Identity Fraud Crisis

 

Complications Abound for Insureds and Insurers

 

By Susan Maloney, CPCU

From the December 2007 issue of Claims Magazine

I woke up this morning and didn't feel like myself. Then I looked in the mirror and didn't recognize the person staring back. OMG! My identity had been stolen!

 

Of course, a person doesn't know that his identity has been stolen just by looking in the mirror. Usually he finds out when he is turned down for a loan because of unpaid bills he knew nothing about, or when bills for service he did not order appear along with charges for unknown purchases on his credit card. Unfortunately, this has become a common problem. More than 9.3 million people were affected in 2006. What are you going to do?

 

Insureds should know, first, to report the theft to the police. Just like an auto accident, their insurance company is going to need the police report. Next, contact the credit card company and all three of the credit reporting agencies. This is what tells all of those not-so-disinterested third parties that all is not as it at first appeared. Finally, insureds should contact their insurance company.

 

What is identity theft? What are the reporting procedures? As defined by the Identity Theft and Assumption Deterrence Act of 1998, identity theft occurs when a person knowingly transfers, or uses without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of federal law, or that constitutes a felony under any applicable state or local law.

 

Fortunately, you in the insurance industry can help. Many companies offer identity theft or identity fraud coverage. Usually the coverage is an attachment to the homeowners' policy. So what is covered? You need to know because the clock starts ticking from the time you find that you have a problem, and the problem reportedly averages more than $6,000 per individual. This does not include the cost of the estimated 25 hours an individual needs to restore some semblance of normality after the theft is discovered.

 

Under the ISO form, the most the company will pay is $15,000 for expenses incurred as the direct result of any one identity fraud first discovered or learned of during the policy period. An occurrence is defined as any act or series of acts committed by one or more persons, or a group working together against an insured, even if the series of acts continues into a subsequent policy period.  

 

What expenses are covered?

 

1   Costs for notarizing affidavits or similar documents attesting to fraud required by financial institutions or similar credit grantors or credit agencies.

2   Costs for certified mail to law enforcement agencies, credit agencies, financial institutions or similar credit grantors.

3   Up to $200 a day for lost income resulting from time taken off work to complete fraud affidavits and meet with, or talk to, law enforcement agencies, credit agencies, and/or legal counsel. Total payment for lost income is not to exceed $5,000.

4   Loan application fees for re-applying for a loan or loans when the original application is rejected solely because the lender received incorrect credit information.

5   Reasonable attorney fees incurred as a result of “identity fraud” to:

(a) Defend lawsuits brought against an “insured” by merchants, financial institutions or their collection agencies;

(b) Remove any criminal or civil judgments wrongly entered against an insured; and

(c) Challenge the accuracy or completeness of any information in a consumer credit report.

6   Charges incurred for long distance telephone calls to merchants, law enforcement agencies, financial institutions, or similar credit grantors, or credit agencies to report or discuss an actual “identity fraud.”

 

Individual companies may also offer to pay the cost of daycare or elder care incurred or other expenses. The coverage for income loss may be a higher or lower amount per day, or even limited to so much per week and a specified number of weeks for which you may be reimbursed.

 

But what is not covered? As wonderful as the coverage sounds, there are exclusions. The ISO Identity Fraud Coverage form specifies that its exclusions apply in addition to all other provisions of the homeowners' policy.

 

Specific to identity fraud, the company will not cover:

 

1   Loss arising out of, or in connection with, a business

2   Expenses incurred due to any fraudulent, dishonest, or criminal act by an insured, or any person aiding or abetting an “insured,” or by any authorized representative of an insured, whether acting alone or in collusion with others

3   Loss other than expenses.

 

Identity fraud is a “named perils” coverage. For example, this policy will not pay the fraudulent bills incurred, but will pay for legal help to fight the charges and help you to remove judgments wrongly entered. If the identity thief took a vacation to Hawaii, the policy will not pay for you to personally go there to correct those charges on your credit card. However, it will pay for long distance telephone calls to merchants, law enforcement agencies, financial institutions, or similar credit grantors, or credit agencies to report or discuss an actual “identity fraud.”

 

The policy provides coverage only for the specific risks enumerated in the policy and excludes all others. Additionally, the coverage is for personal expenses only. There is no coverage for any business expenses. Usually, a special deductible applies to identity fraud coverage, rather than the policy deductible. ISO starts coverage after the first $250. Individual companies may waive the deductible entirely or offer other options. 

 

Identity fraud is not a stand-alone coverage; it must be attached to a homeowners' or farmowners' policy. At least one company offers the option to have its personal umbrella policy pick up coverage above the limits of the basic endorsement.

 

Many companies offer some type of identity fraud coverage. Some have higher limits of liability, higher or lower per-day reimbursement amount, and some limit the period of time to no more than four weeks. Others offer lower deductible amounts. However, the coverage offered is very similar.

 

After all is said and done, you will survive. Damage was done, but like a house that has had its roof blown off, it can be repaired. It may take a few weeks after the initial discovery, but you will be able to look in the mirror and see yourself again.