May 26, 2009

TO ALL INTERESTED COMPANIES

FRAUD RELATED TO CONTENTS CLAIM CAUSED BY
PUBLIC ADJUSTER IS BINDING UPON THE INSURED

In Mathes v. Mid-Century Ins. Co., 2008 WL 2439744 (E.D. Mo., 2008) the Federal Court for the Eastern District of Missouri granted summary judgment for the insurer, Mid-Century. This case involved fire damage to the insured’s house. The insured retained Caulfield as a public adjuster and submitted a proof of loss for personal property in the amount of $144,000, although the insurance company did not provide blank forms pursuant to Missouri law. The court held that the insurer’s failure to submit blank forms simply waived its right to claim that the insured failed to comply with the policy provision requiring submission of the proof of loss. 

Following submission by the public adjuster of a proof of loss for $144,000, Mid-Century requested additional documents supporting the claim. The insured delivered a list of his personal property; however, the list only totaled $93,167. Mid-Century then denied the claim, in part, because the insured had misrepresented the nature and extent of his personal property loss. 

The insured then filed suit and Mid-Century defended on the basis that the insured breached the “Concealment or Fraud” policy condition. Mid-Century then moved for a summary judgment and relied on the discrepancy between the proof of loss and the inventory as well as the fact that the insured had filed for bankruptcy six months before the fire and had valued his personal property in the bankruptcy at only $800. The insured argued that the bankruptcy valuation was based on current resale value (fair market value) and that the insurance claim was based on replacement cost. The court refused to accept this explanation as realistic because of the vast difference in values. 

While Mid-Century urged the court to adopt the doctrine of “judicial estoppel” the court did not do so.  Judicial estoppel is used by the courts to prevent a litigant from taking inconsistent positions, concerning related litigation, in separate courts. Here, the court held that the bankruptcy and the insurance claim were unrelated matters and the doctrine of judicial estoppel would not apply.

Nevertheless, the court still awarded summary judgment to Mid-Century because Mid-Century introduced into evidence the bankruptcy records and the court concluded that this evidence, together with other evidence, pointed only to one conclusion, i.e. that the insured had committed misrepresentation.

Even though this court would not apply the doctrine of “judicial estoppel” to bar the insured’s claims against Mid-Century, it did consider the evidence of the bankruptcy filing in its conclusion that, as a matter of law, willful concealment or misrepresentation of material facts had been committed. 

INSURED’S BANKRUPTCY RECORDS WERE ADMISSIBLE
EVIDENCE IN FIRE CLAIM TO SUPPORT FRAUD DEFENSE

In Eckerd v. Country Mutual Ins. Co., ___ S.W. 3d ___ (E.D. Mo., 2009) the Missouri Court of Appeals for the Eastern District upheld a verdict in favor of Country Mutual based on a fraud defense.

In this case the insured occupied a house under a “Rent-to-Own” contract which later, before the fire, changed to a “Contract for Deed”. The insurance policy was obtained before the contract for deed took effect, but the insured did not disclose the true circumstances of the ownership of the dwelling, but, rather, told the insurance company the dwelling was owner occupied. 

The main issue at trial was whether the insured had committed fraud concerning the contents claim. The original contents limit was $138,000 when the policy was obtained in February of 2005. Two months later, in April of 2005, the insureds represented to the bankruptcy court that their personal property was worth only $800. The fire occurred in October of 2005. The court determined that the value that the insureds assigned to their property in the bankruptcy was directly relevant to the issue of whether they committed fraud in obtaining the policy in the first place. 

The insureds relied on the Missouri Valued Policy Statute, §379.140, that applies to real estate. The court (although not mentioning that this statute does not apply to personal property) stated that where fraud is alleged, the valued policy statute does not prohibit an insurer from challenging the value of property. A fraudulent misrepresentation used to secure excessive coverage is not protected by the valued policy statute. 

This case is interesting because Country Mutual’s defense apparently went to the validity of the policy in the first instance and claimed that fraud was committed in obtaining the policy. Nevertheless, the dwelling loss was paid by Country Mutual before suit was filed and only the contents coverage was disputed.  The court held that the mere fact that the insurer paid the dwelling coverage would not prohibit it from claiming fraud as to the contents coverage. 

Also, the court held that Country Mutual’s failure to respond to the insured’s proof of loss within 15 days did not waive the policy defenses.  Rather, the effect of the failure to respond was simply that Country Mutual could not claim that the proof of loss did not satisfy the policy requirements for the submission of a proof of loss. Also, the court held that the insurance company’s retention of premium did not waive its defenses where the insured was guilty of fraud in obtaining the policy. 

Please contact us if you desire to receive a copy of either of these opinions.

SCHMITT MANZ SWANSON & MULHERN
Stephen D. Manz
1000 Walnut, Suite 800
Kansas City, MO  64106
Phone: 816/472-5310, Ext. 305
smanz@msmlawkc.com