Fraud – The Dark Side of Insurance

At JMP we are lucky to have clients with impeccable ethics (and taste!) But what happens when unscrupulous individuals looking for a way to game the system. Noughties tabloid favourite Alex Reid recently hit the news after being jailed for 8 weeks following a scam to defraud his car insurance company. Today we want to explore a couple of cases from history that give a little insight into this dark side of insurance.

Nub City

In the late 1950s and early 60s Florida was responsible for two-thirds of all loss-of-limb accident claims in the United States. This was due to strange series of events in one particular town.

Vernon was the epicentre of an insurance scam which seems totally unbelievable. In Vernon, the residents would knowingly dismember themselves for the insurance payout. To insurance agents, and in time the world at the large, the Florida enclave became known as, ‘Nub City’.

The town had been facing tough economic circumstances for some time. The sawmill that had provided many of the jobs had closed down and there were few transport links connecting Vernon to the industry beyond the town.

Vernon’s second-largest occupation was watching hound dogs mating in the town square; its largest was self-mutilation for monetary gain. – John Joseph Healy, insurance investigator, for the Continental National American Insurance company.

Within a few years, 50 of the town’s 700 residents were members of the ‘Nub Club.’ The stories which the club told to explain their terrible injuries ranged from hunting accidents, farming mishaps, and the more bizarre. One farmer claiming he mistook his foot for a squirrel and shot it.

There was another man who took out insurance with so many companies he was paying premiums that cost more than his income. He collected more than $1 million from all the companies.

Many of the ‘club’ were taken to court by insurance companies disputing their claims but it was hard to convince a jury that a man would shoot off their own foot for a few thousand dollars. Eventually, insurers stopped offering cover to those living in the area. Self-injury is actually a surprisingly common way to commit insurance fraud. John Joseph Healy suggests ‘A clue to a phony claim is when several ‘accidental’ injuries occur in the same place in a short period of time’.

Errol Morris, a filmmaker, was intrigued by the story and wanted to make a film about the ‘nub club’. Unfortunately, this film was never made as club members closed ranks and declined to comment. Morris even reported being threatened and beaten as nub city worked to protect their secrets.

Many members of the Club have since passed away so we may never have the full insight into their motivations but we can appreciate the characters involved in this peculiar story.

The Curious Deaths of Michael Malloy

Yes, deaths.

Depression-era America was a bleak place. New York City was no exception. Unemployment and destitution were rife and the story of poor Irish immigrant
Michael Malloy embodied the hopelessness of this era. He had no friends or family and only an occasional odd job for which he would often be paid in alcohol instead of money. Malloy was an easy mark.

He seemed like the perfect victim to five men including Francis Pasqua, an undertaker, and Tony Marino, proprietor of a speakeasy, and the regulars within the bar were noticed the lone man beaten by life drinking at the bar and hatched a scheme. The press later dubbed them the ‘Murder Trust’. Pasqua volunteered to obtain the policies but it took him five months and the help of a disreputable agent to get these in place.

In December 1932 they all gathered at the bar to put their dastardly plan into action. If all went as planned the trust would split $3,576 (about $54,000 today) after Michael Malloy died.
They knew Malloy was a heavy drinker so sought to use this against him. Marino granted Malloy an unlimited bar tab to the delight of the unsuspecting patron. Malloy was so happy, in fact, that he signed what he thought was a petition but was actually the insurance policy.

As soon as Malloy took a shot his glass was refilled. The Trust had expected the effects of alcohol poisoning to take effect as the night wore on but remarkably Malloy just kept drinking. He drank and he drank for three days barely taking a moment to eat but still he did not die. The group was at a loss as to what to do next.

They tried switching out his whiskey with shots of wood alcohol. Wood alcohol was known to cause blindness and had been linked to thousands of deaths during prohibition. Still Malloy would not be felled.

Things were becoming expensive for the Trust who was funding Malloy’s voracious appetites in addition to their insurance premiums and so they decided to change tack and exploit another one of Malloy’s well-known proclivities – seafood.

They put some oysters in denatured alcohol let them soak for a few days and fed them to the hardened drinker. When this didn’t work they let a tin of sardines rot before mixing in shrapnel and feeding it Malloy in a sandwich. Rather than the metal piercing organs and causing agony Malloy finished his tin sandwich and asked for another.

That night was bitterly cold so they decided to try and let nature do the work and took him through the snow to a park bench. They stripped him off and poured bottles of water over the man. When Marino arrived at the bar the next day Malloy had somehow made it back to the basement.

Enough was enough they decided. They bribed a cab driver named Harry Green for $150 to run over their seemingly indestructible acquaintance. Somehow blind drunk Malloy managed to dodge the first two attempts. On his third try, Green brought the vehicle up to speeds of 50 miles per hour and finally downed Malloy. He then backed over the man to ensure the job was done. The Trust was sure Malloy was dead but was unable to check as they fled the scene to avoid the eyes of a passing car.

They called the local hospital and morgues for confirmation but could not trace ‘the body’. Five days passed and there was no news. As they had feared Malloy showed up at the bar with a wild tale ready to drink.

Michael Malloy finally died on February 21, 1933 – seven months after the Trust hatched their plan. While passed out from drinking a rubber tube ran from a gas light fixture to his mouth suffocating him. He was pronounced dead of lobar pneumonia by a bribed doctor and hastily buried.

The trust only received $800 from Metropolitan Life Insurance Company.

Eventually, police heard rumours of Malloy’s fate all over town and so the body exhumed and forensically examined. The five men were put on trial and found guilty of the murder. Four members of the Trust were executed in the electric chair at Sing Sing.

In his death Michael Malloy became immortal.

Insurance fraud costs the industry billions each year which affects the cover and price available to all of us.

The types of fraud may not be as dramatic but in a recent case shows us that no one is the tradition of insurance fraud is alive and well. In fact, a police officer was convicted for a motor fraud valued at £10,000. He was incriminated by his own dashcam footage which showed that debris from a passing van that was alleged to have caused him personal injury and damage to his car turned out to be polystyrene.

In 2020 the Association of British Insurers (ABI) revealed that every five minutes a fraudulent insurance claim is uncovered, with 107,000 such claims (worth around £1.2 billion) uncovered by insurers in 2019.

There are a few lessons we can learn from these tales about what desperation or greed can drive people to do but also insurance industry has developed and innovated investigative techniques in response to scams that have impacted society as a whole.

Also, maybe question the motives of a group of guys offering you unlimited alcohol.