How a Thorough Fraud Investigation Dealt With False Charges of Fraud
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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 arrived because of such loans. Marsha had an extensive collection of CDs and long-playing records, none of which she purchased. Marsha would invite herself to lunch, but never invite her neighbors to her home for lunch.
She would play her stereo at its highest volume level at all hours of the day and night. Everyone who lived within six houses of Marsha lost sleep because of her actions. None of her neighbors liked Marsha.
Marsha kept a bull terrier named “Jaws” whom she did not allow in her house. Jaws, however, would escape the backyard weekly. Neighborhood cats, rabbits and small dogs disappeared with some regularity.
The entire neighborhood universally detested Marsha and Jaws. If Marsha ever decided to move, the neighbors would throw a going away party to which they would not invite her. Everyone in the neighborhood was afraid of Marsha and Jaws. They tolerated her because they did not know how to remove her from the neighborhood.
One summer evening while Marsha was attending a concert, burglars entered her house. Jaws, sensing the burglars in the house, barked furiously but could do nothing since Marsha tied him up in the backyard. The neighbors ignored Jaw’s barking since they were afraid to offend Marsha by complaining about the noise. Marsha lost her jewelry, two television sets, two VCR’s, her stereo set and her microwave oven.
The neighbors when questioned by the police about the burglary could only report that they heard the dog barking but saw nothing. Most smiled upon learning of the burglary and whispered under their breath their pleasure at Marsha’s loss.
Two days later Marsha’s adjuster arrived and parked in front of her house. On the adjuster’s car was a sticker identifying the company for which she worked. The adjuster spent an hour interviewing Marsha and considered the report to be that of a routine burglary. The adjuster asked Marsha to complete a form listing all of the personal property stolen, its purchase date, purchase price, replacement cost and its actual cash value. Once the adjuster received the list, she expected to go through the list, arrive at an actual 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 telephone book. They then sat at an old Underwood manual typewriter and wrote a letter to the insurance company that said:
“We are neighbors of Marsha, the person you insure. We know she has reported a burglary at her house to the police and is making claim for losses due to that burglary.
“The claim is a fraud. Marsha’s house was not burglarized. She did not have the items she is claiming stolen.
“If you need further detail please call us at 555- 5555.”
They then signed their names. Three other neighbors did the same.
The insurance company, faced with the accusations, had no option but to report Marsha’s claim to the fraud division of the State of California Department of Insurance as a suspected fraudulent claim; assign investigation to its special investigation unit (SIU) and conduct a thorough investigation into the facts alleged.
The SIU investigator interviewed Harry and Louise and all of the other neighbors. They convinced the investigator that Marsha was not a credible person. The investigator believed Marsha was a despicable person. He knew she was the one who the three neighbors spoken to believed to be a fraud.
The insurance company retained the services of a lawyer to examine Marsha under oath and confront her with the accusations of fraud. The fraud division, faced with the compelling evidence of the statements of the neighbors, started its own investigation and presented the case the district attorney for prosecution.
Marsha, totally innocent and the victim of a crime, was dumbfounded. Her insurance company would not pay her claim and insisted on interrogating her endlessly in front of a court reporter. She could not understand the reasons for the interrogation. She explained to the lawyer for the insurance company why her claim was valid.
Marsha faced the lawyer for the insurance company with her sworn testimony that her claim was legitimate. He also had available the reasonable and the unsworn testimony of the three neighbors. There seemed to be compelling evidence that the claim was a fraud and equally compelling evidence it was a valid burglary claim.
The lawyer, the SIU investigator and a court reporter, went back to the home of Harry and Louise. They asked Harry and Louise to give testimony 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 of perjury. Harry and Louise decided that although Marsha deserved punishment for her lack of neighborliness, to have her punished was not worth prison. They told the truth. They explained to the lawyer why they had told the SIU investigator that they believed Marsha had committed fraud.
On the advice of counsel, the insurance company settled Marsha’s claim promptly. The Fraud Division was advised 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 at face value and denied Marsha’s claim, the insurer would have faced a lawsuit from Marsha for falsely accusing her of the fraud.
The law of California, and several other states, now require that insurers have special fraud investigation units. The law requires that those specially trained investigators investigate claims of fraud to protect the insurer and the public from the crime. The SIU investigators, however, must remember that they are also claims people whose duty is to pay all legitimate claims and to investigate the basis for any denial thoroughly.
It was this thorough investigation, including the examination under oath of Marsha and the attempted sworn statement of the neighbors that saved Marsha from a possible criminal prosecution and the insurer from a bad faith lawsuit.
Every professional claims person understand that not all obvious frauds are fraud, not all innocent claims are innocent, and it is the obligation of every claims person and SIU investigator to thoroughly investigate every claim with the intent to find that a claimed loss is appropriate and compensable.
If fraud is proved by a thorough investigation then the claim should be denied and the person making the claim should face the ire of the local prosecutor or the US Attorney.
ZALMA OPINION
Although SIU investigators are charged with conducting a thorough investigation to defeat insurance fraud, it is also their obligation to establish that an honest claim must be paid. I have personally taken hundreds of examinations under oath at the request of insurers and found, as a result, that a great majority of those claims – like Marsha’s – was determined to be a claim that needed to be paid. Insurers should never accept a charge of fraud without corroborating evidence.
(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 [email protected].
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Private Limitation In Accordance With Statute Defeats a Claim
Post 5204
There is No Good Reason to Delay Filing Suit
In Christian Care Center v. American Alternative Insurance Corporation, Civil Action No. 4:25-CV-00321-O, United States District Court, N.D. Texas, Fort Worth Division (October 6, 2025) a private limitation of action provision effective barred the suit.
