Identity Fraud Expense Coverage

HO 04 55–IDENTITY FRAUD EXPENSE COVERAGE

(July 2020)

Broadly speaking, ID fraud refers to any incident involving one party’s unlawful acquisition and use of another person’s private information. Such thefts result in the victim’s credit history being seriously harmed or even ruined. Typically, a victim finds out about the problem when notified about credit charges or other large transactions that were made without his or her knowledge.

Rebuilding an accurate credit history is extremely labor intensive. A victim must spend many hours on the phone, contacting credit bureaus, police departments, lenders, business home offices and, often, lawyers. The paperwork involved is daunting as an ID fraud victim must track down proper forms, fill them out correctly, make copies and send the information to the right parties, often having to involve notary publics and special, more expensive methods of mailing (such as registered or certified delivery).

Obviously, the process of reclaiming a stolen identity is as expensive as it is laborious. A victim has to pay for phone expenses, copying and mailing costs, notary fees, form fees, legal costs, etc. Normally such expenses are not covered by a homeowner policy as the theft of identity does not qualify as an eligible loss.

 

Example: A few weeks ago, Harriet, who is insured by a HO 00 03 special form policy, went to her favorite appliance store, and selected a new refrigerator and a washer/dryer combination. When the store started the credit transaction, her card was refused. Harriet discovered that her ID had been stolen and dozens of transactions were made without her knowledge. In the following weeks, her effort to correct her credit history resulted in the following expenses:

Lost Income

$567

Notary Fees

$200

Lawyer Expense (assisting w/affidavits)

$3,450

Copying and Mailing Costs

$189
Total Costs

$4,406

Total Costs Covered by H.O. policy

$0

 

The Insurance Services Office offers an option that can be added to a HO policy. The HO 04 55–Identity Fraud Expense Coverage form pays certain expenses related to handling the aftermath of ID Fraud.

Definitions

The form adds two defined terms, “Identity fraud” and “Expenses” and these terms apply to how the form responds to an insured’s ID Fraud related costs.

Identity Fraud – essentially refers to an entity’s deliberate and unauthorized use of another party’s identity. That misappropriated information must be used illegally and in violation of federal, state, or local law.

Fortunately, the endorsement’s language applies to the two distinct types of common ID theft, account takeover and application fraud. The former refers to a thief who gets access to a person’s current credit or debit cards or account information. The latter involves thieves using illegally obtained personal information in order to apply for credit accounts or loans.

Expenses – the categories of items that may qualify for reimbursement under the form includes cost of:

Identity Fraud Expense

The form will pay up to a maximum of $15,000 for the eligible expenses. However, the lost income portion is capped at $200 per day, subject to a $5,000 total.

The amount of payment applies to any single act of ID fraud that is discovered within the policy period. Either the continuous acts of a single perpetrator or collusive activity by two or more perpetrators are treated as a single, eligible act.

The coverage provided by this endorsement does not affect the limit of cover provided by the HO policy.

Exclusions

The form’s coverage is not available for expenses related to an insured’s fraudulent activities, involving an insured’s business or any type of expense that falls outside of the categories defined in the form.

Deductible

Any payment for covered expenses is made only after applying a $500 deductible.

Duties After Loss

When required by the insurer, the insured must send in any relevant documents to the insurer within 60 days.