All You Need To Know About The Legal Considerations Of Double Dipping

Double Dipping Defined

Double dipping is a term that can have different meanings in different contexts, but it generally refers to a situation where an individual or entity seeks to gain multiple benefits or payments from the same action or set of circumstances. It is often used in the context of financial gain, whereby an individual or organization receives payment or benefits in an unlawful or unethical manner.
In the realm of employment, double dipping commonly refers to employees who try to collect wages or benefits from two or more employers for the same hours of work. For example, an employee who works overtime for one company may attempt to claim additional overtime from another employer by falsifying timesheets or misrepresenting their hours worked. This practice is not only illegal , but it also creates an unfair burden on the employers and employees who are complying with the law.
In investment contexts, double dipping can describe a scenario where an investor attempts to profit from the same financial transaction or market movement multiple times. For instance, an investor who buys a stock and then sells it short (essentially betting that the price will fall) is engaging in double dipping because they are effectively trying to profit from the same price movement twice.
In the realm of government benefits and social security, double dipping often refers to the receipt of multiple government benefits for the same need or disability. This can create a burden on taxpayers, and lead to abuse of the system by some individuals who may not need the additional financial support.

Double Dipping in the Workplace

There can also be violations of this concept in the employment setting. An employee may receive benefits from an employer and then also seek to receive payments for the same work from a union. The employee may have requested and received approval for leave under the Family and Medical Leave Act and the employer may be paying the employee health benefits during the leave. The employee may also be receiving benefits from a disability policy. Under certain circumstances, an employee may be entitled to all or some combination of the leave, salary and benefits paid by the employer and the FMLA, but not all of them. The employer benefits from the leave taken under the FMLA and paid by the employer and the employee receives both disability pay from a disability policy as well.
There are other examples of double dipping in the employment arena. If you receive a state benefit such as unemployment pay, although it is not an entitlement, you may find it to be the case that if you receive a federal benefit such as a workers compensation benefit you may be subject to offsetting the federal benefits as a result of the state benefit received.

Legalities of Double Dipping in Investments

The financial and investment industries are not immune to claims of double dipping. The most glaring example manifests itself in situations where an investor finds multiple entries made for the same service (i.e., a conflict of interest may exist in a financial product or service provided by an investment professional). Whether intentional or inadvertent, the perception of double dipping is often a factor in these types of disputes.
Consider an individual who has funds invested with an individual or group of investment professionals with multiple reports of fees charged, only to discover that the fee is replicated on individual reports provided by each professional. In this instance, legal issues may arise if the individual invested with the directly-involved investment professional, as well as through a different investment program (e.g., separately managed accounts) that ultimately accesses financial products that are registered in the name of the broker-dealer institution. The issue at hand is whether the investor should be charged twice for the same service or charge associated with the sale of the financial products (which are often marked up to reflect the role of each financial professional); depending on the facts of the case, the financial professional may have wrongfully profited from the activity.
In addition to execution fee scenarios, double dipping related to asset management fees and fees related to the use of certain financial products (e.g., mutual funds) may lead to trouble for investment professionals. Many financial products have embedded fees (e.g., mutual fund costs built into the value of a mutual fund’s shares). For instance, if the investment adviser invests client funds in mutual funds or variable annuities, the investment adviser may be charging a management fee that is duplicative or in addition to fees assessed by the other entities (asset managers and product sellers) with whom the adviser has a relationship. Broadly defined, double dipping may also occur when multiple entry points exist for the fees charged for the use of mutual funds or ETFs (e.g., when a mutual fund is incorporated into a wrap fee program, which could include both purchase and management fees, as well as commissions).
The Wall Street Reform and Consumer Protection Act (commonly known as the Dodd-Frank Act), Title IV, Investment Advisors Act of 1940, the Employee Retirement Income Security Act (ERISA) and others are governing these issues as well as addressing allegations of double dipping, including but not limited to the following:
With conflicting laws addressing issues that foster allegations of double dipping, the resolution of claims will vary depending on the facts and circumstances of each case.

