, however, could be defeated by showing a pattern of deviation.

A third defense is simple negligence: The shop owner failed to supervise new clerical personnel who typed in the wrong computer codes and billed the insurance company an additional $1,000 in labor that wasn’t done. It should be noted, however, that liability for fraud may arise when it’s shown that negligence occurred under circumstances in which the negligent supervisor should have known of the error.

A fourth defense is a statement of opinion or belief. Suppose the shop owner tells the customer, "This door should last another 15,000 miles." When it doesn’t, is that fraud? Usually not, unless the statement is made as a warranty or statement of fact.

Akin to this is what’s often called "trade talk" or "puffing." If a salesman tells you his paint is the "best in the industry," almost anyone can recognize this as a sales pitch and doesn’t expect the salesman to prove it with facts and figures. Now suppose a body shop owner tells a customer that his technicians are the "most careful" in the city and, as a result, the customer chooses his shop for repairs. If the technician then breaks something accidentally, there probably isn’t an action for fraud.

An Ounce of Prevention
What’s the best thing shop owners can do to protect themselves against complaints of fraud? First, scrupulously deal with the written word as it is. Remember that the documents signed by the customer, the body shop personnel or the insurance company become key evidence in a future fraud action. If the insurance company, for example, pays for a new door, the body shop owner who signs the submitted bill for that new door is essentially testifying that the work was done as ordered. Those documents tend to lie dormant in files until a problem arises, then they come back to haunt those who carelessly signed them but didn’t do the work as ordered.

Documentation, however, can also work to your advantage. It’s frequently stated as a general proposition that a party’s waiver of an allegedly fraudulent transaction, with knowledge of the fraud, bars him from claiming he was deceived. What does this mean for the shop owner? Document any deviation from the original RO and have the customer or adjuster sign it so there’s no question in the future – maybe when the car is involved in a second accident – why your shop didn’t put on the new door that was originally ordered. If the customer’s OK is signed next to the straightened door, then it’s difficult for the customer to claim he was somehow defrauded by the shop. Likewise, if there’s a notation on your bill to the insurance company that you "couldn’t find OEM part in time for customer to take vehicle, and J. Smith, adjuster, approved substitution of aftermarket part by phone," then you have, again, documented a change from the order.

Those Who Live in Glass Houses …
Ultimately, it’s a question of judgment. Nine times out of 10, you’re probably not going to get prosecuted or sued under a fraud theory – maybe even 999 times out of 1,000. But not getting caught doesn’t mean you haven’t technically violated either the criminal law or the rights of another, whether it’s the rights of the insurance company or the customer.

So, next time you begin talking about an "evil" insurance company, decide whether or not you’ve (even minimally) defrauded that company or a customer that week. When you come into a transaction with clean hands, your claims of unjust treatment are a lot more credible.

Writer Susan Martin has her own law practice in Miami and is licensed to practice in the state and federal courts of Texas, Florida, Hawaii and Nevada. She’s also married to a body shop owner.