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True Crime Stories of Insurance Fraud Number 30
\\nBarry Zalma, Esq., CFE presents videos so you can learn how insurance fraud is perpetrated and what is necessary to deter or defeat insurance fraud. This Video Blog of True Crime Stories of Insurance Fraud with the names and places changed to protect the guilty are all based upon investigations conducted by me and fictionalized to create a learning environment for claims personnel, SIU investigators, insurers, police, and lawyers better understand insurance fraud and weapons that can be used to deter or defeat a fraudulent insurance claim. As insurance companies become more sophisticated in the tools needed to defeat insurance fraud, the frauds become more complex. Those who earn a dishonest living stealing from insurance companies find that the simple, straightforward fraud, is no longer successful. They have become insurance scholars to learn better ways to steal from insurance companies. The 1942 banking industry wrote a document known as the standard or union mortgage clause [Form 438 BFUNS] to protect mortgage holders from dishonest borrowers. The banks were concerned because occasionally their borrowers committed arson and the insurers refused to pay. The policy was declared void as a result of the arson and resulting fraud and neither the insured nor the mortgagee recovered. As a condition of allowing their borrowers to buy insurance from particular companies, the banks insisted that the companies attach to their policies a union mortgage clause. The clause provided that if the borrower, by act or omission, caused the policy to be void, it would only be void as to the interest of the borrower and not the lender. Therefore, even if an insurer proved that its insured burned the building down, it still must pay the mortgagee its interest. The contract between the mortgagee and the insurer was a separate and distinct policy. The insurer could only defeat it if the mortgagee had knowledge of an increase of hazard. The union mortgage clause gave security to honest and reputable lenders. It also gave a dishonest lender the means to commit an arson for profit without the possibility of loss or criminal prosecution. The fraud would work with the insurance criminal first buying a distressed dwelling at a foreclosure sale for less than its true value. With a coconspirator, he would arrange a mortgage on the dwelling for three times the amount paid. He would then buy a homeowners policy from an unsuspecting insurer, naming the mortgagee under a standard or union mortgage clause. Before the first installment was due on the premium financing the dwelling would burn to the ground. Gasoline would be found on the premises and the local fire arson unit would conclude that the fire was intentionally set. The building would be vacant and without contents. The insurer, convinced that the insured set fire to the dwelling, and unable to reach him, would be thankful that it had no contents or additional living expenses to pay. It would write the named insured at his last known address denying his claim for failure to cooperate. They would pay the mortgagee\\u2019s claim in full. Usually, the insurer, not wishing to get into the mortgage business, would not even request an assignment of the mortgage debt. T The original named insured would share half the proceeds of the insurance policy with the mortgagee and would also receive 50 percent of the monies received from the foreclosure sale of the empty lot. The insurer believed that an arsonist had not succeeded in his crime. The insurer had no choice but to pay the \\u201cinnocent\\u201d mortgagee.
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