Hmm, a water loss claim. Lots of those lately. She looked further and saw it was actually two claims. Two water loss claims within one week of each other. One, a loss in the bathroom when a pipe underneath the sink burst and the other was a kitchen loss from a broken p-trap.

Both claims were reported at the same time by an attorney and the claims were called in some five to six weeks after the losses had allegedly occurred. The damages were extensive and the insured wanted replacement of the cabinets, tile floors and baseboards. The water mitigation bills alone totaled almost $20,000.

She clicked on the claim file and began looking, but she could not find a Proof of Loss. She looked and could not find an examination under oath (EUO) transcript. It took her all of two minutes to listen to Marcus' recorded interview of the insured. (Oh for the days when she could read an actual transcript.)

She paused. Marcus was not her direct report, but she had learned a long time ago — never walk by a mistake. She reached for the phone and asked Marcus to step into her office.

When Marcus lumbered into her office, Lois said, “I hear you used to work in construction.”

“Why yes,” Marcus smiled. Lois lowered her glasses and asked, “When you did your construction work, did you use tools?”

“But of course,” Marcus replied. “I have an extensive tool kit at home.”

“Good,” Lois said with delight. “Have a seat. I am going to show you how to use the tools we have here at this company.” Marcus looked befuddled. “Tools? What tools?”

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Every loss begins by looking at the policy to see what is or is not covered. (Photo: Shutterstock)

Tools of the trade

Lois began, “My dear Marcus, we have tools to determine if there is fraud in a claim. To determine if the claim is just, right and fair. You see, Marcus — your tool kit is the policy. The policy has everything you need.”

“Let's start with your recorded statement, Marcus. The recorded statement or interview is one of the most important aspects of the claim evaluation. It is, for the most part, the first time when the insured talks to us about the claim in any detail. What happened, how it happened and when. I have often thought that there are more lies uttered in a recorded statement than in any examination under oath.”

Lois continued. “In virtually every jurisdiction where we write policies, lies in the recorded statement are admissible either as statements against interest or for the impeachment of the insured. But,” she cautioned Marcus, “You need to take a good recorded statement. You need to cover the basics of the claim. For example, in this case, you needed to ask the following questions:

• When did these losses actually occur?

• Who did these plumbing repairs and why is there no documentation?

• Why were these claims not reported to us for five to six weeks?

• What prevented you from reporting these losses to us when, on the same day of each loss, you contacted a water mitigation company, a public adjuster, and an attorney?

• What happened to the plumbing parts that were supposedly replaced?

• Why are the water mitigation bills so high? Nearly $10,000 for each loss.

• Where did the insured find this water mitigation company?

• Why is the water mitigation company represented by the same attorney who is handling the insured's claims?”

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A thorough investigation is critical to identifying fraud and confirming what will be covered by the insurance policy. (Photo: Shutterstock)

Then she leaned forward in her chair, and said, “Marcus — you need to listen. Listening is the most important part of the recorded statement.”

“For example,” she went on, “in this case you asked about the causes and locations of these losses. The insured hesitated, mumbled to her attorney, and then said both losses happened in the bathroom on the same day. That is not what she said initially. We have a bathroom loss and a kitchen loss one week apart. You never followed up and you never asked her why the story was different now.”

Marcus listened to his recorded interview. It was short, weak and incomplete.

“Now,” Lois said, “What about an EUO?”

Marcus fidgeted and asked, “Aren't those just for arson cases?”

Lois sighed. “Marcus, the EUO is one of the most valuable tools we have in our insurance policy. The EUO with production of documents, is a powerful tool, especially with respect to these plumbing losses. During the EUO we can follow up on the recorded statement and ask questions about the late notice and the prejudice that it caused our company in investigating these losses.

We can ask questions about the water mitigation, and fans and dehumidifiers that the insureds saw in their home. How long that equipment was there, who was checking on that equipment, and if there were any discussions about paying for deductibles.”

“Moreover,” she went on. “In an EUO we can have the insured draw on a diagram to show us exactly where the water was in the house for each of these two claims. We can see what pictures she has of the loss and damage at the time, since repairs and water mitigation where done well before either of these claims were reported to us. Moreover, we can ask her questions about solicitation by water mitigation companies and the public adjuster. You can uncover a lot about these claims by using the EUO.”

She continued. “And Marcus, don't forget the proof of loss. The proof of loss crystalizes the claim. It sets forth, under oath, exactly what the claim is, the amount, the cause of loss and supporting documentation for the claim.”

When Lois was finished, Marcus stood to leave her office. “Marcus,” she said, “You are a good man with a very bright future in this company. But, as in your construction life, use the tools that you have to do the work that needs to be done.”

Marcus left. Lois pushed her glasses up on her nose and turned back to the screen. She smiled to herself and thought, I am going to miss this.

Gerald “Jerry” Albrecht ([email protected]) is a partner at Butler, Weihmuller, Katz, Craig LLP, and practices in the arson and fraud, coverage defense, and extra-contractual departments.

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