New Books on Insurance Issues from Barry Zalma

Books Needed by Every Insurance Professional

“Insurance Fraudsters Deserve No Quarter”

New Book That Explains How to Defeat or Deter Insurance Fraud

What every insurer should know about how it can be proactive in the efforts against insurance fraud by refusing to pay every fraudulent claim.

How Giving No Quarter Worked

Many years ago a client I represented was offended that an insured tried to defraud him and the people who were names in the syndicate he represented at Lloyd’s, London. I walked the Underwriter through the debris of the house that was burned, showed him some of the remains of the allegedly highly valuable fine arts, and then explained how he was deceived into issuing the policy. I was the attorney for Lloyd’s underwriters for the fine arts and Imperial Casualty for the homeowners policy. Once it became clear to the Underwriter I was given the following instruction:“Take No Prisoners!” The military instruction to give no mercy to the enemy. Typically if you give or grant no quarter, you treat someone—usually an opponent or foe of some kind—harshly. You don’t take pity on them or give them any leeway or concession. That is what I did. The claim was denied, the policy was rescinded, and the bad faith suit that resulted was litigated without quarter or concession. It took more than five years, a motion for summary judgment, an appeal, and eventually a judgment in favor of the insurers that resulted in payment to the insurers of every dollar advanced and every dollar expended in investigation and defense of the bad faith suit. That was followed by suits against the claims adjuster, death threats and a bomb threat that took 15 years of my professional life. The appellate decision can be read at Imperial Casualty & Indemnity Co. v. Sogomonian, 243 Cal.Rptr. 639, 198 Cal.App.3d 169 (Cal. App. 1988).After Mr. Sogomonian and his co-defendants were compelled to pay fraudulent claims against Imperial and the Lloyd’s underwriters dropped precipitously. Giving no quarter to a fraud perpetrator not only defeated a fraudulent claim but deterred others from attempting fraud.The Imperial v. Sogomonian case and many similar cases is why I am convinced that giving no quarter to a fraud perpetrator is the best way to deter and defeat insurance fraud and why I wrote this book to convince more insurance professionals to emulate the insurers that defeated the Sogomonian attempt at fraud.

How to Proactively Work to Defeat or Deter Insurance Fraud

Available as a Kindle Edition, a Paperback or a Hardcover

What every insurer should know about how it can be proactive in the efforts against insurance fraud by refusing to pay every fraudulent claim, by refusing to settle litigation brought by fraud perpetrators and by proactively taking the fraud perpetrators to court by seeking damages for common law fraud and take the profit out of insurance fraud.No one knows the true extent of insurance fraud because most attempts at insurance fraud succeed. Estimates are extrapolated from those few people who attempt insurance fraud that are caught.Insurance fraud is a crime in most states of the United States and in most countries the usual victims of the crime of insurance fraud are insurers. Some creative people have created fraudulent insurance companies that exist to defraud the insurance buying public who acquire insurance from the fraudulent insurers.The crime of insurance fraud is ubiquitous and is committed by every race, gender, national origin, religion, or sexual orientation.Unlike other victims of crime state legislatures require insurers create special investigative units (SIU) to thoroughly investigate all potential insurance fraud and present evidence to the authorities so that they can prosecute insurance fraud. Unfortunately, experience of the insurance industry has established that even when the insurer’s SIU presents a case to the state’s Fraud Division or Fraud Bureau for criminal prosecution, it is rare that a prosecution is commenced and a conviction obtained.State insurance departments brag about convictions in double digits when they receive as many as 1500 reports of suspected fraudulent claims every 30 days. Prosecutors dislike insurance fraud cases because they are usually document heavy while an assault, rape, murder or drunk driving are usually summarized by a single police report and are, therefore, relatively easy to prosecute to a jury or obtain a plea of guilty.Some insurers are buying Artificial Intelligence software to detect insurance fraud. Others hire retired police officers to operate the SIU and ignore their experienced insurance claims handlers.Most do the minimum necessary to fulfill the requirements of the anti-fraud statutes and regulations concluding that it is better to pay the fraudsters than to fight fraud attempts proactively.All insurers and those who regulate insurers agree that regardless of where the insurance is sold, regardless of where the promises made by an insurance policy are required to indemnify an insured, insurance fraud is a serious problem for the insurance industry. All attempt to deter or defeat insurance fraud to one extent or another.All recognize that if there is an insurance claims that is denied for fraud it is axiomatic that the insured, so accused, will file suit for breach of contract and for the tort of bad faith. Bad faith lawsuits, even when they fail, take the value out of the effort to deter or defeat insurance fraud since defense of the bad faith suit will usually exceed the amount of the claim that was denied.On an individual claim basis it is never cost effective to reject the claim for fraud. However, knowledgeable insurance fraud investigative professionals recognize that an aggressive effort against insurance fraud, refusal to pay a settlement to avoid litigation, and forcing the fraud perpetrator to litigate through trial and appeal will become known to those who make a living defrauding insurers, that the insurer is not a pushover and will avoid fraud attempts against that insurer and move to insurers the fraud perpetrators know will pay rather than fight.Available as a paperback here.  Available as a hardcover here. Available as a Kindle Book here.

