Primary policy: Commercial property

Secondary policy: None

Items in question: Claim documents

Supposed cause of loss/fraud: Damage/theft of produce

Suspicious indicators: Altered or fabricated documents

Actual cause of loss: No actual loss, or actual loss inflated

Summary

A wholesale produce distributor made many claims for lost, stolen, or damaged produce, along with disposal expenses, shipping fee, costs of replacement stock. The distributor eventually plead guilty to the fraud and was sentenced to twelve months and one day incarceration, thirty-six months of supervised release, a fine of $60,000 and restitution to Zurich of $178,568.41.

Facts

Beginning in March 2007 and continuing for the next four and one half years, the insured submitted at least ten fraudulent claims for lost, stolen or damaged produce. The claims were for the value of the produce plus disposal expenses, shipping fees, and replacement stock. The claims were either entirely fabricated or were inflated, and documents submitted to the carrier were either altered or fabricated entirely. The insured made false and misleading statements to adjusters handling the losses. Three claims were withdrawn when the carrier became suspicious of the claims, six claims were paid at less than face value of the claim, and one claim was denied as the carrier caught on to the fraud. The claims totaled over $490,000 but the insured only received $178,568.41. Because of the persistent pattern of fraud a federal investigation was conducted. The insured plead guilty.

Final Result

Sentencing was difficult as the amount of loss was necessary to determine the level of the crime; the carriers wanted the full amount of the fraudulent claims used, while the insured thought the amount of legitimate claims should be subtracted from that amount. The court declared that the face value of the claims submitted would be used for determining his sentence. The court felt that if only the inflated amount was used for sentencing, then that would give fraudsters an incentive to inflate claims because they would only be punished for the inflated amount.

Practical tips/fraud indicators: While we do not have a lot of details in this investigation, document review is once again key in detecting fraudulent claims.