This past week, on the social media app NextDoor, a neighbor of mine posted that she had placed an envelope in her mailbox to pay a bill by check. Not long thereafter, when reviewing her bank statement she saw that a check for $5,000 had been cashed.
It seems that someone had noticed the red flag on her mailbox, stole the check, “washed” it, and changed the amount to $5,000 payable to a fictitious person who apparently had an ID with that fake name. When she contacted the bank, she was told there was nothing they could do. I have no idea if that’s the case, but that’s not the point of this article.
Dozens of neighbors had responded to her post about what she could do now and in the future to possibly recover that loss or prevent future losses. No one had mentioned anything about insurance. That might be a good thing because the likelihood of someone who is not an insurance professional giving sound advice is probably small.
So, I pointed out that, if the bank truly was not responsible for making her whole, she should consider reporting this to her insurance company. I pointed out that many homeowners policies provide coverage for check forgery, credit card fraud, acceptance of counterfeit currency, etc., though the amount of coverage is usually limited.
For example, until the 2022 edition of ISO’s HO 00 03 form, $500 of coverage was provided for these types of losses in prior recent editions. I explained how a deductible may or may not apply to some of these “bonus” coverages often found in policies and how the deductible is usually applied to the loss amount then capped by the sublimit of the bonus coverage.
On the other hand, some lesser policies provide no coverage for this loss exposure. On another hand, some policies provide greater coverage. For example, my personal homeowners policy includes an Additional Coverage for this to the tune of up to $10,000.
While I was on my soapbox, I went on to explain that insurance is not a commodity differentiated solely by price. To illustrate, I explained that when we were hit by a tornado last year, we had $7,800 in costs to remove damaged trees. Most homeowners policies have limitations for this such that they may provide $0 to $2,500 worth of coverage. Our $7,800 was paid in full.
There are “industry standard” auto, home, etc. insurance policies but there are many variations in the marketplace. I ended with some great advice to heed when price shopping for insurance:
“There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.” ― John Ruskin
P.S. In a case like this, insurance is a remedy of last resort. Too often, we rely on insurance when other risk management techniques are just important or more so. For example, in the situation described here, what might have been done from a loss prevention standpoint?
One thing might be to not put outgoing checks in your mailbox. Another approach could be to write checks using a permanent ink pen designed to minimize check and document forgery. A mitigation approach could be to use a service provided by most banks to flag large check payments so that the customer is at least notified immediately so that action might be taken.
Never forget that insurance is only one means of risk management. Talk to your insurance agent and financial adviser about alternative or supplementary approaches.
Bill Wilson
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