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By Barry Zalma
The collector knew good Chinese art. He was passionate about hand-carved jade. He could talk with authority on any art over 1000 years old. He knew the life of each emperor who ruled China.
He did not have the wealth to enjoy his passion. All he could afford was jade carved with dental drills. He believed his life would be unfulfilled if he could not possess carved jade figurines from the Tang Dynasty, but the collector had no job. He subsisted on unemployment insurance. When he could find work, he acted as a real estate appraiser for local banks in Inyo County, California.
He did collect jade within his limited income. Mostly, it was machine carved in prison camps outside of Shanghai, in mainland China. When he saved his money he bought factory-made jade carvings made in Taipei, Taiwan, carved in the style of the Tang Dynasty.
As he collected his poor imitation Tang Dynasty carvings, he missed meals. Hunger made it difficult to sleep. He found himself watching early-morning television. At 2:00 in the morning, his local station was playing Double Indemnity, a motion picture from the 1930s. The movie explained how a philandering wife helped her lover murder her husband for the insurance money. The crime failed in the movie. To the collector, the perpetrators were ignorant and not worthy to receive the fruits of their crime. The investigator, played by Edward G. Robinson, was a worldly wise type that could never exist in small towns of Inyo County.
The collector knew he was smarter than the characters in the movie. He knew that when the movie was made, the law did not allow a movie character to succeed in a crime. The collector was not a violent man; he was a mild, quiet, contemplative man. The movie showed him a way to satisfy his passion for ancient jade.
The next day, instead of looking for work, he visited the public library. From the card catalog he got the names of three books on the history of insurance. He retrieved the books from the stacks and sat in a quiet corner until the library closed. He consumed each word in the books as voraciously as a homeless person would wolf down a sirloin steak at dinner.
For four days the collector read everything his library had on the subject of insurance. He became an admirer of Lloyd’s of London. He learned the difference between property, casualty, marine and inland marine insurance coverages. He learned what underwriters consider when accepting or rejecting a risk.
He then visited a local insurance broker. Feigning an interest in joining the profession, he got sample policy forms. At home he was no longer bored. He stayed up until 2:00 and 3:00 in the morning, poring over the words of personal articles floaters, jeweler’s block policies, furrier’s block policies, museum coverages, fine arts floaters and the like. He knew, if he was to insure his collection, he needed a professional-looking appraisal. As a collector he was familiar with the descriptions used by professionals to appraise works of fine Chinese art.
At a local K-Mart store the collector purchased an inexpensive $26 Polaroid camera. One at a time, he photographed each of his imitation-antique jade pieces on his kitchen table. A pillow case hanging from his window made a clear backdrop. He photographed each of the pieces, slightly out of focus, with the Polaroid camera. He then wrote glowing descriptions for each item, as if they were the originals rather than poor, machine-made copies.
At a local print shop, he created and had printed for himself a letterhead for a firm known as Inyo County Fine Art Appraisers. He selected an address in a building that had been torn down after a recent earthquake. The letterhead reflected that the owner of Inyo County Fine Arts Appraisers, Mr. Chen Chi Wan, was a member of the International Society of Oriental Fine Arts Appraisers and the American Society of Fine Arts Appraisers.
He returned to his neighborhood print shop, and for a $3.00 rental, he was able to use a word processor and laser printer. He typed his glowing descriptions of each of his jade pieces, dating the appraisal two months before the building collapsed. He placed values on his jade that totaled $2.5 million.
Using the Yellow Pages, he selected the insurance broker with the largest ad. He brought the appraisals to the broker with two of the jade pieces and the Polaroid photographs. He told the broker that the jade had been delivered to him by the executor for the estate of his Aunt Sally, who had recently died in the small town of Cameron, Missouri. He was her only living relative. He told the broker her collection of jade had been bequeathed to him. The executor had had the jade appraised in Inyo County, so that the appropriate estate taxes could be assessed, and then had delivered the jade and the appraisal to the collector. The collector told the insurance broker that he sold two of the pieces and now had more than sufficient cash with which to live. The value of the jade, however, frightened him. He requested aid in getting insurance so he might have peace of mind.
