Zalma on Insurance
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Insurance Claims professional presents articles and videos on insurance, insurance Claims and insurance law for insurance Claims adjusters, insurance professionals and insurance lawyers who wish to improve their skills and knowledge. Presented by an internationally recognized expert and author.
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May 03, 2024
Help, My House Is Falling Into The Sea

Normally Honest People Will Try Insurance Fraud

Read the full article at https://lnkd.in/gHAbjWBa, see the full video at https://lnkd.in/g6XkgSCg and at https://lnkd.in/gXb-nqAP and at https://zalma.com/blog plus more than 4750 posts.

"I present blogs and 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 to better understand insurance fraud and weapons that can be used to deter or defeat a fraudulent insurance claim."

Post 4793

The Honest Real Estate Lawyer Tempted to Commit Fraud

Career criminals are not the only people who perpetrate insurance fraud. The temptation has become so great that almost anyone who is given the opportunity, will try. Those who do not premeditate insurance fraud are called perpetrators of soft frauds. Most are small. Some are not. The story that follows is a not a soft fraud but one that was premeditated for a great deal of money by a person who should have known better.

Some years ago, residents of a hillside community of multi-million dollar homes received a letter from the county engineer informing them that their houses sat on an active landslide. The engineers concluded that an unusual amount of irrigation water, water from septic systems, and rainfall lubricated an ancient landslide under their homes and that the slide was moving. The engineers were concerned because it was moving at the rate of three inches a year. The houses sitting on the landslide were also moving a few inches a month. Within ten years the houses would be torn apart by the movement if nothing was done to stabilize the hillside.

Homeowners, living on the hill, noticed cracks in the plaster walls. Concrete block walls split at the mortar seams. Cracks formed in the foundation systems. Since the homes on the hill were all valued from $1,500,000 and $8,500,000, the monetary value of the potential loss of 300 homes on the landslide was enormous. Many of the homeowners gathered and hired counsel to pursue persons responsible for their damage.

On advice of counsel, the homeowners reported claims to their insurers. Most of the insurers denied the claims because of clear and unambiguous exclusions for earth movement or subsidence. The insurers concluded that the predominant cause of the damage was the excluded peril of earth movement. The claims were fairly and reasonably rejected. Some of the homeowners accepted the decision of their insurers. Some of the homeowners sued their insurers. The imaginative homeowners, like the insured, found a better way.

The insured was a real estate lawyer. He had experience in dealing with insurers for commercial developers he represented. He knew that, in addition to the basic retail insurance market, there was a surplus and excess lines insurance market that would insure almost anything.
ASK ME NO QUESTIONS I’LL TELL YOU NO LIES

Without informing his broker of the landslide situation on the hillside he asked the broker to seek a specialty insurance policy for his home. He wanted insurance that covered him for both earthquake and earth movement, landslide, mudslide or other types of earth movement normally excluded by homeowner’s policies. He explained to the broker a concern that the wild fires that often devastate hillside communities remove vegetation from the hillsides and increase the hazard of mudflow and landslide. He had invested a great deal of money in his home and wanted to protect against that risk.

The broker found a policy offered by a surplus line insurer. The policy insured dwellings only for the perils of earthquake and earth movement. The premium was a reasonable 3.75 percent of the value of the dwelling with a deductible equal to only 5 percent of the total amount at risk. To obtain the policy all the insurer required, by way of application, was the name of the insured, the address of the property to be insured, and the amount of insurance requested. It asked no questions about the potential risks of loss and the insured – since he was not asked – provided no information nor did he advise the insurer of the report from the county engineer.

After receiving a signed application from the insured the insurer agreed to insure any property because it did not fall within certain specified earthquake fault areas. The insured obtained a $2,500,000 policy for a premium of only $9,375.00.

Before the insured bought the policy, he had received and read the letter from the County. He knew there was a landslide actively affecting his house. At the time he bought the policy the insured had already seen cracks in his plaster walls. When he bought the policy, the insured applied the old maxim “ask me no questions – I’ll tell you no lies.”

His experience as a real estate attorney convinced the insured that if he told his prospective insurer his house was sitting on an active landslide it would not insure him. The insurer did not ask. The insured did not offer the information.

After the policy had been in effect for three months and the cracks in the plaster had grown to a size that he could place his index finger inside the crack he reported a loss to the earth movement insurer. He presented a claim for the total loss of the house. He demanded payment of policy limits less the deductible.

