From the outset, insurance was a way to manage an individual’s risk by asking others to participate. The early underwriting of vessels and their cargo – the earliest form of insurance – has evolved into many different risk management scenarios. Fraud has probably been a part of insurance for as long as the idea has been around. We know, for example, that in the early days of Marine insurance unscrupulous owners would hide a vessel in another port and claim it as lost; probably the earliest form of insurance fraud.
It seems likely that every advance in the insurance marketplace has been accompanied by a corresponding advance in people trying to figure out how to take advantage of the insurance for their own gain. Some of the stories of early insurance fraud make for a pretty compelling reading as the perpetrators of fraud have sometimes not been simply “white collar criminals” but really bad people who ventured far afield from simply scamming an insurance company into murder and mayhem.
In the life insurance arena for example, we can look at the case of one William Udderzook who in 1868 worked with his brother-in-law, Winfield Goss, to collect on a $25,000 life insurance policy. Udderzook and Goss staged a fire in Goss’s workshop. A body was found in the aftermath that was was burned beyond recognition. Goss’s widow claimed against the policy, but insurance investigators became suspicious and launched an investigation. With the scheme beginning to fall apart, Udderzook killed Goss for real in a manner most gruesome. When Goss’s body was found, it had been dismembered, disemboweled, and repeatedly stabbed. In fact, the case opened the door a bit for forensic science because the identification of the body was made possible by a photograph of Goss and the finding of a “seal ring” with the corpse. Udderzook was found guilty of the crime and hanged in 1874.
An even more bizarre series of fraud cases involved one H. H. Holmes who may be America’s first known serial killer (discounting tales of the wild west). Holmes, actually one Herman W. Mudgett of Gilmanton, New Hampshire, studied in Vermont and at the medical school of the University of Michigan at Ann Arbor. Not just a student, he had a preoccupation with cadavers, the will to create them and a penchant for using them in fraud schemes. He stole corpses, which he used to make false insurance claims and may have used the bodies for experiments as well.
Holmes moved to Chicago in 1886 and began working in a pharmacy where he acquired the title “doctor.” He was known then as Dr. Henry H. Holmes. The owner of the pharmacy disappeared under mysterious circumstances and Holmes took over the business. He began the construction of a three-story building constructed, supposedly to house people visiting the 1893 World Columbian Exposition. In fact, what he built was a house of horrors with many small rooms where he tortured and killed his victims. Some rooms had gas jets to asphyxiate victims and there were trapdoors and chutes that enabled Holmes to move bodies down to the basement where he could burn the remains in a kiln or dispose of them in other ways – including the sale of skeleton and body parts to medical schools.
It was an insurance fraud scheme that finally exposed Holmes. Philadelphia police found the body of a man who had been the victim an explosion. While decomposition and fire made positive identification difficult, two men – Dr. H. H. Holmes and Jephtha Howe – arrived in Phildelphia to identify the remains as one Benjamin F. Pitzel a person whose life was insured by the Fidelity Mutual Life Association of Philadelphia for $10,000. The scheme worked well enough for the insurer to pay the claim – and even reap benefits as the widow’s thank you letter was used for promotion purposes. However, there was a problem. A convict in St. Louis had news of the plot and informed on Holmes and Pitzel which not only ended the fraud, but exposed H.H. Holmes as a mass murderer.
Holmes eventually confessed to 27 murders but the actual number is not known and it is believed he may have killed as many as 200 people; not all as parts of insurance fraud. He was executed by hanging in Philadelphia on May 8, 1896.