The broker, seeing almost $2 million in value remaining, advised him that none of his domestic insurance company markets could insure such a large value. The broker suggested that the collector submit a proposal to underwriters at Lloyd’s of London. The collector agreed.
A proposal for a fine-arts floater was completed by the broker and signed by the collector. He advised the broker that he had never had his insurance canceled, that he had never had a fine-arts floater before, that these items of jade were his first acquisition of true value and that he had installed at his home an electronic security system. He further informed the broker that he was a single man, living alone, and was engaged in the banking industry. Neither he nor any member of his family had ever been involved with the entertainment industry.
The broker submitted the proposal and appraisals to the London broker, who, in turn, submitted it to various underwriters at Lloyd’s. The lead was taken by a marine syndicate, though fine arts was outside their normal scope of insurance. The profit margin appeared to be high. The broker had offered underwriters a 4% rate for a total premium of $80,000.
When he heard the premium quotation, the collector knew that he could not pay it. He asked if a lower premium was possible if he locked all of the jade in his safety deposit box. He would remove it only to obtain future appraisals. The premium was reduced to 1.5% because of the available security. He financed the premium and was required to pay only a 10% down payment. After the local broker delivered to the collector a certificate of insurance, the collector requested permission from the underwriters to remove the jade from his safety deposit box; he told them he planned to take the jade on a one-day trip to Los Angeles to have it appraised by the representatives of Christie’s Auction House in Los Angeles. For an additional premium of $200, the collector received authority to take the jade to Los Angeles. The only limitation the underwriters imposed was that the jade must always be in his personal possession.
The next day the collector appeared in the broker’s office with a large bruise on his head. He advised the broker that, while he was stopped at a red light on the corner of Western and Wilshire in Los Angeles, two black men jumped in his car, struck him across the head with what he thought was a .45-caliber automatic pistol and stole the sports bag in which he was carrying his complete collection of jade. The Los Angeles Police took a report after the paramedics treated him, but they offered him little hope of recovery. He was distraught. He thanked the broker for convincing him to protect his property with insurance. The broker assured him that an adjuster would contact him within days to arrange for settlement.
The collector left the broker’s office ecstatic. He was already thinking of ways to spend the $2 million he expected to collect from an ignorant Inyo County adjuster. For a small cash investment and the pain of pounding his head against a metal telephone pole, he expected to get enough cash so he would never need to work again.
He was surprised when the adjuster retained by Lloyd’s called from an office in San Francisco. The underwriters knew no one in Inyo County and, for a $2 million loss, believed it best to retain their most experienced and knowledgeable California adjuster.
When the men met, the adjuster was nothing like the collector expected. He was pleasant and soft-spoken, not gruff like Edward G. Robinson. He was 6’4” and weighed 280 pounds. He drove up in a new black 500 SE Mercedes Benz, equipped with a cellular telephone. His thinning black hair was peppered with grey. The adjuster spoke with confidence and self-assurance, tempered with a soft Louisiana accent. He had moved away from New Orleans thirty years before, but the speech patterns remained. They sat in the collector’s living room and chatted for an hour with no apparent purpose to the chat. When the adjuster finally asked to record a portion of the conversation, the collector realized that the adjuster had already learned, without prying, almost everything about his life and his passion for Oriental art. The adjuster knew that Aunt Sally was a distant relative whom the collector had met only once when he was 18 years old. He knew Aunt Sally had lived in Cameron, Missouri, her entire life. The collector was astonished when the adjuster spoke with him about various Chinese Dynasties and the St. Louis Cardinals with equal alacrity.
The recorded statement was an abbreviated rendition of the history of the jade collection and the robbery. The adjuster left the collector with a blank proof-of-loss form and informed him that the underwriters required him to submit a sworn document. The document must prove to the Lloyd’s underwriters the amount of his loss and claim. The adjuster promised to complete his investigation as soon as possible and then make his recommendations to the underwriters.
The collector thought that he had convinced the adjuster of the legitimacy of his claim. The man was pleasant and seemed sincere in his desire to help.
