INSURANCE LAW REVIEW

Insurer Fails to Prove Fraud in Burglary Claim; Judge Decides Interest Assessment From Day One.

The financial hazard to an insurance company of resisting a claim and forcing the insured into a lawsuit was highlighted in a recent case where a burglary loss went form $212,250 to $327,259.08 because $110,531.21 was added for interest.

The interest, at 9 percent, was calculated form the date of the loss, May 14, 1991,until the jury gave its unanimous (6-0) verdict, 5 yeas and 8 months later, that the claim was not fraudulent and that the insurer, Allstate, had failed to offer "clear and convincing evidence that plaintiffs submitted a fraudulent claim or willfully misrepresented or concealed material facts relating to their claim."

Judge's Call

The judge said that it was within his discretion to decide the point form which interest should be calculated, and that he chose the date of the loss to send the insurer a message. He had told the lawyers while the jury was out considering its verdict, that no matter if it came back favoring Allstate, he was going to direct a verdict against the insurer. He said that he had told the lawyers for Allstate that "absolutely no way did they meet the standard of proof that's required by the law." He said: "I don't' think this case should have ever been tried, this plaintiff should have been paid the money tow or three years ago at the latest and, therefore, since they haven't paid that amount of money I was going to run the interest from the date of the loss."

Judge Schmidt said that he did not blame the defense counsel for the lawsuit, observing that the fault as that of "the policy makers at Allstate."

The burglary had occurred May 14, 1991 at the home of Majid and Mojgan Khaghan in East Hills New York. They had gone to Manhattan to attend graduation ceremonies of their two daughters, one from NUY School of Law and the other from Columbia. There was a break-in at the home and the loss reported included several, highly valuable oriental rugs which were folded and hidden in a closet, according to Dennis T. D'Antonio, principal at the law firm of Weg & Myers, P.C., who represented the claimant. The case was tried by Mitchell J. Winn, an associate with Weg & Myers. Other valuables in the claims included artwork, silver and jewelry. Mr. Khaghan is a dealer in oriental rugs.

Calls It Fraudulent

Allstate declined coverage asserting that the insureds had committed a fraud. Mr. D'Antonio said that Allstate supported its position, in part on a post-loss police photograph of the dining room wall in the home. It showed a plaque, and Allstate said that the insured had alleged the plaque was part of the stolen valuables. At trial it was shown that the insured had claimed loss of a circular plaque while the one on the wall was square. Allstate had also made a general disclaimer based on its belief that fraud was involved.

Embarrassment Is Better

Commenting on the Allstate handling of the claim, Mr. D'Antonio said insurance professionals would find it interesting and instructive that the outcome of the suit clearly sends the message that when new information is developed while (an insurer) is investigating its fraud defense, that it should not hesitate, or certainly delay until a trial some five years later, that it has made a mistake. The initial embarrassment is far less costly than the later verdict. He said that this is especially so if a pattern is established that an insurer is engaging in such activities.

Attorney for Allstate was Shapiro, Beilly, Rosenberg, Albert & Fox, LLP, with offices in Manhattan. Hamilton I. Dirggs, of the firm was counsel in this suit.