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How a thorough fraud investigation handled false allegations of fraud
Being a good neighbor is hard work. Sometimes it’s impossible. Marsha was not a good neighbor. She would “borrow” things from her neighbors and never return them. Most of her small kitchen appliances came because of such loans. Marsha had an extensive collection of CDs and LPs, none of which she bought. Marsha would invite herself to lunch, but never invite her neighbors home to her for lunch.
She would play her stereo at the highest volume level at all hours of the day. Everyone who lived in six houses in Marsha lost their sleep because of her actions. None of her neighbors liked Marsha.
Marsha kept a bull terrier named “Jaws”; which she did not allow in her house. However, the Jaws would flee the backyard every week. Neighborhood cats, rabbits and puppies disappeared with some regularity.
The whole neighborhood hated Marsha and Jaws. If Marsha ever decided to move, the neighbors would arrange a graduation party that they would not invite her to. Everyone in the neighborhood was afraid of Marsha and Jaws. They tolerated her because they did not know how to get her out of the neighborhood.
One summer evening while Marsha was at a concert, burglars entered her house. Jaws, who knew the burglars in the house, barked furiously but could do nothing since Marsha tied him up in the backyard. Neighbors ignored Jaws’ barking because they were afraid of insulting Marsha by complaining about the noise. Marsha lost her jewelry, two TVs, two VCRs, her stereo and her microwave.
Neighbors at police interrogation about the burglary could only report that they heard the dog barking but did not see anything. Most smiled when they found out about the burglary and whispered in their breath their joy at Marsha’s loss.
Two days later, Marsha’s adjuster came and parked in front of her house. There was a sticker on the adjuster’s car that identified the company she worked for. The adjuster spent an hour interviewing Marsha and considered the report a routine breach. The adjuster asked Marsha to fill out a form showing all personal property stolen, its date of purchase, the purchase price, the replacement cost and its actual cash value. When the adjuster received the list, she expected to go through the list, arrive at a real cash value for the items and negotiate a quick settlement with Marsha.
Marsha’s neighbors had other plans. Harry and Louise, who lived next door, looked up the address of the insurance company in their phone book. They then sat at an old Underwood manual typewriter and wrote a letter to the insurance company stating:
“We are neighbors of Marsha, the person you insure. We know that she has reported a burglary to her house to the police and is claiming losses due to that burglary.
“The allegation is a fraud. There was no burglary in Marsha’s house. She did not have the items she claims stolen.
“If you need more information please call us at 555-5555.”
They then signed their names. Three other neighbors did the same.
The insurance company, which was facing the allegations, had no choice but to report Marsha’s claim to the fraud department of the State of California Department of Insurance as a suspected fraud claim; assign its Special Investigation Unit (SIU) investigation and conduct a thorough investigation of the alleged facts.
The SIU investigator interviewed Harry and Louise and all the other neighbors. They convinced the investigator that Marsha was not a credible person. The investigator considered Marsha to be an abominable person. He knew she was the one the three neighbors were talking to considered a scam.
The insurance company hired a lawyer to investigate Marsha under oath and confront her with the allegations of fraud. The fraud department, in the face of the convincing evidence from the neighbors’ statements, started its own investigation and presented the case to the prosecutor for prosecution.
Marsha, completely innocent and a victim of a crime, was silenced. Her insurance company did not want to pay her claims and insisted on questioning her endlessly before a court reporter. She could not understand the reasons for the interrogation. She explained to the insurance company’s lawyer why her claim was valid.
Marsha met the insurance company’s lawyer with her sworn testimony that her claim was legitimate. He also had access to the three neighbors’ reasonable and unobtrusive testimonies. There seemed to be convincing evidence that the allegation was a fraud and equally convincing evidence that it was a valid burglary claim.
The lawyer, the SIU investigator and a court reporter, went back to Harry and Louise’s home. They asked Harry and Louise to testify under oath to establish the fraud they had reported. Harry and Louise agreed to the sworn testimony and were ready to continue with their false accusations until the lawyer for the insurance explained to them the penalties for perjury. Harry and Louise decided that even though Marsha deserved punishment for her lack of neighborhood, it was not worth jailing to have her punished. They told the truth. They explained to the lawyer why they had told the SIU investigator that they thought Marsha had committed fraud.
On the advice of a lawyer, the insurance company decided Marsha’s claim immediately. The fraud department was notified of the false report. Harry and Louise were not punished. No one told Marsha why it took so long to resolve her claim.
If the insurance company and its lawyers took Harry and Louise’s statement for face value and denied Marsha’s claim, the insurer would have faced a lawsuit from Marsha for falsely accusing her of the fraud.
California law, and several other states, now require insurers to have special fraud investigation units. The law requires that the specially trained investigators investigate allegations of fraud to protect the insurer and the public from the crime. However, the SIU investigators must remember that they are also persons liable for damages whose duty is to pay all justified claims and to carefully examine the basis for any refusals.
It was this thorough investigation, including the under-investigation of Marsha and the neighbors’ sworn attempts, that saved Marsha from possible criminal prosecution and the insurer from a trial in bad faith.
Every professional tortfeasor understands that not all obvious scams are scams, not all innocent claims are innocent, and it is the duty of every tortfeasor and SIU investigator to carefully examine each claim with the intent to find that an alleged loss is appropriate and compensable. .
If fraud is proven through a thorough investigation, the claim should be rejected and the person making the claim should face the wrath of the local prosecutor or the US prosecutor.
Although SIU investigators are required to conduct a thorough investigation to combat insurance fraud, it is also their duty to establish that an honest claim must be paid. I have personally done hundreds of surveys under oath at the request of insurance companies and found, as a result, that a large majority of these claims – like the Marshas – were determined to be a claim that needed to be paid. Insurers should never accept a charge of fraud without supporting evidence.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims management, non-insurance and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and email@example.com.
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