The Insured Signs the Proof of Loss not the Public Adjuster – Beware!
Fraud by Public Adjuster Imputed to Insured
People who are busy with their lives hire a public insurance adjuster to assist them with a property claim. Most trust the public adjuster as a professional. Even when, as did one of the parties in Chubb & Son Inc. et al. v. Pio Consoli et al., Defendants, and Melvin Steinberg et al., 283 A.D.2d 297, 726 N.Y.S.2d 398 (N. Y. App. Div May 22, 2001), the insured knew that the claim was inflated and took the money found a New York court required the money be returned to the insurer.
Although I usually blog about new cases, this one from 2001 caught my attention and needed to be passed on to all my readers.
The Criminal Public Adjuster and Criminal Company Adjuster
After the conviction of Seymour B. Berson, a public adjuster, in Federal court on charges of mail and tax fraud in connection with a scheme in which he would fraudulently inflate insurance claims to increase his fee, ordinarily a percentage of the payment received by the insured, one of his clients attempted to recover from the insurer victim of Berson’s fraud. As part of this fraud, Berson had an arrangement with Nicholas Addesa, a former claim representative of plaintiff-appellant Chubb & Son Inc., an insurance company that controls Sea Insurance Company of America and Vigilant Insurance Company (collectively Chubb), by which Berson would pay Addesa to approve fraudulent claims. Addesa was convicted of defrauding Chubb.
The Criminal Activity
On July 27, 1988, the Steinbergs signed two sworn statements in proof of loss prepared by Berson, claiming a total of $148,564.25 in losses due to a fire at their house on June 13, 1988. On July 29, 1988, Chubb issued two checks totaling $148,314.25 to the Steinbergs, which checks they endorsed and deposited into their joint bank account. On February 3, 1988, the Steins also signed two sworn statements in proof of loss prepared by Berson, claiming losses due to damage from a broken water pipe, in the total amount of $46,086.48. In addition, on August 4, 1988, the Steins signed a sworn statement in proof of loss, claiming damages from a windstorm in the amount of $20,925. Chubb issued two checks totaling $46,086.48, on February 26, 1988, and a check for $20,925, on August 12, 1988, which checks the Steins endorsed and deposited into their joint bank account.
Melvin and Marsha Steinberg (the Steinbergs) and Sidney and Elsie Stein (the Steins) held homeowner insurance policies issued by Chubb, and hired Berson, who worked through Jack DuBoff Associates, Inc., a company he owned and controlled, to prepare their claims for damages. Among other things, the policies contained the following “Concealment or Fraud” provision: “We do not provide coverage for any insured who has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance.”
Berson admitted that the claims for both the Steinbergs and the Steins were deliberately inflated. Addesa admitted that based on the time frame, the claims for the Steinbergs and the Steins were “probably inflated,” although he could not remember them specifically.
As a result of the Berson frauds, Chubb sued 22 insureds to recover amounts paid pursuant to their policies. After all the claims except those against the Steins and the Steinbergs were settled, Chubb moved for partial summary judgment on its common-law fraud. The court denied the motion, finding “no law in New York that imposes absolute liability on an insured for the fraudulent acts of its adjuster.”
Innocent Principal Responsible for Fraudulent Acts of Agent
It is well-settled across the U.S. that a principal, even if innocent, is liable for acts of fraud that are within the scope of an agent’s actual or apparent authority. Nor do defendants dispute that this general principle is the same in the insurance context so that a principal who has expressly or impliedly appointed another person to make proof of loss under an insurance policy is barred from recovery, under a policy which provides that it shall be void for fraud or false swearing of the insured after the loss, where the agent is guilty of fraud or false swearing in or in connection with the proof of loss; and this is so even though the insured is ignorant of the misrepresentation and innocent of any intent to deceive or defraud, and even when the act of the agent is to the detriment rather than the benefit of the insured. [Kantor Silk Mills v. Century Ins. Co., 223 App Div 387] In addition, defendants do not dispute that Berson was their agent, whom they hired as their public adjuster to prepare, submit, negotiate and settle their insurance claims.
The defendants argued that public adjusters should be exempt from general agency principles. Defendants offered no reason, and the court could find none, to justify such an exemption. Thus, since Berson was acting within the scope of his authority when he submitted the fraudulently inflated claims, along with the sworn proofs of loss defendants signed and defendants were the primary beneficiaries of his fraud defendants are liable for his actions.
Since Berson fraudulently inflated defendants’ claims, he did not abandon their interests. Berson’s testified that he bribed Addesa in exchange for Addesa’s approval of the fraudulently inflated claims, and Addesa’s admitted that he participated in the ongoing scheme. In addition, the Steinbergs themselves admitted that an inventory prepared by Berson’s office was inflated.
Finally, the “Concealment or Fraud” provision precludes defendants from obtaining any recovery under their policies as the claims submitted by Berson, in his capacity as their agent, were fraudulent. Chubb, therefore, is entitled to full recovery of the claims paid.
ZALMA OPINION
It is the obligation of every professional claims handler to fully investigate a claim. When a public adjuster, like Berson, or others with whom I have dealt in the past inflate a claim they are not only defrauding the insurer but also their principal, the insured, who when the public adjuster is caught, tried and convicted find that they must return whatever they were paid including both the honest part of the claim and the fraudulent part. No insured should sign a sworn statement in proof of loss unless convinced it is true and accurate. The Steinbergs, by their own admission, actively participated in Berson’s fraud. Whether involved in the fraud created by Berson or innocent, Chubb was entitled to the return of all of its claims payments plus interest.