She also suffered stress and humiliation for her poor credit rating and the perception that she was not truthful about her financial dealings. She was hounded by a collection agency and denied credit even after TRW corrected her file.

Adelaide filed claims against both credit bureaus for violating the Fair Credit Reporting Act. Her case against TRW made it to the U.S. Supreme Court, which determined that she did not file her claim within the two-year statute of limitations.

Most of us will probably never find ourselves in quite such a coincidental situation where we hand over our identifying information to someone with practically the same name. But identity thieves do not need that kind of boost to use our information to their advantage.

The Federal Trade Commission reports that complaints for identity theft continue to rise. A recent survey conducted by Novato, Cal.-based Firemans Fund Insurance Company confirms that 90 percent of respondents are at least somewhat concerned that they will become a victim of identity theft.

Consumer Sentinel, a conglomerate of law enforcement agencies worldwide, tracks consumer fraud complaints. It lists the most common types of identity theft as using or opening credit card accounts fraudulently; opening telecommunications or utility accounts fraudulently; passing bad checks or opening new bank accounts; getting loans in another persons name; or working in another persons name.

The cost to clean up the aftermath of identity theft can exceed thousands of dollars. Some of those costs can be offset by insurance. For example, Insurance Services Office recently introduced an Identity Fraud Expense Coverage endorsement (HO 04 55) to its homeowners program.

The endorsement defines identity fraud as “the act of knowingly transferring or using, without lawful authority, a means of identification of an insured with the intent to commit, or to aid or abet another to commit, any unlawful activity that constitutes a violation of federal law or a felony under any applicable state or local law.”

Expenses covered under the endorsement include the following:

Costs of notarizing documents attesting to fraud required by financial institutions or similar credit granting organizations.
Costs for certified mail to law enforcement agencies, credit agencies, financial institutions and similar credit grantors.
Lost income, up to $200 per day, resulting from time taken off work to complete fraud affidavits, meet or talk with law enforcement or credit agencies and legal counsel. A limit of $5,000 applies.
Loan application fees to reapply for a loan when the initial application is rejected solely because the lender received incorrect credit information.
Reasonable attorney fees to restore credit, but not to apprehend the thief.
Long distance phone charges to merchants, law enforcement agencies, financial institutions, or similar credit grantors or agencies to report or discuss identity fraud.

The endorsement will pay up to $15,000 for these expenses that directly result from one instance of identity fraud first discovered or learned of during the policy period. Any act or series of acts, even if it continues into a subsequent policy period, is considered to be one identity fraud.

Coverage under the endorsement is additional insurance and is subject only to a $250 deductible.

It is important to remember that the endorsements purpose is to mitigate expenses the insured racks up trying to restore a good credit rating. The charges made by the thief or funds taken from the insureds checking or savings accounts are not covered.

The insured, though, may not be on the hook for those losses under federal law. Consumers are liable only for the first $50 of unauthorized credit card charges. Debit card transactions carry a more stringent responsibility: $50 if the card is reported stolen within two business days; the responsibility goes to $500 after two days. The account holder is responsible for the entire loss if he fails to report it within 60 days of receiving a bank statement.

In Adelaides case, the endorsement would have covered some of her expenses to restore her credit, but costs associated with her court battles would have been excluded because her claims did not fit within the scope of the endorsement. Consumers need to be aware of those limitations.

While insurance can reimburse individuals for identity fraud expenses, the more considerable loss is the time and effort exerted to rebuild good credit and the headaches associated with doing so. The most important step to take is loss prevention, including safeguarding ones personal information.

Susan Massmann is a staff writer for the FC&S Bulletins, published by the National Underwriter Company in Erlanger, Ky. The FC&S editors welcome comment and questions and may be reached by fax at 859-692-2293 or via e-mail at [email protected].

Reproduced from National Underwriter Edition, May 12, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.