“The Examination Under Oath to Resolve Insurance Claims”

The Most Effective Tool Available to Insurers to Defeat Attempts at Insurance Fraud & to Resolve Questionable Claims

A Tool Available to Insurers to Thoroughly Investigate Claims and Work to Defeat Fraud

The insurance Examination Under Oath (“EUO”) is a condition precedent to indemnity under a first party property insurance policy that allows an insurer to compel an insured to submit to questioning from a representative of the insurer under oath. It is a formal type of interview authorized by an insurance contract. The EUO is taken under the authority provided by the agreement of the insured when he, she or it acquires a policy of insurance, to submit to the requirement of the insurer that the insured appear and give sworn. Failure to appear and testify is considered a breach of a material condition that can cause the insured to lose the right to indemnity.

The EUO is conducted before a notary and a certified shorthand reporter. The reporter is present to give the oath to the person interviewed and record the entire conversation and prepare a transcript, in question and answer format, to be read, reviewed, corrected and signed by the witness under penalty of perjury or by an oath taken before a notary or judge.

The EUO is a tool sparingly used by insurers in the United States. A professional insurer will only require an insured to submit to an EUO when a thorough claims investigation raises questions:

  1. about the application of the coverage to the facts of the loss,
  2. the potentiality that a fraud is being attempted, or
  3. to assist the insured in the obligation to prove to the insurer the cause and amount of loss.

Although seldom used the EUO is an important tool needed by insurers when there is a question of coverage, destruction of evidence needed to prove a compensable loss or the amount of loss or evidence indicating the potential that a fraud is being attempted.

The Reason for the Examination Under Oath

In 1884, the U.S. Supreme Court explained the purpose of the EUO, as follows:

“The object of the provisions in the policies of insurance, requiring the assured to submit himself to an EUO, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, would be fraudulent. If it made, with intent to deceive the insurer, would be fraudulent. If it accomplished its result, it would be a fraud effected; if it failed it would be a fraud attempted. And if the matter were material and the statement false, to the knowledge of the party making it, and willfully made, the intention to deceive the insurer would be necessarily implied, for the law presumes every man to intend the natural consequences of his acts. No one can be permitted to say, in respect to his own statements upon a material matter, that he did not expect to be believed; and if they are knowingly false and willfully made, the fact that they are material is proof of an attempted fraud, because their materiality, in the eye of the law, consists in their tendency to influence the conduct of the party who has an interest in them, and to whom they are addressed.” [Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 3 S.Ct. 507, 28 L.Ed. 76 (1884)] (Emphasis added)

Available as a Kindle book Available as a paperback. Available as a hardcover.

“Insurance Fraud – Volume I & Volume II Second Edition”

Insurance Fraud Volume I Second Edition: How Lawyers & Claims People Defeat Insurance FraudInsurance fraud continually takes more money each year than it did the last from the insurance buying public. No one knows the actual amount with any certainty because most attempts at insurance fraud succeed. Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year. Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected. Those that are detected do so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored. No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous. When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically. The effort to stop insurance fraud against Medicare and Medicaid has increased in recent years. Insurance Fraud Volume II Second Edition: A Manual for How Lawyers & Claims People Can Defeat Insurance FraudThis book contains appellate decisions regarding insurance fraud from federal and state appellate courts across the country and full text of many insurance fraud statutes. It is available as both a legal research tool and a product to assist insurers, insurance company personnel, independent insurance adjusters, special investigation unit investigators, state fraud investigators and insurance lawyers to become effective persons involved in the attempt to defeat or reduce the effect of insurance fraud.

