May 26, 2009

TO ALL INTERESTED COMPANIES

DENIAL OF HOMEOWNER’S CLAIM BASED ON FRAUD AND MISREPRESENTATION RESULTS IN DEFIMATION CLAIM AGAINST INSURER

In Johnson v. Allstate Indemnity Company, ___ S.W.3d ___ (Mo. App. E.D. 2009), the Missouri Court of Appeals for the Eastern District affirmed a judgment against Allstate for defamation totaling $1,000,000 ($900,000 actual damages and $100,000 punitive damages).

Allstate denied Johnson’s claims under a homeowner’s policy, arising out of a fire, on grounds of intentional concealment, misrepresentation and fraudulent conduct.  Johnson filed suit on the insurance claim which was removed to Federal Court.  That case progressed to trial and Johnson was successful, and a recovered a judgment for damages caused by the fire.  The jury in the Federal case, however, did not award Johnson damages against Allstate for vexatious refusal to pay. 

While the federal case was pending Johnson also filed a state court case against Allstate alleging defamation in that he was unable to obtain other insurance and that his reputation had been damaged, because of Allstate’s denial of his homeowner’s claim. 

It is interesting to note that the court, in its opinion, pointed out that Johnson apparently volunteered to tell the insurance agents about Allstate’s letter denying his claim.  There is no indication that the agents asked about prior coverage denials, as they are now precluded from doing.  Several insurance agents testified on Johnson’s behalf to the effect that because he showed them Allstate’s letter they could not find an insurance company that would insure him.  (Note: Johnson won the Federal case against Allstate in September of 2004.  In effect, the jury found that he was not guilty of arson or fraud.  The Court of Appeals decision does not say when Johnson contacted the insurance agents, but apparently it was before he was exonerated of fraud by the Federal Court decision.)

In this case, the Court of Appeals upheld and affirmed the jury’s award that Johnson had been defamed by Allstate. 

Comment:  The holding in this case demonstrates that the previous holding of the Missouri Supreme Court in Overcast v. Billings Mutual Ins. Co., 11 S.W. 3d, 62 (Mo. Banc. 2000), is alive and well.  The Overcast case arose out of a similar set of facts and in that case Billings Mutual declined a fire claim for arson. As in the Johnson case, Overcast won the case and was paid under the insurance policy.  The difference between Overcast and Johnson is that in Overcast, when Overcast went to obtain additional insurance after his claim was denied for arson, the insurance agent specifically asked whether any insurer had previously denied a claim.  Overcast then showed the agent the denial letter, which was the basis for the defamation claims made by Overcast. 

After the Overcast decision the Missouri Legislature enacted a new statute, §375.1575, to the effect that insurance agents are now precluded from asking about prior coverage denials.  Thus, there should never had been a disclosure to the agent of Allstate’s denial letter since the agent could not require this information.  What appears to have occurred in the Johnson case is that Johnson, attempting to set up Allstate for a defamation claim, voluntarily and gratuitously showed the agent’s Allstate denial letter.  It is interesting to note that Jay Angoff, a former Director of Insurance for Missouri, testified as an expert witness on behalf of Johnson and in effect, provided his opinions as to how to circumvent the statute precluding insurance agents from asking about prior coverage denials.  The court of appeals summarized Mr. Angoff’s testimony as follows:

While agents are precluded by law from asking about prior coverage denials, agents may ask about prior accusations of fraud and inquire with other companies about the insured’s denial of a claim.

Allstate apparently did not raise this statute as a defense or if it did it is not referred to in the court’s decision.  In effect, this decision educates the plaintiff’s bar as to how to get around the statute precluding agents from asking about prior denials and now reopens the door on defamation claims against insurers for denials based on arson, fraud, misrepresentation or any other ground which could be defamatory. 

Please contact us if you desire to receive a copy of this opinion.

SCHMITT MANZ SWANSON & MULHERN
Stephen D. Manz
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Kansas City, MO  64106
Phone: 816/472-5310, Ext. 305
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