How to Handle a Workers' Comp Claim That Feels Fraudulent

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group

Every so often we get a quiet phone call from a business owner who says some version of the same thing: "Something about this workers' comp claim does not add up. I do not think it is real. What do I do?" It is a fair question, and how you answer it in the first few days matters far more than most owners realize. This guide walks through the right steps, the legal traps that can turn your business into the one in trouble, and exactly where to report a claim you believe is fraudulent in each of the seven states we serve.

Here's the Short Answer

If a workers' comp claim feels fraudulent, do not deny it yourself, do not confront or accuse the employee, and do not discipline, demote, or fire them because of the claim. Report the injury to your carrier the same way you would report any claim, write down your specific concerns, and pass those concerns to your carrier's fraud unit and your state's workers' comp fraud office. Then let the trained investigators do their job.

Here is the part that surprises people: your suspicion, even a strong and well-founded one, is not proof. Acting on it directly is the single most common way a business owner turns a questionable claim into a lawsuit against their own company. Handle the claim calmly and by the book, and you protect both your business and your Experience Modification Rate.

The quick version:

• Still report the injury. Suspicion does not excuse you from reporting a claim, and in some states discouraging a claim is itself illegal.
• Do not adjudicate it yourself. Deciding whether a claim is valid is the carrier's job or the state's job, not yours.
• Document facts, not feelings. Dates, witnesses, inconsistencies, and video are useful. A hunch is not.
• Report your concerns to the right people. The carrier's fraud unit and the state fraud office investigate. You refer, they decide.
• Never retaliate. Anti-retaliation laws exist in every state we serve, and they have real teeth.

First, a Reality Check on How Common Fraud Actually Is

Before you assume the worst, it helps to know the numbers. The large majority of workers' comp claims are legitimate injuries from people who got hurt doing their jobs. Estimates of how often employees file genuinely fraudulent claims vary widely depending on who is counting: several studies put worker claimant fraud at roughly 1 to 2 percent of all claims, while one frequently cited academic estimate puts it closer to 16 percent of claim volume.

Here is a detail that reframes the whole conversation. When researchers tally the dollars, employee claimant fraud is estimated at about 9 billion dollars a year nationally, while employer premium fraud, meaning businesses underreporting payroll or misclassifying workers to lower their own premiums, is estimated at about 25 billion dollars a year. Total workers' comp fraud is often cited around 34 billion dollars annually. In other words, the biggest slice of the fraud problem is not injured employees at all.

None of this means your specific concern is wrong. It means you should stay calm, keep perspective, and let the process work. Prepare, do not panic.

Why You Cannot Just Deny the Claim or Fire the Employee

This is where good, well-meaning owners get themselves in serious trouble. When a claim looks suspicious, the instinct is to shut it down: deny benefits, confront the worker, cut their hours, or let them go. Every one of those moves can backfire badly.

You are not the person who decides whether a claim is valid. In the six states we serve that use private carriers, your insurance carrier's adjuster investigates and decides, with the state as the backstop. In Washington, the state itself decides, because Washington runs a monopolistic state fund. Either way, denying or slow-walking benefits on your own authority is not your call to make, and doing it can expose you to a bad-faith or unfair-claims-practices complaint.

Retaliation is the bigger landmine. Every state we serve prohibits punishing an employee for filing a workers' comp claim. Being genuinely convinced that a claim is false does not give you a legal pass to fire or discipline the employee over it. Courts and state agencies have repeatedly held that an employer's belief that a claim is fraudulent, on its own, does not justify termination. If you act on suspicion and you turn out to be wrong, or even if you are right but cannot prove it the right way, you can end up owing far more than the claim ever would have cost.

One state-specific point worth knowing: in Washington, discouraging or blocking an employee from filing a legitimate claim can be treated as claim suppression, which carries its own penalties. So the "maybe I just talk them out of filing" approach is not only unwise, in Washington it can be against the law.

