Too Stupid to Succeed

True Crime Stories of Insurance Fraud Number 20

Sometimes an attempt at insurance fraud is defeated because the fraudster is too stupid to succeed.

See the full video at and at

Barry Zalma, Esq., CFE presents videos so you can learn how insurance fraud is perpetrated and what is necessary to deter or defeat insurance fraud. This Video Blog of True Crime Stories of Insurance Fraud with the names and places changed to protect the guilty are all based upon investigations conducted by me and fictionalized to create a learning environment for claims personnel, SIU investigators, insurers, police, and lawyers better understand insurance fraud and weapons that can be used to deter or defeat a fraudulent insurance claim.

The Poet Who Tried Insurance Fraud

The insured was a poet. Before immigrating from Soviet Armenia, he was a member in good standing at the Armenian Poets Union. They paid him for his work five hundred rubles a month.

He lived in the capital city of Yerevan in the shadow of Mount Ararat. Here, like all Soviet citizens, before the fall of the Soviet Union, he supplemented his income by buying and selling in the black market. He specialized in jewelry and diamonds.

By 1977 he had amassed, off the pain and suffering of others, over 300 carats of diamonds and diamond jewelry. Most of the diamonds were old mine cut, popular in Russia in the 1890’s, but now out of date. The wealth he had amassed frightened him. He knew that eventually the Soviet Police would catch him and send him to a Gulag. He was committing the most heinous of Soviet crimes. He was a successful entrepreneur.

He went to the American Consulate and got a visa as a refugee. He had convinced the American Consulate the Soviet Government was censoring his poetry. He wanted freedom to write.

Poetry is not an essential industry. The Soviet Government agreed to his immigration. He came directly to Los Angeles and settled in the Armenian community in the hills of Glendale, California. He brought with him all but twenty carats of the diamonds. He needed to use some of his 300 carats to bribe Soviet Customs Officials.

For many years he and his family lived by selling the diamonds at auctions. He continued to write poetry but there was no market for Armenian poetry in the United States. The few Armenian language newspapers would publish his poems but could not pay him.

Eventually his inventory of fine jewelry began to shrink. He had learned to enjoy living in the luxury the diamond sales had brought him. He didn’t know how to earn money to support himself in America. He did not want to return to Soviet Armenia to be a salaried poet.

At a social gathering at the Armenian church, he expressed his concerns to an acquaintance who ran an art gallery. The gallery owner had been in the United States longer than the poet. He knew how trusting Americans were. He knew that Americans believed what they were told until proved otherwise. He understood that Americans took seriously their belief that everyone was innocent until proven guilty. He explained to his friend how he could easily make enough money to support his family comfortably for the rest of his life. The gallery owner told the poet he would rent him a portion of his art gallery to open a jewelry store. The poet only needed to buy an insurance policy insuring against loss of an inventory of jewelry. The insurer would not ask him before issuing a policy to prove he had any jewelry but would take his word. The poet was incredulous.

“Won’t they want to see the jewelry?”

“No. They insured my art gallery without ever sending anyone to look at the paintings. If they do send someone out just tell them the jewelry is in your safety deposit box. Tell them you feared bringing it out until you had insurance. You can put in showcases the jewelry you do have to make it look like a legitimate jewelry store.”

The next day Poetry Jewelry was born. The poet immediately applied for insurance. He filled out the application form honestly stating that he had been in the jewelry business for ten years buying and selling jewelry from his home. This was his first attempt at a retail business. He had never had a loss. He had never had an insurance policy canceled. He had over a million dollars in inventory.

The insurer took the risk without any questions. The security and safes were proper. The premium would be paid in full since the poet had obtained independent premium financing through his broker.

The insurer issued a policy that requested an immediately inspection of the premises. The inspector visited the premises, saw immediately that it was not as represented and advised the company to cancel. They did.

The insured went to a new broker. The new insurer did not require an inspection of the premises by anyone other than the broker. It issued a million dollar policy. Two weeks later, before the insurer could change its mind, the poet’s oldest son locked the poet and his mother, the poet’s wife, and the gallery owner in the small four by four bathroom. The son then took home all the inventory of Poetry Jewelers.

The three people locked in the bathroom waited ten minutes to make sure the oldest son had driven away and then pushed the holdup button secreted in the bathroom because it is common for thieves to lock jewelry store owners in the bathroom. The three captives also pounded on the wall to gain the attention of the restaurant owner next door. The police were called and broke the door down to free the poet, his wife and the gallery owner.

The loss exceeded a million dollars. The poet thanked God that they were insured.

Their million dollar fraud would have been successful but for an unusual coincidence. The insurer hired as its adjuster the same firm that had inspected the store for the first insurer. They remembered the insured. They knew that the prior insurer had canceled. The adjusters knew when the poet told them that the policy was his first ever that he was lying. The adjuster knew when the insured told him that his inventory was a million dollars he was lying.

The adjuster gathered the evidence together and presented it to the insurer. They rescinded the policy and denied the claim.

The insured and the gallery owner, his mentor, were shocked. They did not give up. They became more aggressive. They retained a lawyer. The lawyer immediately filed suit in U.S. District Court for breach of the covenant of good faith and fair dealing and made claim for fifty million dollars over the one million dollar claim. The insurer was confident it was right. It would not allow an insurance fraud to go forward. It would fight the poet through trial. It was dedicated to its cause.

The insurance company spared nothing. Its lawyers deposed every person who had any connection with the poet. The deposition of the poet lasted for three days. Each member of the family was deposed. Paralegals poured over every word of the transcripts and found conflicting testimony. The insurer obtained documentary evidence from every possible location except Yerevan, Soviet Armenia. The lawyers spent weeks preparing for trial. The poet was unprepared. His family was unprepared. They expected, regardless of the evidence they presented, that the jury would hate the insurance company and punish it.

At trial, although well-rehearsed, the poet’s lies began to compound. The testimony of the inspector established the inventory was not there at the time of the inspection. The insured did not have a safety deposit box and therefore could not even prove the existence of a box to hold the jewelry he claimed he had. Under cross-examination the poet’s son’s testimony became confused. The judge took over the cross- examination and, unable to answer confidently, the poet’s son broke down and cried on the stand. Lies were admitted.

After five days of trial with testimony from nine in the morning until six every night, the jury went off to deliberate. The jury returned with its verdict in forty-five minutes. The verdict was for the defense. The jury was convinced that the poet had presented a fraudulent claim and that the insurance company had properly rescinded the policy.

The result was unusual. The cost was enormous. The investigation cost, court costs, expert witness fees and attorneys’ fees exceeded $500,000. The insurer defeated the claim for one million dollars in lost jewelry and fifty million dollars in punitive damages.

The word went out. This insurance company fights. Do not insure with them.

The insurer saved more than the payment of the poet’s claim. It saved all the other fraudulent claims that would have been presented had they not fought. The poet paid nothing to his lawyer who took the case on a contingency basis.  He continued living off the jewelry he brought from Soviet Armenia.

The poet’s attempt at insurance fraud failed.  He learned a lesson about American jurisprudence. He would only make claims against insurance companies willing to insure him after he honestly reports his earlier attempts at fraud.

© 2022 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to “Zalma on Insurance” at and “Excellence in Claims Handling” at

You can contact Mr. Zalma at,, and . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

You may find interesting the podcast “Zalma On Insurance” at;  you can follow Mr. Zalma on Twitter at; you should  see Barry Zalma’s videos on; or videos on Go to the Insurance Claims Library – The last two issues of ZIFL are available at 

This entry was posted in Zalma on Insurance. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.