Ok, I see where you are going, but personally I still think the destruction of coins is not the way to go. Unless all parties are already using this system to determine a market value for trust in the destroyed coins, then there is absolutely no incentive to use this system for any party.
Well, there is one really big incentive: in a fully decentralized system it might turn out to be the only way of posting a revocable bond. As for the "all parties problem", that's why I'm posting this idea now so that it's out there and people can think about it while they work on the hard parts of doing any of this stuff. I could write a Python implementation of the above with a nice API in a weekend or two, the rest of the stuff actually using it however could be literally months of careful work.
I could definitely see an alternate system dedicated to this purpose, where an organization would purchase "credits" at some price in BTC that would work like bonds. If you use an alt chain, this would allow for a market to buy and sell credit to give those credits an intrinsic value that would work for the 'close up shop' honesty factor. The special rules for fraud could be built into the chain though: if the organization is behaving dishonestly (rules TBD 
...), all of their credits, or a percentage of their credits depending on the amount of fraud, would be liquidated and returned to the defrauded individual. So more like traditional insurance, but decentralized.
...), all of their credits, or a percentage of their credits depending on the amount of fraud, would be liquidated and returned to the defrauded individual. So more like traditional insurance, but decentralized.Saying it's decentralized is all well and good, but how exactly is that going to work? What is the technical mechanism that returns credits to the defrauded individual? What lines of software code actually implements it?