down almost totally two days later.
The claim to the insurer included,
among many other things, one
Encyclopaedia Britannica and a wooden duck decoy.
These inconsequential items, comprising
part of a claim for more than $100,000 in
personal property, led to the insured’s arrest when they were found intact and undamaged in his temporary residence.
The insured was arrested for arson and
insurance fraud. His claim was denied.
He sued for bad faith and the insurer
was required to defend the lawsuit for
a total of five years because it could not
compel his testimony at deposition or
trial until his criminal case was resolved.
The suit finally settled with the arsonist
and his presumably innocent spouse for
a payment of $2,000. Twenty times less
than the amount expended by the insurer
to defend the spurious lawsuit brought by
Why did the insured offer to settle for
so little? For at least three reasons:
First, because the district attorney
could not get someone to try the arson
case and it was continued over and over
again until all of the witnesses were gone
or had forgotten everything they knew.
Second, because the district attorney
and the insured had made a deal that if
the insured pleaded guilty to one count
of insurance fraud he would not go to jail.
The district attorney, although he knew of
the insurer’s interest in the case and the
lawsuit pending against it, did not advise
the insurer of the deal.
Third, the insured was a drug dealer
who made an arrangement with the prosecutor to testify against other drug dealers and was eventually put into the witness protection program.
The insurance case was never tried.
Two days after the settlement was paid in
the civil action and more than five years
after the fire, the insured appeared in
criminal court and pleaded guilty to one
count of insurance fraud. He was given
probation. The case wasn’t a priority mat-
ter to the prosecutor since only an insur-
ance company was being hurt. The fact
that the insurer was required to defend a
bad faith suit for five years at enormous
cost was of no apparent concern to the
prosecutors. The insured did not profit
from the fire with a cash award. He was
relieved of his mortgage debt (which the
insurer was required to pay to the mort-
gagee who had not been culpable in the
arson) and he paid his lawyer one third of
the $2,000 settlement.
The arson investigator who worked
so hard to find evidence to arrest the insured was later arrested and convicted as
a serial arsonist. Apparently he was upset
that there was an arson fire in his town
that he did not set. Sometimes, justice is
Barry Zalma, Esq., CFE, is an
insurance coverage attorney,
consultant and expert witness.
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