Insurance_FraudStoppers

Zalma on Insurance

Barry Zalma, CFE, is an insurance coverage attorney. He is the founder of Barry Zalma, Inc., a California law firm whose practice emphasizes the representation of insurers and those in the business of insurance.

Mr. Zalma is the author of Insurance Claims: A Comprehensive Guide, published by Specialty Technical Publishers, Vancouver, BC at http://www.stpub.com The Truth, The Whole Truth & Nothing But The Truth, Property Claims 2nd Edition and Liability Claims and all course books used by ClaimSchool, Inc. in its training programs. He is also the author of three books published by Thomas Investigative Publishing, and numerous articles for insurance trade publications and law journals.

Mr. Zalma writes the monthly Zalma's Insurance Fraud Letter which is available, FREE, from ClaimSchool, Inc. and over the internet at http://www.zalma.com

Specialty Technical Publishers has published "Mold: A Comprehensive Claims Guide" by Culver City lawyer Barry Zalma. The book is the only comprehensive guide to cover all issues relating to claims of damage by mold or fungal infestations. It is an essential tool for every person who owns real property, manages real property, for all risk managers, realtors, property inspection companies, insurance agents and brokers, insurance claims people, and lawyers who represent property owners or insurers. It is available at http://www.stpub.com or by calling 1800-251-0381

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THE CASE OF THE ART FLAMBEE
A Heads I Win, Tails You Lose Story
by Barry Zalma, Esq., CFE

The story that follows is based on fact but is fiction. The names, places and descriptions have been changed to protect the guilty. This story was written for the purpose of providing insurers, those in the insurance business and the insurance buying public sufficient information to recognize and join in the fight against insurance fraud.

When a person decides to perpetrate an insurance fraud he pushes the pause button on his morality. His plan to commit the fraud will then become so flamboyant and creative that even the most innocent of claims adjuster will detect the crime. Such was the case of a Belgian immigrant. He came to the United States shortly after World War II and eked out a living with various jobs as a low paid engineering draftsman.

Before he decided to change his career and try arson for profit he had lead a dull, but exemplary, life. He, at the age of sixty, married his second wife. Shortly thereafter they had a child. When the child was three he contracted phlebitis and underwent several surgeries. He was unable to keep up with his work and, in any event, the aerospace industry had just lost several major contracts. He lost his job.

Unemployment Compensation did not pay enough for him to make the $400 a month payments on his small three bedroom house in Cerritos, California. His lender foreclosed.
After the foreclosure sale had occurred he was still living in the house. His homeowners policy was still in effect. He no longer had an interest in the house and was subject to eviction. The insured recruited his sixteen year old son, from his first marriage, to set fire to the house. He made certain that when the fire occurred he, his wife and young daughter visited relatives in Victorville. The house, with the assistance of two gallons of gasoline, burned to the foundation.

Much to his surprise (he was not an insurance scholar) the insurance company immediately denied his claim for the loss of his structure. He did not know that he must, at the time of the fire, have an interest in the structure to collect indemnity. The mortgagee, now owner, received full payment. He had a $100,000 contents coverage and needed to collect it all.

Of course, because of his extended illness and lack of income, the house had relatively threadbare and simple furniture and furnishings. He needed to bring the values up somehow to effect a policy limits payment.

He prepared an inventory of all of his household furniture and furnishings and added to that an original oil painting by Rembrandt, an original oil painting by Pablo Picasso and an original oil painting by Vincent Van Gogh.

The adjuster was surprised that anyone who owned such valuable art work had difficulty making a $400 a month payment to his mortgage company. The adjuster could not understand how the insured could allow his house to go by foreclosure. The adjuster retained counsel to examine the insured under oath.

Under oath, the insured's testimony established that the insured had attempted to perpetrate a fraud on his insurer. The insured testified that he was of royal birth, his father being a Baron in Belgium. The Baron lived in a castle outside of Antwerp having earned his fortune in the diamond trade. The Baron, pleased to learn that he had become a grandfather again, brought his son, daughter-in-law and new granddaughter to visit him at the castle. They spent a month at the castle enjoying the generosity of the Baron. Before the insured left, the Baron pointed to three oil paintings on the castle wall and told his son to take them home with him as a gift in honor of the birth of the new granddaughter.

The insured testified that he took the oils out of their frames, rolled them up and placed the three in a shipping tube which he hand-carried back to the United States. Since they were gifts he did not report them to U.S. Customs. He had no written record of his ownership or possession of the paintings.

He described the Rembrandt as a dark painting of people sitting about a table with a bright point of light. When asked to describe the painting by Van Gogh, the insured testified "Another Dutchman. The painting was in the same style."
Of course, counsel knew that although Rembrandt painted in very dark colors Van Gogh painted in wild, bright, and exuberant color schemes. A dark and brooding painting like that of Rembrandt never came off Van Gogh's brush.

Further, counsel knew (after consulting with an art expert) that Rembrandt painted most of his works on board. It was, therefore, impossible to roll it up and put it in a tube. If the insured had one of Rembrandt's rare canvasses and had rolled it up when he arrived home in Cerritos he would have found a clean canvas and a pile of paint chips at the bottom of the tube.

The insured tried to help the insurers investigation. He provided a photograph of a family dinner where the Rembrandt was visible in the background. The insured identified the photograph as depicting the original Rembrandt oil painting in its background. Counsel for the insurer had the photograph enlarged. The enlargement showed the single, bright point of light described by the insured was cast by a painting of an electric light bulb. Of course, Tom Edison had not been born when Rembrandt was painting, and would not be born for at least three hundred more years.

To the surprise of the insured only the insurer rejected the claim presented by the insured for fraud, false swearing, and material misrepresentation of fact.

Surprisingly, suit was filed against the insurer for breach of contract and breach of the covenant of good faith and fair dealing. Although the fraud was obvious and blatant the costs of defense of the bad faith action mounted. The suit dragged on for three years. Trial counsel for the insurer were unable to convince a court to grant summary judgment. Finally, at a mandatory settlement conference the lawsuit settled for a payment by the insurer of $30,000.

There is no question that the settlement was an appropriate economic decision if the insurer was only considering the single lawsuit. They were dealing with a plaintiff's lawyer they saw on a regular basis. To pay him "tribute" as an economic decision was illogical. When a plaintiff's bad faith lawyer is paid $30,000 by an insurer for a lawsuit that any three year old would know was a blatant fraud he has been given an engraved invitation to sue that insurer multiple times, regardless of the merits of the lawsuit.

To pay a blatant fraud is tantamount to providing plaintiff's counsel with the key to the vault that holds the assets of the company. The insurer that does so fools itself only that it is making a reasonable economic decision. It will pay, in the future, thousands of dollars because the plaintiff's bar knows they will pay off rather than pay their lawyers to defend the most spurious of suits.

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