Why do Insurance Companies Question Theft Claims?
July 1, 2008
No question about it, getting a theft claim settled with an insurance company is no easy project. From an adjuster's (who works for insureds as opposed to working for insurance company) point of view, we can only wonder. However, after adjusting many hundreds of these claims, a pattern begins to emerge.
To begin with, nearly all theft claims are looked at with suspicion. Just as the first person authorities look to when Nicole Brown Simpson is slaughtered is her husband, insurers suspect their insureds to have some role in a theft claim, even if perhaps the insured has just added a few more items than were actually taken. Additionally, it is in the public interest that an insurer not pay a claim to someone who is undeserving. However, imagine yourself as a new claim representative right out of college with a degree in physical education, a company car with a name like Taurus or Mailbu, and claim manager pointing a big finger at your chest telling you to "pay only what you owe." Its enough to strike fear in the heart of a claim representative wanting to climb the insurance company's corporate ladder.
In all insurance policies there are requirements listed that an insured must comply with in order to receive a settlement. In the Section DUTIES AFTER LOSS, those requirements are listed. One of the requirements is to NOTIFY THE POLICE IF A LAW MAY HAVE BEEN BROKEN. The reasons for this is two fold. Of course an insurance crime needs to be submitted but additionally, if an insured notifies the policies of a crime that did not exist, or places incorrect or exaggerated information on that report, that person could be charged with the crime of filing a false police report and there are big consequences to doing such a thing.
After receiving a claim to adjust from an insured that has been reported to the policyholders insurance company from his or her claim manager, a claim representative will immediately procure a police report. Keep in mind that a theft claim sounds all kinds of bells in the claim department and, once again, a claim representative doesn't want to pay anything that is not justified. So here comes the police report.
Police reports are sometimes misleading and confusing. The reasons for this are many. Sometimes police and fire personnel who estimate losses and prepare reports are in a hurry, sometimes they under report and sometimes they over report the amount of a loss. We all know that forms can be frustrating. This is particularly true in reports of burglaries and robberies where the police officer has a little room for editing and needs to get this crime reported to move on to other crimes.
When the police department is faced with a serious crime against an individual, it is very difficult to make it look like anything less than it is. When a police department receives a claim from a householder listing a large number of items as stolen or missing, sometimes such claims are processed with a very different perspective than that of the homeowner or adjuster.
Besides procuring a police report, one of the adjusters first jobs upon receipt of burglary-robbery type claim is to make an absolute verification of coverage. It is vital that the insurance adjuster have this information in hand before his first contact with the insured.
If the information is not available and the adjuster has only the company's first report of loss, it is the job of the adjuster to locate information about the policy coverages even if this means that the claim representative must located the actual copy of the insurance policy to obtain the information from the policy.
Adjusters are cautioned that, to avoid falling into a common trap, the adjuster should never accept the insured's copy of the policy at face value. Claim representatives are taught to remember that endorsements, limitations, restrictions and cancellations may or may not show on the insured's policy. For example, suppose the insurance company issues an endorsement limiting coverage on a particular item of jewelry. That endorsement may not be in an insured's policy for one reason or another.
Every seasoned adjuster knows that coverage must be verified with the agent and/or with the insurance company. Many companies allow the insurance adjuster to accept the agent's (that is the selling agent's) copy of the insurance contract. Many companies feel that this helps speed up field adjustment of claims. Other companies set a dollar limit on the size claim that may be settled on the basis of the agent's files; others require the adjuster to receive full coverage details from the company or at least to confirm by telephone or e-mail, exact coverage details before proceeding with the final or intermediate stages of the adjustment.
Once the coverage has been determined, once the insured's statement has been obtained and any and all other incidental information, including the police report is secured, the adjuster must then proceed to the next step which is a determination as to the exact type of peril, crime or criminal act that caused the loss.
Many policies require specific conditions before a loss of merchandise covered under the policy, will be paid. Some specific homeowners' policies require visible marks of forcible entry to accompany a claim for loss by burglary. Other policies exclude or include mysterious disappearance. Other specific crime type policies cover only robbery; or others, burglary; others, messenger holdup, etc. It is for this reason that the adjuster must be familiar, not only with the legal concept of burglary, robbery, larceny, but with the various policy definitions of these crimes.
Here is another quirk in many policies. "Conversion" is not a covered peril. Suppose my jacket is in my car and someone steals that jacket. That could be a covered peril even though someone might not want to present a claim so small that it might just barely meet the deductible on the policy. Now suppose I gave my jacket to someone who refused to return it. Did the person steal my jacket? I gave it to him at first but can't get it back. That person isguilty of conversion. While that may sound irrelevant, I am handling a claim as this is being written for an mortgagee that involves the theft loss of a steel building. The insurance company found the building when the police department could not. The ex-owner of the property has it. Will this be ruled "conversion" or theft? We'll see.
