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INSURANCE JOURNAL REPRINT
By Barry Zalma
In California and several other states, before a car can be insured, the agent must photograph the car and its vehicle identification number. This regulation is an effective weapon against fraudulent auto theft claims.
In the case at hand, the insured managed to purchase physical damage insurance on a Rolls Royce before the regulation was fully effective. His technique was flawless. His planning immaculate. He was only thwarted in his efforts because of the actions of a dedicated and thorough investigator.
To start his plan, the insured went to a Beverly Hills classic automobile dealer and took two Polaroid photographs (slightly out of focus) of a 1946 Rolls Royce. Unlike modern cars, the vehicle identification number was not in the windshield of the Rolls. It was, however, written on the specification sheet provided to him by the dealer.
The insured began the effort to create an artificial 1946 Rolls Royce. First, he visited the Department of Motor Vehicles. He obtained forms from the department for the issuance of replacement title and registration documents.
He filled the documents out using a vehicle identification number similar to the one in the showroom, but 200 digits higher. He also filled out a sworn declaration of lost title and signed it with the name John Jones, vice president, Lincoln Savings and Loan, the lender. The Department of Motor Vehicles processed his application for lost title and registration based on the value of the sale.
The insured then forged the neighbor’s signature on the ownership certificate transferring title to himself. A new bill of sale was again recorded, reflecting a purchase price of $5,600 by the insured from his neighbor. He then paid the license fees and requested plates and a certificate claiming the old license plates had been lost or stolen.
At his local public library, the insured read through a classic car magazine and found that 1946 Rolls Royce automobiles in fair condition were selling for approximately $100,000. He also learned that the Classic Car Insurance Company was willing to insure classic cars (with limited use) by mail. He photocopied the application for insurance at the library photocopy machine and applied for a $100,000 policy on his phantom Rolls Royce. He attached to the application one of the Polaroid photographs he had taken at the dealership. Classic Car Insurance Company, taking his application on face value, issued the policy. Since the car was only to be driven 1,000 or fewer miles a year, the premium on the policy, including third party liability coverage, was less than $1,000. The insured financed the premium with a local insurance financing company and only had to make a $200 down payment. His first payment was due 30 days later.
Two days before the pavment was due, the insured telephoned the Los Angeles County Sheriff’s office from a Denny’s restaurant in Lakewood, California, and reported his Rolls Royce stolen. He told the police he had driven it to the restaurant for lunch, and when he returned, his car was gone. The police dutifully took down the report and began looking for the phantom Rolls Royce. The insured made a report to the Classic Car Insurance Company and immediately, in response to its request, submitted a sworn declaration of auto total theft making his claim for $100,000.
Classic Car Insurance Company, as required by California law, maintains a special investigation unit. When the report came in, a computer search was performed of Classic Car’s other claims payments. A three-year-old theft loss of a classic Mercedes Benz was discovered to have been reported by a person with the same last name as the insured. The old file was taken out of archives and it was determined that the vehicle as owned by the insured’s mother, but was being driven by him when it was stolen from a restaurant parking lot. The Classic Car Insurance Company had paid the insured’s mother $75,000 for the loss of her Mercedes. The coincidence was too great to ignore.
The investigator began to do the work he was trained to do. He first checked the database maintained by the National Insurance Crime Bureau and learned the following:
1. The insured had been the reported victim of two automobile accidents and a residential burglary — none of which were reported on the application for insurance.
2. The insured had been convicted, at age 19, of four counts of forgery of checks, causing a bank to ultimately lose hundreds of thousands of dollars. He had been sentenced to 90 days in jail and five years probation for this offense.
3. The Rolls Royce Motor Company publishes a book of all vehicles it manufactures with their vehicle identification numbers. The number of the insured’s Rolls Royce was not in the book.
The investigator then obtained all of the original sales documents from the Department of Motor Vehicles and was surprised to learn that the vehicle Classic Car Insurance Company had insured for $100,000 was reported by the insured to have been purchased for $5,600.
Counsel was retained to represent Classic Car Insurance Company and to examine the insured under oath. At examination under oath, the insured proved himself to be a facile lair. His skill at lying under oath was no match for the facts counsel had obtained from the SIU investigator. Counsel led the insured down a path of lies. The insured claimed to have purchased the vehicle for $100,000 cash which he obtained from his business, an escort service. He explained he kept the cash at home because it was earnings he did not wish recorded in a bank account. He produced a bill of sale purportedly signed by the neighbor reflecting a $100,000 sale. He produced the ownership certificate and the registration establishing the vehicle existed. He claimed to have forgotten to bring with him the keys to the vehicle.
Counsel then presented the true documents, item by item. The insured claimed that the documents recorded at the Department of Motor Vehicles were filed by the seller and he had no knowledge of the changes made by the seller. In fact, he could not understand why the seller had filed such strange documents.
After counsel had established, with certainty in counsel’s mind, that the insured had sworn falsely, the examination under oath was terminated. Counsel met with the attorney for the insured, privately, and explained that the insured’s claim was in great peril. The attorney for the insured responded, “The bad faith lawsuit I told you to expect will not be filed by me.”
The insured had made one serious error. He had hired an honest lawyer. His lawyer and counsel for the Classic Car Insurance Company discussed possible resolution of the matter, including the withdrawal of the claim, or a mutual rescission of the policy. Counsel for the insured promised to speak with his client and communicate with the insurer.
The next day, the insured’s lawyer called counsel for the insurer and said, “I have conferred with my client who recognizes that his title to the Rolls is not clear. He has instructed me to advise you that he is withdrawing his _claim,” He then continued, “I recognize that your client has a duty to report potential fraudulent claims to the State Bureau of Fraudulent Claims. We request that you do no more than you are required by law to do. “
Classic Car Insurance Company saved a $100,000 claim. It spent $30,000 investigating the claim and defeating it. It was lucky. No litigation ensued. It reported the loss to the fraud bureau which now has the insured’s name on record. There has been no prosecution. No prosecution is anticipated or expected. The fraud bureau is simply inundated with fraudulent insurance claims and must limit its prosecutorial efforts to major crimes that exceed $1,000,000.
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Barry Zalma, of the Culver City, California, law firm of Barry Zalma, Inc., is also the president of ClaimSchool, Inc., the publisher of How Your Friends and Neighbors are Screwing You, a compendium of similar columns.
© 1995 John Cooke Fraud Report