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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SMALL TIME FRAUD
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.

Insurance fraud takes over $10 billion every year from California insurers. Insurance consumers are asking these questions

1. Is there a major ring of criminals stealing all this money?
2. Should the State establish a task force of police and prosecutors to catch these arch villains?
3. What can be done to stop the fraud?
The answer is, as Pogo said "We have met the enemy and they is us!"

Usually normal, honest insurance consumers are the perpetrators of insurance fraud. Most money is taken by honest insurance consumers.

Harry and Louise, victims of minor earthquake damage to their home in Oakland, California are an example of how fraud takes hold of honest people.

Harry, an ordained minister without a church, earns his living as a psychologist with offices in Walnut Creek. His wife, Louise, is a physical therapist who maintains a part-time practice at a general hospital in the San Francisco. They live in a house of twenty five hundred square feet. The two story house is in a nice area of Oakland just north of the border of the great Oakland Fire Storm. They have three children, aged 5, 6 and 16. Louise works only when all of the children are in school.

Harry and Louise are exemplary citizens. They attend every PTA and school meeting. They vote in every election, even municipal elections. Harry and Louise donate money to their church regularly. They save at least 10% of their income in a college fund for their children. The Harry and Louise IRA is a substantial retirement fund for their old age. The only long term debt they have is for their two cars and their house.
They are active members of the Sierra Club. Harry usually votes Republican and Louise usually votes Democrat. They spend quality time with their children.

They are good neighbors. Harry and Louise are the type of people everyone would like to see move in next door.
Harry and Louise were serious about protecting their children and assets. They each purchased a life insurance policy on the date they were married. They increased their life insurance coverage whenever a child was born. Harry's psychology practice purchased a full coverage health, dental and vision plan for the entire family. Before they bought the house in Oakland, they were renters. They purchased a renters' homeowners policy to protect their furniture and their growing wealth from third parties.

When they bought their house, the lender told Harry and Louise that they were required to maintain fire insurance coverage. That was not sufficient for Harry, who is a very thorough person, and he insisted that he and Louise should buy a full homeowners policy with earthquake coverage. They accepted every recommendation of their insurance broker. They reported, in the first 15 years of home ownership, a single claim when a pipe broke and flooded their kitchen, in the fourth year of the policy. Harry and Louise were pleased with the service they received from their insurer. Although they could have saved a few dollars by changing insurance companies, Harry and Louise, were loyal to their insurer and kept the same insurance company and broker.

Each year, on the anniversary of their insurance policy, Harry and Louise met with their insurance broker. Whenever he recommended a change in the coverage, they would follow the broker's advice. Harry and Louise were the dream clients of any insurance broker.

Neither Harry nor Louise had ever broken a law except once, when Louise unintentionally parked in a handicapped parking space because it was dark and the blue lines had faded. Harry always left a waitress a 20% tip. Louise returned to the grocery store when she discovered that the clerk had given her $5.00 too much change.

One of California's standard 6.0 earthquakes hit three months ago. The shake cracked some walls, flaked off part of the ceiling, moved the foundation off two piers and introduced Harry and Louise to crime. It was not intentional. It just seemed like the right thing to do.

A week after the earthquake their insurer of 15 years, Reliable Insurance Company of Pacoima sent out an adjuster and a structural engineer to their Oakland house. The adjuster advised Harry and Louise that the earthquake had caused severe damage to their home that required a great deal of repair.

The house was stable but it would be necessary to jack it up and move it back on to the piers. Then, to keep it safe, the engineer recommended that the house be bolted to the foundation.

They could live in the house safely, until the repairs began, but they had to move out because their sprayed acoustic ceiling contained asbestos. They were told how dangerous asbestos is and that they simply had to move out.

The adjuster informed them that the time they were out of the house would be covered by their Additional Living Expense coverage. He explained that they should experience no damages because of the move. Of course, the adjuster reminded them, their policy had a substantial deductible, equal to 10% of their available coverage. Harry and Louise would be required to pay the contractor the deductible amount, $30,000.00.

Harry and Louise, although they had tried to read their homeowners policy, never understood that the 10% deductible for earthquake losses was so high. It would take all of the money they had saved for the college education of the children. They could come up with the money, but they were upset. No, they were angry.

Fifteen years of paying premium and when they suffer a major loss they are required to come up with $30,000.00. There had to be some way to recover this loss. It would be almost impossible to again save the money for the college fund.

Harry's father, an 84 year old widower, had moved out of his Marin County house and into Harry's older sister's house after his second heart attack. The 6,000 square foot mini mansion had been unoccupied for two years. Rather than move to a rental house the insurance company found for them in Oakland they would move into dad's house. Dad would give them a rental bill for $4,000 per month, the fair rental value of their house in Oakland. In the eight months it would take to fix their house, they would recover the deductible. Dad, of course, would not take any money from them. He had already offered them the use of the house any time they wanted. Dad had even made them the beneficial owners of 50% of the house in his living trust.

Harry and Louise did not intend to commit a crime. They did not know that the California Penal Code provided
"(a) It is unlawful to do any of the following
"(1) Knowingly present or cause to be presented any false or fraudulent claim for the payment of a loss."

By asking their insurer to reimburse them for the rent they did not pay to their father Harry and Louise committed the crime of insurance fraud. By helping them commit the fraud their 84 year old father was equally guilty as an aider and abettor. Not only did Harry and Louise, totally honest people who would drive five miles to return a $5.00 overpayment of change from a grocer, expose themselves to criminal prosecution they talked their 84 year old father in to becoming a participant in a crime.

If Harry and Louise had read the policy they would have been surprised that the same result could have been accomplished without fraud. The "loss of use" portion of the policy gave them two options in the event they moved out of their house (1) Additional Living Expense or (2) Loss of Rental Value. They could have moved into dad's house and made claim for the fair rental value of their house legitimately. Their crime was preparing a false document to obtain what they could have obtained legitimately.
Harry and Louise, the most honest people in the Oakland Bay area, had no qualms about committing insurance fraud. It was their right, as consumers, to cheat their insurance company. They were not caught. Serendipitously, the insurer was not harmed.

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