Important: This article explains a general process, not legal advice for your situation. Employment law and workers' comp rules vary by state and change over time. Before you take any action that affects an employee's job, pay, or benefits, talk with a qualified employment attorney.

The Right Way to Handle a Claim You Believe Is Fraudulent

Here is the calm, defensible path. Follow it in order.

• Treat it as a real claim first. Make sure the employee gets any needed medical care. For emergencies, that means calling 911. You handle the suspicion later, through the right channels.
• Report the injury on time. Call Trailstone, or report through the carrier, within your state's deadline. Do not sit on it, and do not let suspicion tempt you into delaying. Late or suppressed reports create problems that are entirely your own.
• Write down your concerns as facts. Note what specifically does not add up: no witnesses, an account that changed, video that does not match the story, timing that looks off. Stick to observable facts and keep opinions out of it.
• Refer your concerns to the carrier's fraud unit. Most carriers have a Special Investigations Unit built for exactly this. Trailstone helps you get your documentation to the right adjuster and investigator.
• Report to the state fraud office too. Each state we serve has a dedicated place to report suspected workers' comp fraud. See the table below.
• Let the professionals investigate. Surveillance, independent medical exams, and recorded statements are tools for the carrier and the state, not for you. Running your own surveillance or interrogating the employee can taint the investigation and create liability.
• Keep employment decisions separate and documented. If you have unrelated, legitimate performance issues, handle them through your normal, documented process, and get counsel involved. Do not let the claim be the reason.
• Offer light duty and a return-to-work plan. A real return-to-work offer helps genuinely injured employees heal and controls your claim costs. It also has a way of clarifying exaggerated claims, because a worker who refuses reasonable light duty gives the adjuster useful information.

Red Flags Investigators Look For, and Why a Red Flag Is Not Proof

Investigators do watch for patterns. Knowing them helps you document usefully. Knowing their limits keeps you from jumping to conclusions.

Common warning signs include an injury with no witnesses, a report that comes in first thing Monday for something that supposedly happened Friday, a delay in reporting, an account of the injury that keeps changing, an injury that does not fit the physical demands of the job, a recently disciplined or clearly disgruntled employee, a claimant who is impossible to reach during normal work hours, or social media activity that contradicts the stated restrictions.

Here is the crucial caveat. Every one of those has an innocent explanation. Plenty of real injuries happen with no one watching. Plenty of workers wait a day or two out of toughness or fear. A red flag is a reason for a trained investigator to look closer. It is not a reason for you to accuse someone, and it is definitely not a reason to act against their job. Let the pattern inform your documentation, then hand it off.

Where to Report Suspected Workers' Comp Fraud in the States We Serve

In the six private-market states, your first stop is your carrier's fraud unit, and Trailstone helps you get there. You can also report to the state agency below. In Washington, because coverage runs through the state fund, you report directly to Labor and Industries. Reporting information was verified in August 2026. Agency names are stable, but always confirm the current reporting page before you file.

One reassuring point across the board: most states extend protection to people who report suspected fraud in good faith. If you refer a concern honestly and it turns out to be nothing, you are generally protected for having raised it the right way. That protection is one more reason to use the official channels instead of taking matters into your own hands.

How a Questionable Claim Affects Your Costs

This is not just a principle problem, it is a dollars problem. Claims feed your Experience Modification Rate, the factor that raises or lowers your workers' comp premium based on your loss history. A single significant claim can influence your rate for about three years. That is exactly why the answer to a suspicious claim is a disciplined process, not a panic reaction.

Good documentation, prompt reporting, a real return-to-work program, and a strong relationship with your carrier's claims team all help keep a questionable claim from becoming a permanent line item on your premium. The goal is to manage your total cost of risk, not just react to one claim. The employers who come out ahead treat claims handling as an ongoing discipline, reviewed well before renewal, rather than a fire drill.

How Trailstone Helps When a Claim Does Not Add Up

You do not have to figure this out alone, and you should not try to. When you call us about a claim that feels off, we help you do the right things in the right order.