Volume I of Insurance Fraud includes the following:

  • Insurance Fraud is Epidemic.
  • Measuring Insurance Fraud
  • What is Insurance Fraud?
  • Arson for profit.
  • Soft Fraud
  • Hard Fraud
  • Insurance Against the Risk of Loss of Real or Personal Property
  • Liability Insurance
  • Interpretation of Insurance Contracts
  • Ethics & The Insurance Fraud Investigation
  • Fraud by Professionals
  • First Party Property Fraud
  • Health Insurance Fraud
  • Insurance Fraud is a Crime
  • Fraud Created by Legal Professionals
  • Fraud in the Acquisition of Insurance
  • Fraud in the Presentation of a Claim
  • Investigation of a Claim for Fortuity
  • Investigating Fraud
  • Arson for Profit Investigation
  • Investigation Methods
  • Evaluation of Medical Records

Available as a Kindle book; Available as a Hardcover;  Available as a Paperback 

Volume II of Insurance Fraud provides coverage of the issues not covered by Volume I and, together with Volume I becomes a complete manual for how lawyers and claims people can effectively work to deter or defeat insurance fraud.
INSURANCE FRAUD IS EPIDEMIC
The following are covered in this volume including:

  • The Federal Crime of Insurance Fraud
  • Insurance Fraud as a State Crime
  • Insurance Fraud by Insurers
  • California SIU Regulations
  • Investigating Insurance Fraud
  • The Examination Under Oath
  • The Taking of an Examination Under Oath
  • The Mutability of Memory
  • Rescission
  • Insurance Fraud Statutes
  • The Tort of Bad Faith and Insurance Fraud
  • Sample California Rescission Letters
  • Sample Complaint for Declaratory Relief
  • Form of Mutual Rescission Agreement
  • Fom Declaration of Underwriter in Support of Rescission
  • Insurance Fraud Statutes
  • Outline of Training for Integral Anti-Fraud Personnel
  • Form of EUO Demand Letter
  • EUO Testimony admitting fraud.

Available as a Kindle bookAvailable as a HardcoverAvailable as a Paperback

“Ethics for the Insurance Professional – Third Edition”

How The Covenant of Good Faith and Fair Dealing Requires Insurance Professionals to Act Ethically and With Utmost Good Faith and Fair Dealing

by Barry Zalma

Ethics is Essential to the Insurance Professional

Insurance is, by definition, a business of the utmost good faith. This means that both parties to the contract of insurance must act fairly and in good faith to each other and do nothing that will deprive the other of the benefits the contract of insurance promised.

In essence the covenant requires that each party to the contract of insurance treat the other ethically, fairly and in good faith.

Without the covenant of good faith and fair dealing and without the people who work in the insurance industry applying and fulfilling the covenant ethically, insurance is impossible. One cannot act fairly and in good faith without being a person with a well-formed ethical compass.

In Carter v. Boehm S.C. 1 Bl. Burr 1906, 11th May 1766. 593, 3 Lord Mansfield in the British House of Lords stated: “Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and his believing the contrary.”

Insurers, when making a decision to insure or not insure a risk, rely on the information provided to them by the insured. As Lord Mansfield instructed, the insured must provide the information requested honestly and in good faith. Failure to do so is unethical and breaches the covenant of good faith.

The implied covenant explains that no party to a contract of insurance should do anything to deprive the other of the benefits of the contract. By so doing an insurer must keep all the promises made by the policy fairly, promptly and in total accord with the promises made by the policy. Similarly, a person insured must treat the insurer ethically, fairly and in good faith when seeking the insurance.

The implied covenant of good faith and fair dealing imposes obligations not only as to claims by a third party but also as to those claims made by the insured. When the insurer unreasonably, and in bad faith, withholds payment of the claim of its insured, it is subject to liability in tort. For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it again must give at least as much consideration to the latter=s interests as it does to its own.

Therefore, since, at the very least 1766, the business of insurance is a business of the utmost good faith. Each party to a contract of insurance must deal with each other ethically. The general duty of good faith and fair dealing incorporated by reference into every policy of insurance requires a complete understanding of ethics and ethical behavior.

In every insurance contract there is an implied covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. It was the decision of the California Supreme Court in Gruenberg v. Aetna Insurance Co., 9 Cal.3d. 566, 108 Cal. Rptr. 480 (1973) that first stated that the tort of bad faith will apply to first party insurance in the state of California. Gruenberg was adopted in a majority of the states of the United States making the breach of an insurance contract unethically and in bad faith became a tort.

The covenant is mutual and the principles of good faith and fair dealing impose an affirmative obligation on the insured to cooperate as much as it requires the insurer to treat the insured fairly with regard to every claim presented

About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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