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.
But in one case, an insured managed to purchase Physical Damage insurance on a Rolls-Royce before the regulation was fully effective. His planning was flawless. He was thwarted in his efforts only because of the actions of a dedicated, 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 Rolls did not have its vehicle-identification number beneath its windshield. It was written on the specification sheet provided to him by the dealer.
The insured began to create an artificial 1946 Rolls-Royce. First, he visited the Department of Motor Vehicles and obtained forms from the department for the issuance of replacement title and registration documents. He then filled out the documents with 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 without an inquiry. A new ownership certificate showing ownership by Lincoln Savings & Loan was then issued and delivered to the insured's post office box. The insured then filled out a Department of Motor Vehicles bill of sale, which reflected that the Rolls-Royce was sold by Lincoln Savings & Loan to his neighbor for a total of $5,500. The Department of Motor Vehicles billed the neighbor for license plates 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 that 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-Royces in fair condition were selling for approximately $100,000. He also learned that the Classic Car Insurance Co. was willing to insure seldom-used classic cars 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, and attached to the application one of the Polaroid photographs he had taken at the dealership.
Classic Car Insurance Co., taking his application on face value, issued the policy. Since the car was to be driven only 1,000 or fewer miles per 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 had to make a down payment of only $200. His first payment was due 30 days later.
Two days before the payment was due, the insured telephoned the Los Angeles County Sheriff's office from a Denny's restaurant in Lakewood, CA, 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 Co. and immediately, in response to its request, submitted a sworn declaration of auto total theft, making his claim for $100,000.
Classic Car Insurance Co., as required by California law, maintains a special investigation unit (SIU). 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 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 was owned by the insured's mother, but was being driven by him when it was stolen from a restaurant parking lot. Classic Car 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 insured had been the reported victim of two auto accidents and a residential burglary-none of which were reported on the application for insurance.
- The insured had been convicted, at age 19, of four counts of check forgery, ultimately causing a bank to lose hundreds of thousands of dollars. He had been sentenced to 90 days in jail and five years probation for this offense.
- The Rolls-Royce Motor Co. publishes a book of all the 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 the original sales documents from the Department of Motor Vehicles and was surprised to learn that the vehicle Classic Car Insurance Co. had insured for $100,000 was reported by the insured to have been purchased for $5,600.
Counsel was retained to represent Classic Car and to examine the insured under oath. At examination under oath, the insured proved himself to be a facile liar-but 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 that the vehicle existed. He claimed to have forgotten to bring the keys to the vehicle with him.
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 privately with the attorney for the insured 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 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've 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 know 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 was 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, and no prosecution is expected. The fraud bureau is simply inundated with fraudulent insurance claims and must limit its prosecutorial efforts to major crimes that exceed $1 million.