True Crime of Insurance Fraud Video Number 55

I’m Going into the Insurance Business

Most insurance companies are formed by major corporations with considerable assets. They are capitalized with serious money needed by the Insurer to cover losses until profits are made. The company is staffed with insurance professionals who believe in the concept of spreading risk. The insurers, whether new or old, provide a definite service to the public.

Betty Bruja wanted to start her own insurance company. She had been an insurance broker for ten years. In those ten years she had trained herself with books and training courses from the Insurance Risk Management Institute, the Society of Certified Property and Casualty Underwriters, the Insurance Institute and the Insurance Claims Library. By devoted and lengthy study Betty obtained the designation CPCU in the minimum time allowed by the Society of CPCU.

She studied underwriting and claims handling. No person, Betty thought, was as knowledgeable about insurance as she. No insurance company operated efficiently. Massive profits could be made if she only was put in control.

For ten years Betty Bruja toiled in the trenches of the insurance industry obtaining a small income off 5% to 15% commissions. She was frustrated. She knew she could make money if only there was capital to fund a new insurance company.

Ms. Bruja hired an independent adjusting company to investigate and adjust claims. Since none of the policies had any wording, she denied coverage on most claims by creating a policy exclusion to fit the claim. During the first year of her program of fraud she paid no claims and collected $500,000 in premium.

Robin Sleuth was the owner of a small traveling carnival. He had purchased a policy from Betty and renewed it with PPC. He was pleased with the premium. He needed a certificate of insurance in the name of the City of Ojai because his carnival was setting up on an empty lot owned by the City. Betty was slow in issuing the form. Robin looked at his insurance file and noticed he never received policy wording from Betty. He faxed her a letter demanding a complete copy of his policy and a certificate.

Betty, recognizing a trouble maker, sent Robin a notice advising, since they could not agree, that his policy was canceled flat and she returned the premium he had paid. Robin was furious. He was forced to cancel his appearance in Ojai and scramble to get insurance through another agent. The premium was twice that he paid to Betty.

PPC immediately hired a private investigator and counsel experienced in fraud investigation. They flew to Robin Sleuth’s home city and interviewed him. They obtained copies of all written evidence and obtained Robin’s promise to maintain the originals in a secure place that were not to be destroyed.

The lawyer and investigator then flew directly to the city where Betty did business and arrived at her new paneled offices. They demanded to see Betty.

Betty, resplendent in her tailored wool suit and silk blouse, met them with courtesy. They told her whom they represented and that she was issuing policies in the name of PPC without authority. Betty was shocked. She denied that she issued policies without approval. She would do everything she could to help them. Ms. Bruja wanted, however, before discussing it with them further, to speak with her lawyer.

Betty’s lawyer was an honest person. He would never go along with her fraud. She needed something to show him. On her computer she created a letterhead for Nicholas Claus Insurance Services, Houston, Texas. The letter, which she created, was dated six months before. Claus, as Managing General Agent for PPC, authorized Betty, as exclusive agent in her state, to write CGL policies for carnivals, bungee cord facilities and hang glider parks.

PPC and its lawyer were satisfied. They had stopped a fraud in progress. They reported Betty to the Insurance Department and advised the Department of the agreement. The Department, overburdened with other work, did nothing since PPC had solved its problem.

What was unknown to PPC, its lawyer, or Betty’s lawyer was that the next day she picked a new insurance company name. Betty rolled all of her clients into Surety and Providence Insurance Company (SAPIC). She told each that she had been duped by PPC but had protected them by getting insurance for them with SAPIC.

Betty is living well. Fraud seems to pay for her. Soon she will make enough money to actually capitalize a legitimate insurance company.

Unfortunately, for Betty, a three-year-old child fell out of a WhirlyGig and became paralyzed. The parents of the child sued the carnival who presented a claim to Betty. She immediately and retroactively cancelled the policy and refused the claim. The carnival had no option but to file bankruptcy and the child became a ward of the state. Betty, emptied her bank account and moved to a retirement community in Sao Paulo, Brazil and never tried to be in the business of insurance again.

ZALMA OPINION

Insurance fraud comes in many different guises. Betty hurt innocent people and profited from her crime. She should have been punished by the Department of Insurance and her license to sell insurance pulled. It didn't happen and she is now living well in Sao Paulo.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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. He is available at http://www.zalma.com and zalma@zalma.com.

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