• We report the claim with you. We help you file correctly and on time, so the process starts clean.
• We help you document your concerns. We know what the carrier's investigators need and how to present it as facts.
• We connect you to the carrier's fraud unit. We get your information to the adjuster and the Special Investigations Unit so the professionals can take it from there.
• We help protect your Experience Mod. We coordinate on return-to-work and claim management to limit the long-term premium hit.
• We give you a written summary. You get a record of what was done and when, for your files.

What we do not do is give legal advice. For any decision that touches an employee's job or benefits, we help you loop in an employment attorney. Our role is to be your risk advisor and your advocate with the carrier, and to make sure a hard situation is handled calmly and correctly.

Frequently Asked Questions

Can I stop paying or deny benefits if I think the claim is fake?

No. You are not the one who decides whether the claim is valid. That is the carrier's job in most states, and the state's job in Washington. Report your concerns and let the investigation run.

Can I fire an employee I believe is committing fraud?

Not because of the claim. Firing or disciplining someone for filing a workers' comp claim is retaliation, and it is illegal in every state we serve. Being convinced the claim is false does not change that. Talk to an employment attorney before making any job decision.

Do I still have to report the injury if I am sure it is fraudulent?

Yes. Report it on time through your carrier, or in Washington through Labor and Industries. Then report your fraud concerns separately. Failing to report, or discouraging the claim, can put you in the wrong.

Will reporting suspected fraud get me in trouble?

Most states protect people who report suspected fraud in good faith. As long as you report honestly through the proper channel and do not retaliate against the employee, you are generally on solid ground.

What actually counts as workers' comp fraud?

Common examples include claiming an off-the-job injury as a work injury, exaggerating the severity of a real injury to extend time off, or working another job while collecting wage-replacement benefits. Intent to deceive is the key element, and proving it is the investigator's job, not yours.

Can the insurance company use surveillance?

The carrier may use surveillance and independent medical exams as part of its investigation. You should not run your own surveillance or confront the employee, because that can create liability and taint the case.

How does a fraudulent or questionable claim affect my premium?

Claims influence your Experience Modification Rate, which affects your premium for roughly three years. Handling the claim correctly, with prompt reporting and a return-to-work plan, is the best way to limit the damage.

Is workers' comp fraud a crime?

In the states we serve, workers' comp fraud is a criminal offense, and serious cases can be charged as felonies. Penalties can include fines, restitution, and forfeiture of benefits. The state, not the employer, brings those cases.

What is different about Washington?

Washington runs a monopolistic state fund, so most employers do not have a private carrier to call. You report suspected worker fraud directly to Labor and Industries. Washington also treats discouraging a legitimate claim as claim suppression, so tread carefully.

Your Quick-Action Checklist

• Get the employee any needed medical care first. Handle the suspicion through the right channels afterward.
• Report the injury on time. Call Trailstone or your carrier, and do not delay.
• Document your concerns as facts. Dates, witnesses, inconsistencies, and any video.
• Refer the concern to the carrier's fraud unit and your state fraud office. Let the investigators decide.
• Do not confront, discipline, or fire the employee over the claim. Retaliation is the trap.
• Offer a real return-to-work plan. It helps genuine recoveries and controls your costs.
• Talk to an employment attorney before any job decision. When in doubt, get counsel.

What to Do Next

If you are staring at a claim right now that does not feel right, the smartest first move is a phone call, not a confrontation. Give us a call to talk to one of our commercial insurance specialists, and we will help you report it correctly, document your concerns, and get the carrier's investigators involved the right way.

Reach out to Trailstone through our website at www.trailstoneinsurance.com or give us a call. Trailstone will provide a complimentary review of your workers' comp program and a written summary for your records, so you know exactly where you stand before your next renewal.

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group

This article is general information, not legal advice. Workers' compensation and employment laws vary by state and change over time. Consult a qualified employment attorney before taking action that affects an employee's job, pay, or benefits.