The Sweet Little Old Lady & Fraud

Insurance Fraud is an Equal Opportunity Crime

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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The Insured was 82 years old and bored. She was born shortly after the turn of the century to a wealthy family of Connecticut merchants. She had been a debutante. She lived most of her life in luxury. Now, at 82, she was a widow living alone.

She had a small income from her husband’s estate and 82-years-worth of things. The things bored her. Living alone bored her. Simply passing the days caused her nothing but unexplainable exhaustion. Her life needed something to keep her interest. The Insured, regardless of her age, had a fine and steady hand. Her penmanship was, in these days of computers, exotic.

She recalled that shortly before World War II she and her husband lived in New York City and got an appraisal on all of their fine things by Leo McCarthy, the foremost art appraiser of the pre-war years. She found the appraisal, after some searching in an old trunk. It was written on sheets of 11 1/2 by 14-inch artists vellum. A pen and ink drawing illustrated each line of fine descriptive script on the appraisal. She took one sheet to the local stationery store and had them order a pad of fifty sheets of similar paper. When the paper arrived she sat at the kitchen table for weeks meticulously copying with a fountain pen each sheet of McCarthy’s work. The line drawings she traced lightly with a very soft pencil and then drew over the pencil lines in ink. She only changed the values to reflect, what she believed to be, modern prices. She cautiously erased all the pencil lines with a soft gum eraser. Each page was a masterful copy as ably illustrated as any bible page illustrated by a medieval friar.

The agent submitted the application, and a copy of the appraisal, to a Lloyd’s correspondent with whom he was familiar. The Lloyd’s correspondent forwarded the appraisal and application to a London broker who submitted it to certain underwriters at Lloyd’s. The risk seemed a good one. The appraisal was more professional than that which Underwriters had come to expect from the United States. Lloyd’s quoted a 3% rate that the insured accepted. The policy was issued.

No one asked before issuance to look at the fine arts. No one visited the Insured’s home. The agent and the insurers accepted her representations in good faith.

The agent responded, with sympathy: “Being burglarized is nothing to be ashamed of. It happens every day. That’s why you bought insurance. What was taken?”

“Everything, all my fine things. They are all gone.”

Lloyd’s directed a local adjuster to investigate the claim. When he arrived at the Insured’s home he found minimal furniture in relatively poor condition. He found the Insured to be a pleasant old lady who stood only five foot one inches tall. She was thin and frail looking and could not have weighed more than ninety pounds.

She told the adjuster:

I had hired a lady from El Salvador to help me clean my silver. It’s just too big a job for me now that I’m 82. Her name was Juanita. I don’t know her last name. I believe her number and name was on a card on the bulletin board at the Ralphs grocery store.

Juanita and I had been cleaning the silver for about an hour using very strong ammonia when the fumes began to bother me and I became faint. I really don’t know what happened, but the next thing I remember I was waking up on the kitchen floor. Juanita was gone. My silver was gone. All my art work and porcelain was gone. I trusted that woman. I fed her. She broke bread with me and then robbed me when I was incapacitated by the fumes. Imagine that!”

The adjuster believed her. She was obviously so honest. She looked him straight in the eye and answered every question.

Upset at the calumny of the El Salvadorian domestic the adjuster wanted to help. He promised to complete his investigation rapidly. He would make sure her claim was paid as promptly as possible.

The adjuster had been well trained. He knew that Lloyd’s underwriters expected him to verify the appraisal with Mr. McCarthy. He knew that they also required that the claims handler verify the values of the things claimed stolen.

He began his investigation. The Insured had told him that McCarthy’s office was in New York. He immediately dialed the information operator in New York seeking the offices of Leo McCarthy, appraiser. There was no listing. He contacted a local art appraiser who, impressed by the detail of the appraisal, wanted to meet McCarthy. The appraiser, however, had never heard of McCarthy. She searched the list of the American Association of Art Appraisers and did not find his name. She called several friends. McCarthy was unknown. She called an appraiser she knew in New York and asked if he had ever heard of an appraiser by the name of Leo McCarthy.

He replied: “Of course, a dear man, one of the finest art appraisers who ever lived.”

“Where can I find him? A friend needs to speak to him about an appraisal he did.”

“That will be difficult.”

“Why?”

“Because he died on Midway Island in 1943.”

The Insured had made only one mistake. She had used the signature of an appraiser long dead.

Underwriters instructed the adjuster to deny the claim for fraud. They further instructed the adjuster, because of the Insured’s advanced age, not to report the attempted fraud to the police or the Bureau of Fraudulent Claims.

A month later a lawyer called to inquire about a potential settlement. He implied that it would not be wise for an insurer to litigate against a poor, little old lady. The adjuster merely repeated the denial and asked that before counsel filed a lawsuit that he determine the date of Mr. McCarthy’s death and the location of his coffin. He explained to the lawyer that it is difficult for a man who died in 1943 to sign a fine arts appraisal in 2019.

He did not file suit. He confronted the insured who, with hesitation, told him the truth. The lawyer withdrew his representation and refused to file suit.

A fraud was thwarted. The Insured put some excitement into the dull life of an 82-year-old widow. Little harm was done and the adjuster has a story about a fraudulent claim that will top that of all his contemporaries. Because they rescinded the policy Lloyd’s returned the premium.

Everyone should understand that people from every level of society, every race, creed, age group or country of origin commit insurance fraud. No one looks like a fraud. The most innocent looking, like the Insured, will present a fraudulent claim while the most criminal looking ex-convicts will present an honest claim.

Insurers must, to conduct a thorough investigation without bias, stop the criminal actions of sweet old ladies or hardened criminals equally.
ZALMA OPINION

Insurers must, to conduct a thorough investigation without bias, stop the criminal actions of sweet old ladies or hardened criminals equally.

If not, crime will succeed. The innocent ex-convict will lose the indemnity to which he is entitled.

The criminal grandmother will recover and everyone who buys insurance will pay more than they should.

(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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