Every one of these policy considerations noted represents a road block to an insured with a theft claim. Further, while an insured has to prove his or her loss for any kind of peril, in a theft claim an insured has to prove that a content item belonged to that insured. Compare this to a fire. There is always some evidence that an insured owned a particular item even if it is just in the ashes. Not so with a theft claim. An insured has to prove that the item was actually owned and, then to go a step further, an insured has to prove that he or she had the means to obtain such an item.
I recall some years ago an insured presented a theft claim and an insurance company asked that person to provide dates of purchase every item that was lost. The dates were placed on an inventory as such one year old, two years old, three years old, etc.
For a moment we are going to digress and reference insurance policies. In most states there is a policy that is set by State Statute as a policy for which all policies written in that State must comply. It is the 165 line 1943 New York Standard Fire Policy. That policy states, in part, that an insured must prepare an inventory of lost items by, among other things, description and actual cash value.
Actual Cash value is the sum obtained when deducting depreciation from the Replacement Cost Value. That definition is somewhat simplistic but you get the point.
At any rate, there is no requirement in the 165 line 1943 New York Standard Fire policy for an insured to provide dates. State Farm started put such a provision in their polices at the beginning of this decade and it has always been a wonder to me how they could do this because, frankly, dates of acquisition are not always easy to come by. To my knowledge, Constitution Insurance has followed this "date" requirement and there may be others but, considering State Farm's power in the marketplace, perhaps other insurers will do this also but, for the time being, there is no requirement that an insured provides dates in most policies short of construing there is such a requirement in the cooperation clause of the police.
Back to the story of the insured who was asked to provide dates of purchase for every item that was lost.
Even though, the addition of dates was not a requirement in this particular insured's policy, the insured did in fact provide all the dates of acquisition. Lo and behold, the insurance company then demanded the policyholder to provide copies of tax returns. With tax returns in hand, the insurance company claims representative compared the expendable income of the insured for each year with the list of dated inventory items and viola! the insured did not have enough income to have purchased all those items in those years. Claim denied. Material representation of fact.
I worked this claim as the insureds public adjuster for over a year. We were able to show that the insured had a disability that provided income checks that did not have to be reported on the tax return. We eventually prevailed.
Consider another theft claim that I worked. I had a previous client who I had adjusted a fire claim for; he was a great guy. After his fire was adjusted, he had received money and his home was rebuilt, he lost his job.
Mr. Great Guy came home depressed the day he lost his job and that night he had a break in in his garage and lost $25,000.00 worth of tools. Instead of calling me, he called his insurance company who sent out an attractive young female adjuster who asked all kinds of questions, including "what do you do for a living?". Mr. Great Guy didn't want to look impotent so he said, "I'm self employed right now". Those of us who are self employed know there is often a fine line between being self employed and being unemployed. "OK", she responded, "Do you use your tools in your self employment?" "Hmmmm", he retorted, "yes, I do". She told him she would go back to the office and issuing him a check.
Several days later he received a check for $ 500.00. The check was for the policy limit of "Items used in a trade or business". So much for the male ego. He should have never led the claim representative to believe that he was self employed when, in fact, he was jobless and down. His was a claim that took me another year to get paid and before it was done, everyone knew the guy had been laid off when the tools in his garage were stolen.
One of the most intriguing and highly specialized fields of insurance adjusting is that of the claims representative who handles the burglary, robbery or other theft of expensive jewels and jewelry items, inasmuch as no insurance company writes blanket insurance on valuable jewelry without an opportunity to inspect and verify the existence and the value of such jewelry. Homeowner policies contain express limitations on the theft of jewelry, limiting payout for some number like five hundred dollars if the insured does not obtain additional insurance. Jewelry could be lost in a fire and the entire value of the jewelry could be claimed but this is not so in a theft claim.
To obtain the additional insurance coverage on jewelry, an insured would have to had obtained an appraisal of the jewelry or would have had to provide a receipt. This requirement would certain satisfy an insurer that the insured had indeed owned an item but there is nothing in ordinary personal property adjusting that compares with the safeguards that the insurance companies have placed around their policies, insuring valuable works of art, jewelry and furs.
If an insured or prospective insured notifies an insurance agent to purchase insurance to cover jewelry, the agent would first require an exact description of the jewelry to be covered to calculate a premium based on such things as robbery rate of the city involved, the area involved, the type of house or apartment, the security systems present, burglar alarms, wall safes used. Everything is material.
While theft claims under these policies might be easier to quantify and value, the bring with them their own issues. Sometimes insurance companies will offer rewards for items lost.
I once handled a $100,000.00 loss of jewelry that was owned by a jewelry store. This claim was eventually resolved but the problem in this claim involved the fact that appraised values were computed in gold valuations of Chinese measurement methods. We had exchange valuation problems, comparison pricing valuations. The claim was eventually paid, thanks to the adjusting services of a public adjuster advocate such as Yours Truly.
I would like to conclude this missive with a note that, with the difficulty of adjusting theft claims, an insured would be better served to have made a very good effort to keep the theft from occurring in the first place. Theft claims are a hassle.