The insurer sent its adjuster to meet with the insured. They retained a geologist to inspect the property and determine the cause of the damage. The geologist learned of the active landslide from the public records kept by the city and County. He informed the insurer that thirteen months before it issued the policy the county had sent notice to all homeowners, including the insured, advising the homeowners of the active landslide.

After completing its investigation, with the advice of counsel, the insurer did the following:

It advised the insured that the policy was rescinded from its inception because of the concealment of a material fact.
1 The insured had concealed the fact of the landslide.
2 With the notice the insurer returned the $9,375.00 premium.
3 It advised the insured that even if it had not rescinded the policy it would have denied his claim as one that was not fortuitous.
4 The investigation showed that the landslide had started before the inception of the policy.
5 The insurer further advised the insured that the loss in progress rule barred any recovery.
6 The insurer recommended that the insured present his claim, if he still wished to pursue it, to the insurer who insured him against earth movement at the time of the loss.

The insurer, reasonably concluded that although the loss was progressive and continuous it was fairly certain that a loss had occurred on or before the insured learned of the landslide.

Of course, the insured did not have earth movement insurance at the time of the notice and bought the insurance from the surplus line insurer in an attempt to recover for the loss that had already occurred.

The insured, if asked, would testify that he had no intent to defraud his insurer. He would testify that the insurer, if it had asked him, would have been told the truth. All he was doing was taking an economic advantage over a lazy insurer who did not bother to ask.

What the lawyer/insured would have said, on its face, sounded reasonable. It wasn’t true. He knew of a material fact that would affect the decision of his insurer to insure him. He concealed that fact from the insurer. He intended to conceal the fact from the insurer. Had the insurer known the truth it would not have issued a policy for a loss that was in progress since, by definition, insurance only reacts to a contingent or unknown event.

The insured, in fact, attempted a fraud. His action in fraudulently getting an earth movement policy was reprehensible. His actions in buying the earth movement policy were no less a fraud than if he set the house aflame and made claim on his fire insurance.

Insurance is, as the lawyer should have known at the time, a contract where one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.

As a lawyer the intentional concealment of a material fact with the intent to deceive an insurer to its detriment is fraud, a criminal act, and if convicted, grounds for disbarment. For that reason, the insured accepted the denial and did nothing further about the claim.

Had the insurer not done the minimum investigation and retained the services of a competent engineer it would have paid the $2,500,000.00 claim. Had the insured’s fraud been presented to a prosecutor he could have been arrested, tried and convicted of attempted insurance fraud and would have been disbarred.

He was lucky that the insurer agreed to a mutual rescission of the policy, a return of the premium, and to forget what was attempted.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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00:13:42
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14 hours ago
Ambiguity in Insurance Contract Resolved by Jury

Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105

See the full video at https://lnkd.in/gPa6Vpg8 and at https://lnkd.in/ghgiZNBN, and at https://zalma.com/blog plus more than 5100 posts.

Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.

In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.

BACKGROUND

Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....

00:07:02
June 23, 2025
The Clear Language Of The Insurance Contract Controls

Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104

Read the full article at https://lnkd.in/gbcTYSNa, see the full video at https://lnkd.in/ggmDyTnT and at https://lnkd.in/gZ-uZPh7, and at https://zalma.com/blog plus more than 5100 posts.

Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy

In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.

The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS

Parties Involved:

CAEA is insured by Associated Industries Insurance Company, Inc. ...

00:08:22
June 20, 2025
Four Corners of Suit Allows Refusal to Defend

Exclusion Establishes that There is No Duty to Defend Off Site Injuries

Post 5103

Read the full article at https://lnkd.in/geje73Gh, see the full video at https://lnkd.in/gnQp4X-f and at https://lnkd.in/gPPrB47p, and at https://zalma.com/blog plus more than 5100 posts.

Attack by Vicious Dog Excluded

In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)

Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that

1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.

Presently before the Court are two ...

00:08:29
May 15, 2025
Zalma's Insurance Fraud Letter - May 15, 2025

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 ...

May 15, 2025
CGL Is Not a Medical Malpractice Policy

Professional Health Care Services Exclusion Effective

Post 5073

See the full video at https://lnkd.in/g-f6Tjm5 and at https://lnkd.in/gx3agRzi, and at https://zalma.com/blog plus more than 5050 posts.

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 ...

April 30, 2025
The Devil’s in The Details

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...

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