Hurwitz Fine Insurance Coverage Attorney Scott D. Storm recently presented a webinar focused on the strategic application of the “Concealment or Fraud” condition and related coverage defenses in fraud investigations. Below are the key takeaways:
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If an insured has fraudulently placed in the proof of loss a statement of property lost which she did not possess, or has placed a false and fraudulent value upon the articles which she did own, coverage for the entire claim is void and she is not entitled to recover anything.
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Breach of the “Concealment or Fraud” and breach of the “Cooperation” conditions are two separate defenses with different burdens of proof (“clear and convincing evidence” v. “preponderance of the evidence”) and both must be charged to a jury and may be based upon the same facts.
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Overvaluation of insured property raises a presumption of fraud, and such presumption becomes conclusive where the insurer demonstrates that the difference between the amounts claimed in the proof of loss and the loss actually shown to have been sustained are grossly disparate without reasonable explanation.
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An insured may amend or withdraw part of her proof of loss but by so doing she does not foreclose the insurance company from attempting to prove that the withdrawn part of the original claim was false or fraudulent. The contract of insurance is entire and indivisible, and a cause of avoidance or forfeiture in respect to a part of the property insured affects the whole contract.
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When a public adjuster submits a fraudulent proof of loss, the insured is barred from recovery as the public adjuster is the agent of the insured, the fraud is imputed to the insured even if the insured is ignorant of the misrepresentation.
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The sworn statement in proof of loss continues to be an important document to proving fraud, should be included as part of the fraud investigation and is a condition precedent to recovery under the policy when requested, being mindful: to request it in writing; provide a blank form; and allow 60-days for compliance from the date of the receipt of the request until the time of mailing.
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The legal principle of “judicial estoppel” precludes an insured from declaring the value of property in one legal proceeding (i.e., bankruptcy) and then inconsistently declaring the value to be substantially higher in a subsequent matter (i.e., insurance claim).
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Although “late notice of claim” is an onerous defense in 3rd-party liability claims, it remains a strong defense in 1st-party property cases, with courts finding delays as little 10 days to be unreasonable as a matter of law when there is no reasonable excuse; and there are limited reasons constituting a “reasonable excuse”.
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The “Thrasher standard” which requires an insurer to prove willful and avowed obstruction in the investigation of a 3rd-party liability claim and is said to create a heavy burden of proof, is intended to protect an innocent third-party’s right of recovery and does not apply to first-party property claims, where the standard is whether the insured fully disclosed all requested material information. See Scott's article, “Headed in the Wrong Direction.”
- A material misrepresentation in an application for insurance compels an insurer to rescind a property policy; or void coverage for an auto claim for any conspirators in the misrepresentation. Where the insured's agent fills out the application for the insured, inserts false answers as to material facts, and the insured signs the application, he or she adopts the statements as those of his or her own agent, and in this regard the agent must be considered as the agent of the insured and not the agent of the insurer.
