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By Barry Zalma
His parents escaped the pogroms of Eastern Europe and moved to Syria in the early 1930s. Through hard work and tenacity, they created a successful business building homes and commercial structures in the fastgrowing city of Aleppo. He was the fifth son of a family of six sons and three daughters.
In 1975 it became clear that any non-Muslim living in Aleppo was in danger. It was time for the family to move again. They slowly and methodically liquidated their assets. In violation of Syrian law, they opened accounts with foreign banks in Switzerland, England and the United States. They moved as much money as they could directly into these accounts. What they could not transfer as cash, they converted to diamonds, Persian rugs, gold jewelry and works of art that could be moved as household goods.
As an approved minority with funds to invest in the United States, they were granted visas allowing them to immigrate to the US. Upon their arrival, with their wealth gained over the last thirty years intact, they immediately purchased a family home in Beverly Hills, California, sufficiently large enough to house the entire family, including three of the married sons and two of the married daughters and their families who were willing to immigrate.
The fifth son, who was the most involved in the operation of the business in Syria, began searching for investment opportunities in his new homeland.
He learned that the most effective and profitable investment in real property in California was the construction of condominiums that appeared to be luxurious and were in an area believed to be prestigious. His parents were now old and had no interest in actively engaging in the business. They were willing to allow the fifth son to continue the family business on their behalf.
He immediately searched out the area and purchased a single family dwelling in an area in Beverly Hills just south of Wilshire Boulevard that was zoned for multifamily use.
Acting as an owner/builder (thus avoiding any need for a contractor’s license), he immediately demolished the dwelling and had it hauled to a dump by individuals who stood on street corners seeking work. He paid them less than $5 an hour, in cash. He purchased a set of standardized plans and specifications from a local architect for the construction of eight units of “??? Street” condominiums and began engaging the usual subcontractors to build the structures. He negotiated, as was his experience in Syria, the lowest possible price from the subcontractors for the lowest possible quality of materials and labor. Only those things that would be visible were to be of high quality. Therefore, once the units were almost complete, he purchased Sub Zero refrigerators and freezers, high quality stainless steel ranges and ovens and $60 a yard wool carpeting.
He hired an interior decorator to decorate the models in an ostentatious manner and sold the eight units in less than three months in a depressed real estate market. He made a net profit of over $600,000 on the construction.
At no time during construction of this, his first development, did the fifth son purchase course of construction insurance or liability insurance. Such insurance was unheard of in Syria. Rather, when a problem occurred, one would merely bribe the appropriate official.
The entire family was pleased with his success and helped him find a new lot where he could develop a thirty-unit condominium project. This lot was just north of Wilshire Boulevard in a very prestigious area. The owner had recently died of an unexpected
illness and the fifth son was able to buy the lot for a low market price from the estate. Construction began immediately.
The fifth son again used techniques he had learned in Syria. Although he entered into contracts with various subcontractors, he considered a signed contract to be merely the opening of negotiations. He would delay, as long as possible, making the progress payments called for in each contract. When the subcontractors were faced with a payroll they could not meet, he would then negotiate a lower amount and take advantage of the hardship caused by his delay in payment. This worked for a while.
One of his subcontractors, however, was a highly successful and well-financed plumber. The plumber refused to renegotiate. He refused to do less work than required by law and his professional pride. He informed the fifth son that if payment was not immediately made, he would file a lawsuit and place a construction lien on the property so that it could never be sold.
The fifth son, from his experience in Syria, understood threats. He knew that sometimes threats of contractors can be defeated by counter threats and rumor that would make it too expensive to follow through on the lien.
The fifth son then fired the contractor and wrote a letter, with copies to all other individuals he knew to be customers of the contractor, so that they would know the plumber had been fired for his incompetence. The fact that the dismissal of the plumber was without cause had no impact on the fifth son. Rather, in his opinion, he was merely returning the threat made by the plumber in kind.
The plumber was undaunted. He immediately contacted his attorney who advised the fifth son that the letter written to other customers of the plumber was libelous and that if it was not immediately retracted, suit would be filed, not only for the contract amount, but also for compensatory and punitive damages.
It became relatively clear to the fifth son that his counterattack was not successful. He could not acquiesce to the plumber’s demands because that would be a show of weakness. He could not pay the plumber what he asked because that would also cut into his profit margin. The building, using a new plumber, was almost complete. He did not know what to do to protect
himself and his family.
Coincidentally, at a dinner party, he met a fellow immigrant from Syria who was also an insurance agent. He told his fellow immigrant of the threats he had received from the plumber’s lawyer. The insurance agent, new to the business and only experienced in selling rather than in insurance law, suggested that the fifth son report the latter to his insurance company so that they could deal with the plumber’s lawyer.
“But I’m not insured,” the fifth son replied.
“How fortunate for you that we met, then. It is time you obtained insurance,” the Syrian insurance agent replied.
The fifth son and the Syrian insurance agent met at the fifth son’s home the next morning. An application for insurance was prepared for a commercial general liability policy, insuring against construction risks of the new development. The application showed no prior claims and no prior cancellations, and honestly reported that this was his first policy as a developer. It did not disclose the fact of a threatened libel action because the fifth son was advised by the Syrian agent that he need not report it until a lawsuit was filed.
A policy was written with a major commercial insurer. The premium was paid in full.
Two weeks later the plumber filed his lawsuit and served it on the fifth son. He tendered it to his insurance company and demanded that they defend and indemnify him since libel is one of the types of claim covered under the “personal injury” coverage.
The insurer conducted a thorough investigation and learned of the threats of litigation and the fact that the libel occurred prior to the issuance of the policy. What they discovered was one of the more unusual methods of committing insurance fraud.
In this case, the person insured bought no insurance until he was certain that there would be a claim. By doing so, he avoided the purpose and intent of insurance the spreading of risk. If a person buys insurance (such as the fifth son tried in this situation) only after he knows he is to receive a claim, the entire purpose of insurance fails and everyone who buys insurance loses. Fortunately for the insurance industry and the insurance buying public, this insured was found out and did not succeed in his fraud.
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. He can be reached at (310) 390-4455.
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