Auto Insurance Claims: Auto Insurance Claim Paid Out on Fraudulent Title, loss payee, judgment proof

Question
I made a loan to a vehicle owner, and I am listed as the lien holder on the title (which was properly recorded with the state SOS).  Unfortunately, I was never listed as a loss payee on the vehicle owner's insurance policy.  The owner was in a car wreck and it was a total loss.  The owner fraudulently faxed a copy of an earlier title (which did not list me as the lien holder), and the insurance company relied upon it to release payment to the owner.  When I confronted the insurance company, they claimed no obligation to verify whether the copy of title the owner faxed them was legitimate or not, and it was not their policy to check with the SOS.  It was my responsibility to be listed as the loss payee.  They were not concerned that their insured committed fraud.  As far as they were concerned, they paid out on the claim and have no further obligation.  Is this correct?  If not, how do I handle this with the insurance company?  If the insurance company is correct, then how would a bank handle it if they make an auto loan and is listed as loss payee, but then the owner switches policies without listing the bank as loss payee on the new policy?  I'm sure this is not uncommon.

I know I could go after the owner on fraud, but even if I could track him down, he is probably judgment proof (and the insurance company has deeper pockets).  Thank you for whatever advice you can offer.

Answer
Hi Marty,

Unfortunately, the insurance company is correct. It was your responsibility to make the person your loaned the money to to have you listed as loss payee. Then if the policy were cancelled or switched to another company you would be notified by the insurance company that the policy was cancelled and could then contact the vehicle owner to demand that he provide you with proof of insurance that lists you as loss payee. That is how the large auto loan companies do it. They have entire departments that keep up with the insurance policies of people that they loan money to.

In this case, your only recourse would be to sue the person you loaned the money to.

I hope this helps
Richard Hixenbaugh