Chubb Corporation has a good reputation in the insurance industry for fairly handling claims and paying insureds what they are owed. Chubb fell victim to an overzealous adjuster, Dennis Sorge, who was colluding with a contractor he hired to estimate repair costs. The contractor, Paul H. Mertz Jr., would inflate the estimates and then Sorge steered the repair work back to the Mertz. After a 40-day trial, Judge Nelson S. Roman entered a judgment of nearly $12.3 million against Mertz and Sorge. The judgment was suspended only as to Sorge due to bankruptcy issues. Mertz was also ordered to pay Chubb’s costs and attorney fees.

Sorge, who had been with Chubb for nearly 30 years, would hire Mertz to provide repair estimates. Under Chubb’s policy, a contractor could not consult for Chubb and also work at the same time as a contractor on the insured property. Consultants may not seek or even discuss the possibility of a contract until their work for Chubb is done. Even after the consulting work is completed, the contract must be disclosed to Chubb.

The lawsuit itself named eight specific instances where this scheme was utilized. Mertz would submit the inflated estimates to Chubb. Some of the work would not be covered under the policy and some repairs would never get done. Mertz would pocket the extra money made by shortchanging Chubb and insureds and then share the money with Sorge.

Sorge and Mertz vehemently deny the claims, but the evidence is hard to deny. Mertz would often submit work for code upgrades that weren’t required knowing it was Chubb’s policy to pay for whatever work was necessary to bring the structure up to code. Not only was Mertz bilking Chubb on repair costs but he was also getting a consulting fee on top it. He would also put estimates in for replacement of certain items, then merely fix or refurbish the item and pocket the expense.

Although not everyone may be shedding a tear for Chubb Corporation being defrauded out of millions of dollars, these types of insurance fraud schemes not only affect the insurance company but also the many insureds victimized by these two. The insureds expected to receive what they bargained for and what was estimated for them by a representative of the insurance company but were given either subpar, incorrect or no workmanship at all. In addition, it is difficult to quantify the effect these schemes have on insureds premiums.

I leave you with a quote by Mark Baum, “[w]e live in an era of fraud in America. Not just in banking, but in government, education, religion, food. Even baseball…”. Mark Baum, formerly known as Steve Eisman, was a money manager whose character was portrayed by Steve Carell in The Big Short.