But the adjuster was not convinced. As he drove from the collector’s house to visit the broker, he began to tote up in his mind what he had learned in his interview with the collector.
- The collector was passionately knowledgeable about Oriental jade.
- He owned no Oriental jade until he inherited his Aunt Sally’s collection two months before the robbery.
- The collector lived modestly.
- The bruise, still visible on his left temple, was different from other pistol bruises the adjuster had seen in the past.
- The robbers had allegedly jumped into the car through the right-front passenger door and left-rear passenger door.
- It would be difficult, if not impossible, to strike the left side of the driver’s head with a weapon from either the back seat or the passenger seat.
At the broker’s office, the adjuster collected a complete copy of the entire file and learned that the collector’s first visit to the broker was to purchase the policy. His suspicions increased. The proposal revealed an almost perfect risk. The background, insurance history and appraisals were perfect. Underwriters would compete for the privilege of insuring this man and his art. The risk was too good to be true. The armed robbery was too convenient. The bruise on the left side of his head was more than troubling.
The adjuster took the underwriting materials back to his hotel room and studied them, but he found nothing of interest. The next morning he would drive to Los Angeles and interview the police officer. Then, he would have no choice but to fly to Missouri to check out Aunt Sally.
Early the next morning (afternoon in England), he telephoned his underwriters in London. He informed them of his concerns and received authority to retain counsel, to protect the underwriters’ interest, and to fly to Missouri to complete his investigation. He did both immediately. He recommended that counsel require on behalf of the underwriters that the collector appear for examination under oath, a requirement of the policy. He also requested that the attorney write to the insured, reserving all rights of the underwriters pending conclusion of the investigation.
After 30 days of intensive investigation, the adjuster provided counsel with evidence sufficient to allow him to recommend to the underwriters that they deny the claim for fraud. Aunt Sally never owned $2 million in jade art. None of her friends or neighbors in the small town of Cameron, Missouri, had ever seen any Chinese objects in her home. She was a third-grade school teacher her entire life and left an estate, according to her local lawyers, only sufficient to pay for her burial expenses. The appraiser who allegedly signed the appraisal apparently never existed. The adjuster found the owner of the demolished building and obtained copies of every lease from every tenant who had occupied the building for the last ten years; none of them were art appraisers; none of them were Oriental. The tenants were lawyers, accountants, real estate brokers and a vacuum cleaner repair shop. Faced with the evidence, the underwriters agreed they were the victims of an attempted fraud. They denied the claim.
The collector did not give up; he filed suit. The underwriters defended. They removed the suit to the Federal Court. The case dragged on for years. The adjuster even found, in a second-hand store, two of the pieces insured for $300,000 and $500,000 respectively. At the request of defense counsel and with the approval of the underwriters, he bought the two pieces for a total of $2,700, their true value. He showed them to the police. The jade items were still officially listed as stolen property.
He showed them his receipt. He showed them the police report. The police showed no interest. They had no concern about the crime attempted against the insurers in London.
Finally, after five years, the case came to trial. Evidence was presented for four weeks and the jury reluctantly entered a verdict for the underwriters on a nine-to-three vote. The case was closed. The underwriters owned two pieces of jade valued at $2,700. They spent $1.2 million dollars in investigation, adjustment expense, attorneys’ fees, expert witness fees, jury fees and all other expenses resulting from the trial of a major $2-million lawsuit that sought punitive damages against underwriters.
The collector was not smarter than the characters in the movie Double Indemnity. The adjuster was not Edward G. Robinson. The underwriters won this case. The cost was still less than the amount they would have to pay under the policy. The true loser was the insurance-buying public, who found themselves paying higher premiums to cover the costs incurred by the underwriters in defeating this fraudulent claim.
Barry Zalma, of the Culver City, California, law firm of Barry Zalma, Inc., is also the president of ClaimSchool, Inc., and the publisher of How Your Friends and Neighbors are Screwing You, a compendium of similar columns.
This column originally appeared in The Insurance Journal and has been reprinted with permission.
© Copyright 1996 Alikim Media