Insurance Companies Awash in Bogus Boat-Sinking Claims
It seemed like the perfect crime. Two cool characters take an aging boat on a little trip south of the border--just a short cruise, of course, to catch some sun, maybe scout up a few whales.
Then, when no one is looking, they dash the 40-foot wooden yacht against the rocky shoreline north of Rosarito Beach. There would be none of this business of pulling the plug on it 20 miles from shore and then waiting out their rescue in some dinghy.
These guys were too smart for that. They were going to walk right onto the beach, hop into a waiting car and ride back home in style.
The Coast Guard report would say that the boat had suddenly sprung a leak. They had to abandon ship before it crashed onto the rocks. And who would know? The evidence was in a thousand pieces down on some deserted Mexican beach.
The only remaining detail was to pick up the $75,000 insurance check on the boat. Just another old bundle of barnacles sold to the insurance companies.
But then something went wrong. In interviews with private investigators, the pair couldn’t keep their stories straight about how they got home.
Two months after their little mishap, three men were indicted by a federal grand jury in San Diego for attempted fraud. In boating circles it’s known as barratry--the deliberate sinking of a vessel for purposes of collecting an insurance payment.
“Despite what people may think, barratry is not the perfect crime,” said Del Mar marine surveyor Ken Franke, a fact-finder who makes reports of boat accidents for insurance companies.
“People will rat on each other. Sooner or later, somebody starts bragging about how they got away with it. No matter how varied the schemes, somewhere along the line they get tripped up. They get too greedy.”
A recent insurance study suggests that more than 70% of the claims involving boats filed each year are exaggerated--and that another 12% are outright fraud.
A U.S. Chamber of Commerce study found that 25 cents of every dollar spent on insurance goes to covering losses from all types of fraud, including maritime cases.
One private investigator, a specialist in marine investigations, estimates that insurance companies lose more than $5 million a year in California on suspected boat fraud cases.
“There are 100 different ways to pull an insurance fraud on a boat, from mysterious fires to unexplained sinkings,” said Joe Maloney, who owns an investigative firm in Laguna Niguel.
“A boat is a piece of property, like a diamond ring or a TV set. All you have to do is hire someone to take it away, make it disappear. Then you report it stolen. It happens all the time.”
Actual numbers on the frequency of the crime are hard to come by, insurance companies say, because maritime fraud remains a difficult crime to prove, despite an armada of investigative agencies at work to discourage it.
These days, a suspicious sinking could well signal Coast Guard inquiries, private detectives, FBI agents and investigators who work for the insurance companies--all looking for people who might want to do in their own boats.
There’s also the Metro Arson Strike Team, run by the San Diego Police Department, to investigate vessels that catch fire in port.
And there are the marine surveyors, who, like forensic scientists in a police crime lab, are often called in by insurance companies as trained engineers to analyze a recovered wreck for signs of arson or foul play.
Still, insurance companies know their battle against boat fraud can be frustrating. Often the evidence in a suspicious case taunts them, sitting unreachable on the ocean floor, miles beneath the surface.
“It’s an enormous problem,” said Joe Pedrick, a special investigator for Reliance Insurance, an Orange County agency that insures boats in San Diego.
Pedrick, based in New Jersey, has worked several San Diego cases of reportedly sunken boats that suddenly turned up on the West Coast.
“This fraud business is big money,” he said. “Boats aren’t cheap. There’s a lot of incentive to send them packing to the bottom of the sea.”
Lt. Larry Solberg, senior investigating officer for the Coast Guard’s marine safety office in San Diego, said he has received anonymous calls pointing the finger at owners for disposing of their own boats.
“It happens,” he said of the fraudulent boat sinkings. “But it’s tough to prove. Often, the boat’s on the bottom. And we’re up here on the surface.”
In many mysterious sinkings, the only thing investigators have to go on is the solemn word of the people involved.
“Insurance companies go to the ocean floor after boats as a last resort,” said Scott Jarvie, a maritime insurance broker and owner of Oversea Insurance Agency in Point Loma.
“It might cost $300,000 for the salvage effort to locate and raise the boat. Then you have to prove the guy sunk it. Most insurance companies are going to cut their losses way before that. They’re going to pay the claim.”
Despite suspicions, insurance companies often have no choice but to pay out on potentially fraudulent claims. By even suggesting fraud without substantial evidence, the companies open themselves up to accusations of bad faith, claims representatives say.
