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From: evansdb@netaxs.com@netaxs.com (Dan Evans)
Newsgroups: alt.folklore.urban
Subject: Re: "Cigars Insured Against Fire" - a UL?
Date: 4 Nov 1997 04:35:01 GMT

In <345b671b.1346760@news.wco.com>, grix@spuckfam.wco.communard (Vinny Hrovat) writes:

>       A Charlotte, North Carolina man, having purchased a case of rare, very 

>       expensive cigars, insured them against - get this - fire.

>

>       Within a month, having smoked his entire stockpile of fabulous cigars, and

>       having yet to make a single premium payment on the Policy, the man filed

>       a claim against the insurance company. In his claim, the man stated that

>       he had lost the cigars in "a series of small fires."

I hate to take this so seriously, but there is what is known as the "friendly fire" rule in insurance law. The principle is that a fire is not a "fire" within the meaning of a casualty insurance policy if it burns normally and stays within its intended limits. The most common example is that of a bakery insured against loss from "fire." Burning a cake in the oven is generally understood not to be a loss from "fire" because the fire stayed in the oven. Similarly, a lit cigar is not a "fire" within the meaning of a fire insurance policy as long as the only the cigar burns.

>       After the man cashed his check, however, the insurance company had him

>       arrested . . . on 24 counts of arson, with his own insurance claim and

>       testimony from the previous case being used as evidence.

This is true:

There is a published Revenue Ruling from the Internal Revenue Service about a man who insured a building he owned and then set fire to it to try to collect the insurance proceeds. He was convicted of arson and the insurance proceeds were never paid. He filed a tax return for the year of the fire in which he claimed a casualty loss for the fire, but the IRS ruled that it's not a casualty loss when you deliberately set fire to your own building, and that the cost of the building was also not deductible as a business expense, or an expense in connection with a transaction entered into for profit, because that would defeat the public policy against burning down buildings for the insurance. Rev. Rul. 81-24, 1981-1 C.B. 7.

In a later ruling, the IRS held that, if a taxpayer hires someone else to burn down the building, collects the insurance proceeds, but is then convicted of fraud and forced to repay the insurance proceeds in a later year: (1) the payments to the arsonist are not deductible as business expenses; (2) the receipt of the insurance proceeds is ordinary income, not capital gain; and (3) the repayment of the insurance proceeds in a later year results in a loss deduction in that year. Rev. Rul. 82-74, 1982-1 C.B. 110.

Dan Evans **********************
*This is not legal advice unless
*you agreed to pay for it.
*http://www.netaxs.com/~evansdb