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As my mother taught me when I was a child: “Liars never prosper!” She was more determined than reality although the maxim about liars must be followed in insurance.
IN Saul Valdez v. Nationwide Insurance Company Of America, no. 3:20-CV-01196-YY, United States District Court, D. Oregon, Portland Division (September 30, 2022) Saul Valdez sued Nationwide Insurance Company of America alleging a claim for breach of contract, including claims for breach of express contract terms and implied terms covenant of good faith and fair dealing. Nationwide alleged that Valdez obtained the policy by misrepresenting material facts.
Plaintiff called Defendant and attempted to add insurance to one of his properties (hereinafter referred to as “the Property”). The defendant’s representative asked the plaintiff a series of questions about the property to gather information and assess eligibility. After Plaintiff answered these questions, the representative informed Plaintiff that he would “get back sometime in the next six days.” Defendant emailed Plaintiff an application and insurance slip for his review and signature via DocuSign.
The claimant signed the application on 21 May 2020 and the defendant sent a physical copy of the policy (sans application) to the claimant. At this time, and in accordance with the company’s guidelines for underwriting newly insured properties, the defendant began an independent investigation to verify the information provided by the plaintiff about the property. An independent third party investigator visited the property and provided a report to the defendant. Before a report was received, a fire then broke out in the property resulting in a total loss.
When the plaintiff did not receive any adjustments or payments from the defendant, he filed suit. About a month and a half later, on August 25, 2020, the defendant issued a letter to the plaintiff explaining that the insurance on the property was canceled “back to the start date of 5/15/2020.” The letter explained that, at the time of filing, the plaintiff “misrepresented, concealed, or omitted several items of important (ie material) information” and that “[i]if truthful information had been provided, [defendant] would not have accepted the application for several issue reasons.”
Motions of the parties
Plaintiff’s motion sought summary judgment on all five of defendant’s affirmative defenses: (1) cancellation of policy, (2) breach of policy term, (3) a real party in interest, (4) lack of insurable interest, and (5) failure to enter a claim. In its response to plaintiff’s motion, defendant “stipulated that its fourth and fifth affirmative defenses be dismissed.” The defendant therefore granted summary judgment on his fourth and fifth affirmative counterclaims but moved to dismiss based on the other counterclaims.
Misrepresentation or concealment of insurance
The first element that an insurer must show to void a fire policy is that the insured either willfully concealed, misrepresented, or falsely swore to any fact or circumstance relating to the policy. The defendant submitted clear examples where the claimant’s representations on his application differed from the real condition of the property.
- the plaintiff emphasized in its application that the property was not “currently undergoing extensive alterations or additions”. The realtor later provided deposition testimony that the property was “certainly being remodeled.” Plaintiff admitted during his deposition that “the electrical [work] was not complete”; there was no finished floor; no hung sheetrock; no installed countertops or appliances; no bathroom fixtures or toilets; and no insulation or wood paneling in the upstairs sections.
- in a similar way, the plaintiff has also submitted that the property was suitable for occupancy, more specifically as a single-family residence. But in his deposition, the plaintiff’s architect, Lawler, said he did not believe “an inspector would issue a certificate of occupancy for a building in the condition it was in at the time.”
- the plaintiff claimed on his application that there was no “business on [the] the premises of the property. By his own admission the plaintiff carried on his business on the premises of the property and his representation that there was no “business on [the] premises” was false.
- the plaintiff stated on his application that the property was not subject to or liable to any additional insureds or interests. However, the deed to the property was in the name of the plaintiff’s property management company, Renaissance Properties, LLC.
- the plaintiff claimed there was “no previous insurance” on the property. The property was insured for at least the first year after the sale.
- Finally, the plaintiff stated in his application that the condition of the residence was “[e]x excellent.” Nevertheless, both the third-party inspector and the plaintiff’s architect, Lawler, observed that the windows on the property were boarded up in late May 2020, close to the time the plaintiff submitted its application to the defendant. Both individuals also confirmed the presence of graffiti on the property, and the third-party inspector observed that the property contained an “attractive nuisance” of unusable vehicles, rubbish appliances, farm equipment and excessive litter and rubbish.
Insurance fraud or false profanity is a purely civil dispute, and accordingly the standard of proof is a preponderance of the evidence. In litigation, the word “intentional” means nothing more than this: “that the person knows what he is doing, intends to do what he is doing, and is a free agent.”
In sum, Defendant’s evidence, showing blatant misrepresentations as to the property’s condition and status, coupled with Plaintiff’s silence regarding his state of mind when he reviewed and signed the application, overwhelmingly tips the scales in favor of a finding that Plaintiff made willful misrepresentations when completing his application.
The application is attached to the policy
The requirement that the application be attached to the policy issued essentially serves as a consumer protection mechanism to ensure that the insured is aware of the terms of the policy when it is issued. While text of the binder itself is really short, the entire document given to the claimant – binder and application – contains crucial details of the policy contracted for. Thus, the plaintiff was provided with “everything that the insurer [relied] at the time of issuing the policy, i.e. the entire agreement of the parties.” The binder produced to plaintiff meets the definition of a “policy” under ORS § 742.208.
In sum, the binder produced to plaintiff meets the definition of a “policy” under ORS § 742.208, and because plaintiff’s application was attached to the binder when it was provided to plaintiff, the second prong of the statute is satisfied.
Representations were essential
It was found that if the plaintiff had provided correct answers about the condition of the property, the defendant would not have accepted the application for insurance.
Reasonable reliance on representations
Finally, to invalidate a fire insurance policy, an insurer must show that it has relied on the applicant’s material misrepresentations. The defendant has presented sufficient evidence to establish a prima facie case of trust.
Nationwide established the four elements required under ORS § 742.208 to effect a successful voiding of plaintiff’s fire insurance. Because Nationwide successfully invalidated the policy, plaintiff’s claim for breach of the express terms of that agreement fails. The defendant’s motion for summary judgment is therefore appropriate for the plaintiff’s motion for express breach of contract.
Having found that the policy was successfully voided as to any party, the court need not reach the defendant’s argument that the plaintiff is not the proper party in interest. Nationwide’s motion for summary judgment was granted in its entirety.
Insurance has always been a business of utmost good faith. An applicant for insurance who states on an application for insurance that circumstances are material to the insurer’s decision to either insure or refuse to insure a person against the risk of fire damage. In this case, the lies in the application were blatant and gross. Valdez lied to get the insurance and faced the effect of the lie. He showed a serious effort of unmitigated gall by filing a lawsuit against Nationwide. The court found six clear misrepresentations of material fact when one would have been sufficient. Valdez should have been sanctioned for filing a false and frivolous lawsuit and reported to prosecutors for the fraud in the beginning of the policy and the claim of knowing the policy was invalid.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org. Subscribe and receive videos limited to Excellence in Claims Handling subscribers at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
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