My Neighbor’s Check Forgery Loss…

This article is from JS contributor Bill Wilson and pertains to a subject that falls within a topic area best described as… Insurance is only one form of Risk Management. Here, we are all reminded of needed protection via one homeowners experience–and that insurance can (should) be a last resort. Hope you enjoy this bit of wisdom (with some modifications) from Bill Wilson regarding check fraud and forgery, available at www.InsuranceCommentary.com.

By Bill Wilson, CPCU, ARM, AIM, AAM

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.

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. The following are just some examples of what can be done to minimize becoming a victim of check forgery.

Use secure checks–Choose checks with safety features like chemically reactive paper, which makes alterations more noticeable. You can also purchase special checks which are designed to be difficult to replicate. 

Write checks carefully–Use a non-erasable ink like black gel pen, and avoid leaving blank spaces on the check. Write out the payee’s full name in large print, and don’t write your Social Security number on the check. 

Mail checks carefully–Walk checks into the post office and hand them to a postal carrier or employee. Don’t leave checks in your mailbox or in mailbox drop boxes. 

Report stolen checks–If your check is stolen, report it to the financial institution that issued the check. 

Monitor transactions–Regularly monitor transactions for unusual patterns or discrepancies that could indicate fraud. 

Implement internal controls–Limit access to checks and other important documents, and train employees not to leave them unattended. 

Pay digitally–Use card or digital payment methods instead of checks. 

Use a signature stamp–If you use a signature stamp, make sure it’s not easily accessible. 

Remember insurance is only one means of risk management. Talk to your insurance agent and financial adviser about alternative or supplementary approaches.

There are “industry standard” auto, home, etc. insurance policies but there are many variations in the marketplace. And, always remember the following words of wisdom when 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

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NOTE #1: Bill Wilson is the author of many insurance books and writes blogs on insurance industry issues.  Learn more at www.InsuranceCommentary.com and check out his published books at https://tinyurl.com/BillWilsonAmazonAuthor

NOTE #2: Email Bill at Bill@insuranceCommentary.com

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