As we all know, fraud is a very big concern in the insurance industry. But, what about those cases that are not clearly fraud? What about the cases where there is an intent to get more than what the insured is entitled?
As an example, consider the case where an individual purchases an old house with the intention of fixing it up for resale. (Please note that this is an actual case but, the example used only serves to illustrate a point.) The owner insures the property for $20,000. In the process of fixing the house, the owner invests approximately $50,000 of his own money - no loans. Furthermore, all of the work is done by the owner. However, after all the work is completed but before the house is sold, the a/c unit fails and a new compressor is needed. The owner then hires an HVAC company and the a/c unit is repaired. Shortly thereafter, 2 to 3 days, a fire occurs and the house is a total loss. Realizing that the carrier will not pay more than the policy limit and that the remainder of his investment is at risk, the owner blames the a/c company for the fire. After settling with the owner, the carrier decides to pursue subrogation against the a/c company.
Upon investigating the loss, the a/c company's carrier determines that the fire resulted from something other than their insured's work. In addition it was revealed that the adjuster for the owner's carrier never visited the loss site. As a result, no photographs were ever taken of the suspected cause prior to its removal. It was also learned that the owner's carrier authorized him to begin clean-up and recovery. The owner then took it upon himself to remove and prepare the a/c unit for disposal. A fire investigator was hired by the owner's carrier but, in his report, apparently "rubber stamped" the cause. Although still on-site when the a/c carrier's expert conducted his examination, it was clear that the unit had been destructively handled and that any evidence had been rendered useless by the removal process.
The point of this scenario was to illustrate that while not doing anything illegal, an owner knowingly attempted to blame an otherwise innocent party for a fire that they weren't responsible for. The purpose of doing so was to prevent the loss of the owner's investment for which he had failed to insure. This example also raises questions about how easy it is to place blame on an unsuspecting and innocent party. Knowing that the burden of proof is on the accuser and that judgment is based on the "preponderance of the evidence", all the accuser needs to be successful is to make sure that the evidence is weighted on his side. For these reasons and many more that weren't addressed in this newsletter, adjusters and investigators must be keenly aware of what the facts are instead of what the facts appear to be. If an honest attempt at fairness is to be made, then, subrogation must not be pursued when the facts won't support the effort.
