Tales of moral hazard from Vernon, Florida

"There was another man who took out insurance with 28 or 38 companies," said Murray Armstrong, an insurance official for Liberty National. "He was a farmer and ordinarily drove around the farm in his stick shift pickup. This day – the day of the accident – he drove his wife's automatic transmission car and he lost his left foot. If he'd been driving his pickup, he'd have had to use that foot for the clutch. He also had a tourniquet in his pocket. We asked why he had it and he said, 'Snakes. In case of snake bite.' He'd taken out so much insurance he was paying premiums that cost more than his income. He wasn't poor, either. Middle class. He collected more than $1-million from all the companies. It was hard to make a jury believe a man would shoot off his foot."

The full story is here and I thank Noah Veltman for the pointer.


1. If a single person is insured by multiple firms do they all pay or just one? I didn't understand the point behind getting 28 policies.

2. Regarding the "man who bought a policy and then, less than 12 hours later, shot off his foot": Don't policies have a initial cooling off period where damage isn't covered to prevent exactly this sort of abuse?

....I'm trying to think if I were an insurer what sort of creative precautions I could take to minimize my exposure to such moral hazards.

@Rahul: I'm pretty sure all insurers ask if you have insured the [whatever] with any other company, and the contract allows them to withhold payment if you've doubly insured something. I don't even understand why anyone every expected they'd have to all pay once this became known.

And I especially don't understand how they weren't even able to pick up on this. Heck, I have to give my SSN for pretty much everything -- these guys don't have a database that checks for this kind of thing?

Am I just the only person they pick on or something?

>>>"Heck, I have to give my SSN for pretty much everything -- these guys don't have a database that checks for this kind of thing?"<<<

Some of these stories seem from 30-40 years ago. Maybe they didn't have good databases back then.

The story itself is from 2007, which doesn't matter for Nub City history, but the widening of SR79 to four lanes apparently never happened. I checked with <a href="http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=vernon,+fl&sll=37.0625,-95.677068&sspn=61.023673,110.830078&ie=UTF8&hq=&hnear=Vernon,+Washington,+Florida&ll=30.62111,-85.712418&spn=0.008273,0.013529&z=17&layer=c&cbll=30.62111,-85.712418&panoid=BNxQoTwBhRJQ7t_OXIfiUg&cbp=12,342,,0,8.35">Google Street View and it shows a sleepy two lane county road at intersection with SR279. So if Street View has been updated since 2007 (how to tell?) it looks like the Destruction part of the article never came to pass. Which is good by the looks of it.

Umm, this is insurance fraud, not moral hazard. There are some situations where it's a fine line between taking risks due to insurance, and intentionally inflicting harm on oneself to collect on a policy. This ain't one of 'em.

Generally, on property insurance, you cannot collect more than the actual damages, no matter how many policies you have. Since it's hard to put a number on human life and limb, typically all policies pay.

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