Veteran insurance adjusters say, however, that the number of suspicious claims by horse owners has increased dramatically in the years since the 1986 Tax Reform Act eliminated performance horses as depreciable assets. That "reform" and the anemic state of the economy cut the bottom out of the horse business, leaving a cash-starved industry with farms and stables struggling desperately to stay afloat.
Unlike paintings by Renoir or baseball cards bearing pictures of Honus Wagner, horses experience wild, often unforeseen fluctuations in value. Say, for instance, that a thoroughbred investor spends $500,000 for a well-built, well-bred yearling, insures him for that sum and sends him off, as a 2-year-old, to a racetrack trainer. And say that the trainer then informs the owner that the colt is so slow that he couldn't beat a $15,000 maiden claimer. Or that he is an ill-tempered, untrainable rogue. Or that he is about to bow a tendon and will never race. The humane sportsman might wince and take the loss, but more than a few others would make other arrangements. "The insurance is there, and it is very tempting," says one federal agent.
Over the last few years, says Harvey Feintuch, a New York lawyer who specializes in the investigation of equine insurance claims, "we have had a very, very significant increase in the number of claims that just don't look right."
Given the current economic climate, the sudden deaths of expensive, stall-bound horses tend to raise suspicions, even at the highest levels of the horse business. A widely respected freelance turf writer, Carol Flake, sent shudders through the thoroughbred industry when, in a meticulously reported article in the February 1992 issue of Connoisseur magazine, she raised the possibility that the death of Alydar—one of the most popular racehorses of modern times and one of the world's prepotent stallions—was not an accident (box, page 22).
In the investigation of thoroughbred fatalities, federal agents have found more than mere suspicions. In Brooklyn and South Florida, the feds say, they recently uncovered an insurance scheme that led to the death of one horse, a son of Seattle Slew named Fins, and nearly resulted in the death of another, Cutlass Reality, a New York stakes winner of $1.4 million. Prosecutors say that the scheme involved Victor Arena, the reputed head of the Colombo crime family; Howard Crash, a New York securities broker who is under indictment for bribery; and Larry Lombardo, a licensed owner and trainer of thoroughbreds who has been indicted on federal charges that he killed Fins "while making the death appear to be due to natural causes." Sources speculate that the horse was injected with parasitic bloodworms that brought on a case of thromboembolic colic, a fatal illness.
According to a 21-count indictment handed up in Miami on Aug. 4, Lombardo purchased Fins for $7,500, inflated the horse's value to $400,000 through a series of sales of phony shares, insured Fins for that amount and then collected on the policy after the horse died. Ron Rubinstein, Lombardo's defense attorney, claims that Fins died of natural causes and argues that the colt, at $400,000, was not overvalued as a breeding prospect. But Seth Hancock, the president of Claiborne Farm, which bred Fins and has been in the thoroughbred-breeding business for 80 years, said that Fins was a big, crooked-legged colt who couldn't run a lick.
Lombardo is also charged with conspiring to kill Cutlass Reality, the terrific winner of the 1988 Hollywood Gold Cup (and conqueror of the Horse of the Year, Alysheba), in an alleged insurance-fraud scheme. Crash and his former business associate Mark Hankoff—the two key government witnesses against Lombardo, according to sources close to the case—owned the horse in partnership with Lombardo and several others. What saved Cutlass Reality is unclear, but the hit was never made. "Somebody got scared and backed out," an FBI agent says. What is clear, according to the sworn testimony of an FBI agent involved in the case, is that Crash, Lombardo and Arena would have each received $1 million from the insurance settlement if the horse had been killed. Instead, Cutlass Reality will be standing stud in California next spring, servicing mares at $5,000 a pop—and that beats colic.
While the company that insured Fins had some doubts about the horse's stated value and was suspicious of the timing of the claim, which was made six months after the purchase of the policy, it nonetheless sent the $400,000 check to Lombardo and his cohorts. (Lombardo goes on trial next March 22; if convicted, he may be forced to make restitution to the insurance company.) Increasingly, however, insurance companies are balking at paying suspicious claims and are fighting them in court. The companies are also investigating suspicious claims more assiduously, looking for signs of fraud such as the bogus inflation of a horse's value and the concealing of ailments and infirmities. "We began to take more time and more care," says Feintuch, adding that Lloyds of London and other carriers have toughened their approach to paying claims.
Lloyds's increased vigilance dates back eight years to a case that rocked the highest levels of the thoroughbred breeding world and drove some of its biggest players to hide behind the woodshed in embarrassment. When, on March 25, 1984, an imported English horse named Pelerin died of vitamin D toxicosis shortly after ending his inconsistent career by finishing out of the money in a race in Louisiana, the underwriters of the insurance on the horse, all associated with Lloyds, had reason to be skeptical of the $1.45 million policy that Kentucky horseman Harold Snowden held on his half of the animal. Not only did Pelerin appear to have been poisoned, as the term toxicosis implies, but his value (Snowden and a partner had purchased him for $2 million) had dropped sharply in light of his less-than-stellar racing career.
Snowden, co-owner of the Stallion Station farm and breeder of two Kentucky Derby winners, Dust Commander (1970) and Bold Forbes (1976), had been one of the most active players in the business, the syndicator of more than 100 stallions and a prolific insurer of horses. In a gesture aimed at staying in Snowden's favor, the underwriters offered him $1 million—exactly what he had paid originally for half of the horse—to settle the claim. Snowden held out for $1.35 million. The carriers refused to budge, and Snowden took them to court. It was the first time that an equine insurance company had opposed someone of his stature.