DennisBeaverJuly 21, 2008 (Original publish date) • By Dennis Beaver

If you know of someone who has recently had a loss that’s covered by insurance, and they’ve talked about “padding” the claim, then today’s story will be of special interest. It could also save them much more than money.

When he was 17 and in high school, working part time to earn the money, Abe paid for a 1999 Mitsubishi Eclipse convertible which was registered in his father’s name for insurance purposes. This car became the love of Abe’s life, and he put thousands of dollars into “an incredible stereo system, great tires, rims, and a custom paint job,” he proudly told me. In late 2006, having turned 25 years of age, the vehicle was transferred into his name as insurance was now affordable.

He used the same Allstate agent who had handled his family’s insurance needs for years, and as this was a new policy, the agent was required to inspect Abe’s car. This is an important step in buying auto insurance — especially for Abe-as the car was so unique, filled with expensive, after-market accessories. All of these additions to his car would only be insured if a special endorsement (also called a rider) was paid for.

Abe took the car into the agent’s office for the inspection. The stereo equipment “was very visible and obviously not something that came with the car, but I was never asked to describe in detail the electronics which were in the trunk or under the dash — thousands of dollars worth of sound system accessories,” he told me.

“This was the first time that I had ever dealt with anything like this, and did not know that without special coverage I would be under-insured. I assumed that the policy was appropriate for my car and would cover it fully.”

Abe was not alone in failing to understand that the typical auto insurance policy does not insure add-on stereos or other expensive accessories. While Allstate does offer that additional coverage at reasonable cost, Abe was not offered it.
In April of 2007 the car was stolen. A police report was promptly filed, as well as a claim with Allstate. Shortly thereafter, the vehicle was recovered, “Trashed and Burned.”

An Allstate claims adjuster was assigned to Abe’s loss. Oddly, despite the fact that he did not have insurance which would cover his expensive accessories, he was “told to provide them with any additional receipts for things that I added to the car, or improvements made to it. I was not thinking clearly, following the wrong advice from friends, and did something very foolish,” he admitted to me.
Abe could not find receipts for the stereo equipment, but did have others for a unit installed in a different car. He submitted those receipts to Allstate – hoping to at least recover some of the money he was out. He back-dated the receipts and increased the price, sending his claim in and expecting payment.

“After I sent everything in, the adjuster told me that even with the receipts I would not be reimbursed, because I didn’t have the extra insurance coverage.”

To this point, just to recap briefly, Abe did in fact have a ($2,500) stereo in his car, but he could not find the receipt for it. At the time he was asked by his claims adjuster to submit proof of anything of value in the car, he did not know the stereo wouldn’t be covered in any event.

Abe submits a false receipt. Then things got real interesting.

In attempting to verify Abe’s claim, the Allstate adjuster determined the receipt for the stereo was not valid. That determination led to the involvement of their Special Investigative Unit and a closer look at the file.

“The car was worth $8,000 to $10,000, without the stereo,” Allstate’s Frontline Performance Leader Scott Hillstead acknowledged when I discussed the facts with him. “But since Abe submitted a false receipt for the stereo, we felt that the entire claim should be denied.”

Let me say that again: Allstate Insurance denies the entire claim and refuses to pay a cent. The reason? “Abe submitted a fraudulent claim for the stereo.”

I have spoken to the Media Relations Department at Allstate, as well as claims supervisors who worked on Abe’s case. I asked each person this question:

“What is the justification for denying the entire claim? After all, the car was stolen, burned, and even if he had the actual receipt for the stereo, you would not have paid him for it. The sales agent should have offered him that coverage, and the claims handler encouraged him to get proof of what he had in the car, knowing an add-on stereo would not be paid for.”

“Isn’t this just a way to avoid paying the legitimate part of the claim?” I asked.

I also suggested that if they spent any considerable time on the fraud aspects of this claim, that it would be fair to deduct those expenses from what they pay. They laughed at that idea.

So, what’s fair? Yes, insurance fraud can never be justified. But we have a concept of the punishment fitting the crime. Is it fair for Allstate, or for any company, to deny the bulk of a valid claim under these circumstances?

Allstate’s insurance policy states, “This policy will not apply to any claim in which an insured person has concealed or misrepresented any material fact or circumstance.”

Was this stereo issue “material?”

Just in case Abe, or anyone else in his position wanted to take the matter to court and let a judge decide if even part of the claim should be allowed, the “Good Hands” people at Allstate have another surprise waiting:

“No one may sue unless there is full compliance with all the policy terms,” boldly appears in the insurance policy.

I should point out that the claims supervisor I spoke with was extraordinarily happy about one aspect of this case that should frighten anyone who is remotely considering filing a false claim. “We submit all cases of this nature to the insurance commissioner’s office and cooperate with law enforcement if they decide to prosecute,” Scott Hillstead told me.

Insurance fraud needs to be fought diligently. But was this really a case of blatant fraud, or something else? What’s your opinion?

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.