Claims Commandment VII - Thou Shall Never Lie to an Insured
Barry Zalma
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Insurance is, and has been since the first policy was carved into a clay tablet, considered a business of the utmost good faith. The principle of utmost good faith (uberrimae fide) was, I believe, first stated in the English speaking world, in the British House of Lords by Lord Mansfield in 1766 in a case where he concluded that the duty of good faith rests upon both the insured and the insurer and held the insurer to its knowledge at the time the policy was signed. The insurer, like the insureds, took the premium, knowing the condition of the security provided, and could not upon loss claim the insurer was deceived. [Carter v. Boehm, 3 Burr 1905 (1766)]
As the old maxim says: “honesty is the best policy.” There is no excuse for an insurance claims professional to lie to an insured. Not only is a lie to an insured a failure to act with the utmost good faith, but it is also an action fraught with danger for the claims person and the insurer for whom he or she works. Keeping up a consistent lie is almost impossible. All definite statements can be corroborated or proven false by further investigation. If a lie is about a material fact, the falsehood will be proved to the expense of the insurer.
Lies to insureds — even when done for what the claims person believes is a good purpose — will invariably cause the insurer problems. Lies created on the run invariably include internal contradictions. A lie told to an insured can be, and most certainly will be, used by the insured to prove that the actions of the insurer were made intentionally and in bad faith such that the insurer will eventually be punished with punitive damages.
For example, in Allison v. Fire Insurance Exchange, 98 S.W.3d 227 (Tex.App. Dist.3 12/19/2002) a major punitive damage award was obtained by a plaintiff who presented evidence from the adjuster, who admitted she lied to the plaintiff about the authority to resolve a claim for mold damage. Although the case was reversed because of an excess verdict the lie cost the insurer a great deal of money when the case was eventually settled and started a spate of bad faith cases claiming refusal to pay for mold damage because of the excess and punitive judgment at the trial of the Allison case.
Claims people get into trouble when they fail to tell the truth to the insured about, among others, the following:
The check is in the mail.
There is no problem with coverage.
I will pay the fees of the lawyer of your choice.
The claim is being reviewed by senior management.
I need another 30 days to complete my investigations.
I need a copy of your policy.
I need you to go to all of the places where you bought the stolen property to get a receipt.
I will hire a contractor to rebuild your house.
I don’t have authority to settle your claim.
I don’t need to do an investigation to know your claim is not covered.
I have confirmed coverage.
Any other statement that is not true.
California Insurance Code Section 790.03(h)(1) provides:
Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:
1. Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.
Similarly, the California Code of Regulations, 10 CFR 2695.4 provides:
(b) No insurer shall misrepresent or conceal benefits, coverages, time limits or other provisions of the bond which may apply to the claim presented under a surety bond.
This should be self-evident to anyone involved with insurance claims. It is a statement of prudent and common claims handling. Although this Regulation seems to apply only to surety bonds it also applies to any type of insurance. Nothing can be gained by an insurer concealing or misrepresenting information about the policy or the surety bond. Claims staff should be warned that violation of this regulation will be grounds for discipline and certain loss of employment.
On the other hand, proving that insurers and insured play the insurance claims game with a different set of rules, a mere oversight or honest mistake will not cost an insured his or her coverage; the lie must be wilful. [Claflin v. Commonwealth Ins. Co., 110 U.S. 81, 95-97, 3 S. Ct. 507, 515-16, 28 L. Ed. 76, 82 (1884)]
(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] and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at
Zalma on Insurance
Insurance, insurance claims, insurance law, and insurance fraud .
By Barry Zalma
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th 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 ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th 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/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