KEY FACTS:
Plaintiff and Defendant:
The case involves an insured, the Christian Care Center (Plaintiff) and its insurer American Alternative Insurance (Defendant) in a coverage dispute.
Loss Event:
Plaintiff’s property sustained damage due to a storm on April 27, 2020.
Insurance Claim:
Plaintiff submitted a claim to Defendant on February 2, 2022, which was denied on July 29, 2022.
Lawsuit:
Plaintiff sued alleging breach of contract and violations of Chapters 541 ...
See the full video at and at and at https://zalma.com/blog plus more than 5200 posts.
Private Limitation In Accordance With Statute Defeats a Claim
Post 5204
There is No Good Reason to Delay Filing Suit
In Christian Care Center v. American Alternative Insurance Corporation, Civil Action No. 4:25-CV-00321-O, United States District Court, N.D. Texas, Fort Worth Division (October 6, 2025) a private limitation of action provision effective barred the suit.
KEY FACTS:
Plaintiff and Defendant:
The case involves an insured, the Christian Care Center (Plaintiff) and its insurer American Alternative Insurance (Defendant) in a coverage dispute.
Loss Event:
Plaintiff’s property sustained damage due to a storm on April 27, 2020.
Insurance Claim:
Plaintiff submitted a claim to Defendant on February 2, 2022, which was denied on July 29, 2022.
Lawsuit:
Plaintiff sued alleging breach of contract and violations of Chapters 541 ...
Insured May Intervene to Assert Bad Faith Claim Not Assigned
Post 5203
See the full video at https://rumble.com/v7013x8-insured-cant-assign-bad-faith-claim.html and at https://youtu.be/e8OApzn6YZs, and at https://zalma.com/blog plus more than 5200 posts.
Judge Requires Conflict Between Different District Courts in Louisiana Requires Conflict to be Resolved on Appeal
In Allstate Construction, Inc. v. Ohio Security Insurance Company, Civil Action No. 23-01295-BAJ-SDJ, United States District Court, M.D. Louisiana (September 30, 2025) Vina Cleaners, the insured, assigned its claim against Ohio Security to Allstate Construction but did not assign its rights to sue for the tort of bad faith so it intervened in Allstate Construction’s suit.
Background and Procedural History:
In an insurance dispute following damage caused by Hurricane Ida to Vina Cleaners’ property. Vina Cleaners was insured under a commercial policy with the Defendant, Ohio Security Insurance Company. Vina Cleaners assigned its rights ...
Sometimes the Best Court Decision is to Do Nothing
Post 5209
Read the full article at https://www.linkedin.com/pulse/abstention-protects-against-risk-potentially-fact-zalma-esq-cfe-chkzc, and at https://zalma.com/blog plus more than 5200 posts.
In Starr Indemnity & Liability Company v. Scottsdale Insurance Company, No. 24-CV-3309 (PKC) (TAM), United States District Court, E.D. New York (September 30, 2025) the parties C.C.C. and HCC filed actions against Scottsdale in New York state court regarding Scottsdale’s insurance coverage obligations.
FACTS
Underlying Labor Litigation:
Hector David Campoverde sustained injuries from a scaffold fall at a construction site in Brooklyn, New York, on September 14, 2015. Campoverde, an employee of Vazquez Bro Restoration Inc., was working for C.C.C. Renovation Inc., a subcontractor of L&M Builders Group LLC.
LEGAL ISSUES
Declaratory Judgment:
Starr sought a declaratory judgment regarding Scottsdale’s obligations under the 2014-2015 and 2015-2016 policies.
Abstention ...
Oregon Statute Does Not Reverse Preempt Federal Arbitration Act
Post 5208
Read the full article at https://www.linkedin.com/pulse/federal-arbitration-provision-applied-barry-zalma-esq-cfe-9kjmc and at https:/zalma.com/blog plus more than 5200.
Litigation Over Costs to Clean Superfund Site Forced to Arbitration
Federal Arbitration Provision Applied
Read the full article at https://www.linkedin.com/pulse/federal-arbitration-provision-applied-barry-zalma-esq-cfe-9kjmc and at https:/zalma.com/blog plus more than 5200.
Oregon Statute Does Not Reverse Preempt Federal Arbitration Act
Post 5208
Litigation Over Costs to Clean Superfund Site Forced to Arbitration
In Pacificorp et al v. St. Paul Surplus Lines Insurance Company, et al, No. 3:25-cv-00163-AB, United States District Court, D. Oregon (October 7, 2025) Plaintiff PacifiCorp sued its excess liability insurers, for failing to indemnify costs related to the Portland Harbor Superfund Site only to have the suit stayed and arbitration compelled. This case tried to change the...
ZIFL – Volume 28, Issue 20
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
Read the full article at https://lnkd.in/gt5Kyumz, See the full 18 page issue of ZIFL at https://lnkd.in/gBUgEBmP, and at https://zalma.com/blog plus more than 5200 posts.
Zalma’s Insurance Fraud Letter (ZIFL) is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at https://lnkd.in/gVT5G9s
The Contents of the October 15, 2025 Issue of ZIFL Includes:
Zalma’s Insurance Fraud Letter (ZIFL) continues its 28th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/
The Contents of the October 15, 2025 Issue of ZIFL Includes:
Insurer’s Attempt to Obtain Summary Judgment Against Fraudsters Fails
To Prove Fraud Admissible Evidence is Required
Allegations That Health ...