Double Dipping with Social Security and Pension Plans

Under the Social Security Act, consideration of other forms of income is not allowed in calculating social security benefits. Thus, it is illegal to "double dip" and collect a pension in addition to social security benefits. Similarly, under most pension plans, benefits are not payable until a person has ceased work. A common misconception is that as long as a plan does not expressly prohibit receipt of benefits without ceasing work, the employee will not be required to stop working. Although the denial of benefits for working is not per se illegal, for financial soundness, an employer can include such a provision in its pension plan. If such a provision is adopted, the employee must cease working to receive pension benefits or the otherwise applicable vesting schedules may be used to require an employee to forfeit employment credits or pension benefits altogether.

Legal Repercussions Of Double Dipping

The legal ramifications of double dipping vary by context and jurisdiction, but generally, it can lead to both civil and criminal penalties. Civil penalties can include the return of the improperly received funds (also known as restitution), penalties, and interest, while criminal penalties can involve fines and imprisonment.
In the context of workers’ compensation, double dipping can result in the loss of benefits and even criminal charges. For instance, in the case of a disabled worker who is receiving disability benefits while also trying to collect workers’ compensation benefits for the same disability, charges of fraud and double dipping may be filed. A leading case on this subject may be the Supreme Court of Montana’s in the 2010 case of Donovan v. Mont. Dept. of Labor and Indus. (2010). In this case (PDF), the plaintiff sought workers’ compensation benefits for a back injury. The plaintiff had earlier suffered a similar injury and had made a claim for disability benefits from his insurance policy. When his previous disability benefits were set to expire, he applied for workers’ compensation benefits. The Court found that he could not collect for both the workers’ compensation and disability benefits for the same period of time. He was ordered to pay restitution of the disability benefits. The Court ruled that double dipping in this sense does not apply only when the insured has received full compensation from both policies , but any compensation for a single risk from both policies. This principle could apply to other instances of double dipping including health insurance policies, life insurance policies, and more.
Double dipping in other contexts may attract the attention of federal or state regulatory bodies. For instance, in the insurance industry, the National Association of Insurance Commissioners has put forth proposed regulatory changes that forbid agents from being paid commissions and bonuses on annuity replacements, also known as churning, which they say amounts to double dipping.
On the litigation side, double dipping can be a factor in determining if a plaintiff’s request for punitive damages is in excess of safe harbor rule set forth by the Supreme Court in the case of BMW Ag v. Gore (1996) (PDF). In Gore, the Court held that a six-to-one ratio between punitive damages and compensatory damages is the constitutional limit for punitive damages in the absence of aggravating factors to justify an even greater ratio.
A finding of double dipping can lead to a reconsideration of whether or not punitive damages are warranted. For example, the First Circuit found in 1999 that applying the Gore ratio would be "anomalous" if the plaintiff’s recovery included double dipping. (Pagan v. Calmar S.S. Corp., 1999) The Pagan case allowed the imposition of excessive punitive damages against a corporation even where double dipping was present but said that the Gore ratio may not apply.

Preventing Double Dipping

A few best practices for avoiding double dipping compliance issues include the following:
Auditing policies and processes – From a company standpoint, regularly review policies and procedures to ensure that all funds collected are applied to the corresponding services. Companies should also perform regular audits to ensure funds are only applied to the intended billing code. Individuals should regularly review statements and payment history to ensure proper application of funds.
Informed consent – Be sure to use an informed consent process that provides for informed consent and for the time of services and a reasonable scope of services to be rendered, as well as the price, terms of payment and the necessity of payment in advance of service.
Healthcare Providers – For healthcare providers, bill only for those services that have been provided. This also extends to providing invoices with detailed descriptions of the specific services for which the consumer is being billed.
Health insurers – For health plans, healthcare claims should not be paid twice for the same services, duplicative services should not be allowed, and all claims should be identified and paid on the first pass (with exceptions for correctly identified errors and exceptions under existing regulations).

Seeking Consultation with Legal Professionals

Given the complexities and variations in the law surrounding double dipping, it is important to consult with an experienced attorney before making final decisions or accepting final outcomes. Similarly, if a claim is denied and the insured intends to pursue further action , a consultation with an attorney at that time is wise. While the law will be consistent for certain types of claims, there are new developments every day. Some of these developments may impact your case or your particular situation and an attorney should be consulted to determine exactly how the law applies to your claim.