“Sometimes you have a feeling about these things,” said Pat Steadman, a claims supervisor for Reliance Insurance. “The guy might start to pressure you for a settlement right away. He needs the money.
“Though we suspect something, we can fall prey to bad-faith claims if we accuse him. But we’re not here to accuse the insured of anything. We’re here to pay claims. Undoubtedly, though, we pay out on a lot of claims we shouldn’t.”
Fraud schemes involve all kinds of craft, investigators say, from small wooden boats to privately owned yachts to big commercial vessels. The crime occurs for reasons ranging from greed to desperation, according to interviews with insurance companies and maritime investigators.
Sometimes, boat owners get behind in their payments. They don’t have cash for needed repairs. Or they don’t realize just what an overwhelming investment owning and maintaining a private vessel can be.
“Disposing of a boat is one way to get the monkey off their back,” Franke said.
In the early 1980s, insurance investigators probed the sinkings of several San Diego commercial tuna-fishing boats that occurred during one of the industry’s biggest slumps.
One former crewman came forth and claimed he was paid $10,000 to sink a tuna boat that weeks later ended up on the ocean floor, Maloney and other investigators said.
That sinking, along with many others, remains unsolved for lack of evidence. The boat detectives, however, have their theories.
“It’s a well-accepted fact along the waterfront that the sinkings of commercial boats rise and fall with the price and availability of fish,” Maloney said. “It’s just tough to prove.”
Indeed, investigators say they must walk a thin line in their inquiries.
“It’s easy to say that someone sank a boat to collect a check from an insurance company,” said one San Diego maritime investigator, who asked not to be identified. “Other boat owners might get jealous that this guy no longer has that anchor around his neck, that he’s walking away counting his cash.
“But, in fairness to the guy, you have to look at his motives. He might have put too much money into it. Or it might have been underinsured. You don’t pull the plug on a boat unless there’s something in it for you.”
But there are several red flags, investigators say, that cause them concern in a potential boat fraud case.
A boat owner might have his vessel heavily insured beyond its actual value. Or a background check might uncover that he had the boat up for sale for several months without a bite.
“You start to wonder when you find out the guy had time to pack a personal suitcase, along with that nice barometer and family album, into the dinghy with him before the boat went down,” said Leroy Lester, a Point Loma marine surveyor.
Investigators also will check marine hock shops along the waterfront to see if any expensive boat equipment might have been cashed in before a sinking.
But, in playing boat detective, there’s no substitute for getting to the scene of a crime. Or, at the very least, to the spot where the boat washes up on shore.
“You try to get to the scene when you can, while it’s still hot,” Franke said. “Because if somebody’s going to do something underhanded with their boat, they’ll try to cover their tracks with a shovel real quick.
“Your job is to get to them before they get their hands on a shovel.”
Once in a while, a hasty boat owner might do an investigator’s job for him. Like the case of the boat that wouldn’t sink.
The owner had taken the wooden boat off the San Diego County shoreline, emptied its fuel tanks and hacked a hole in the boat with an ax. Then he stood by in a dinghy, waiting for his investment to hit bottom.
“But it wouldn’t go down,” Maloney recalled. “The air in the tanks acted as ballast. The boat washed ashore and the Coast Guard had the evidence right in their hands . . . all because the guy was too cheap to fill the tanks with fuel. He wasn’t going to sink any more money into the boat than he had to.”
Although organized rings have been uncovered, many cases involve single-boat owners. “Most people who do these things are dumb and desperate,” Lester said.
“We’re not dealing with pros here. Professionals wouldn’t get themselves in some of the situations we’ve seen. The people we deal with get desperate. They make mistakes.”
Seven years of maritime investigations have taken Maloney around the world and up and down the California coast. The ex-Los Angeles County sheriff’s deputy said experience shows that the boat fraud problem is getting worse, the attempts more brazen--especially in Southern California.
“This is Disneyland down here,” he said. “You’ve got every type of flake and wacko in the world here. Everybody’s on the hustle all the time. It just spills over into the boating community, that’s all.”
But no fraud, especially with boats, can be the perfect crime, he said.
“So what if the boat is sitting on the bottom? To say you can’t go after a guy is like saying you can’t be convicted of a murder without the body,” Maloney said. “With these cases, you don’t always have to have the smoking gun.
“That is, if an investigator does his job.”