Misrepresentation Results in Loss of Coverage

One of the best ways for a policyholder to lose its insurance coverage is to conceal or misrepresent material facts and circumstances about the claim.  In a recent case, the Sixth Circuit Court of Appeals affirmed summary judgment in favor of the insurance company dismissing a policyholder’s claims against its insurance carrier for not paying its claims.

In American Land Investment Ltd. v. Allstate Insurance Co., No. 19-3317 (6th Cir. Jan. 31, 2020), the owner of four commercial properties sought coverage for vandalism on two different dates to its properties, including spray painting damage and the cutting load-bearing columns with a saw. The insurance company investigated the incidents for a substantial period of time and paid part of the spray-painting claim.  Before the insurance company reached a final claims determination, the policyholder sued alleging breach of contract and lack of good faith, and sought a declaratory judgment on how the insurance company should disburse insurance payments for all the claims.  Based on its continuing investigation, the insurance company subsequently denied the remainder of the claims for spray painting and saw-cutting based on existing damages, similar pre-existing conditions and concealment or misrepresentation.

The insurance carrier moved for summary judgment based on concealment and misrepresentation and the district court agreed finding that the misrepresentations contractually relieved the insurance carrier of any potential obligations to pay these claims.  The Sixth Circuit affirmed.

In affirming, the circuit court outlined all of the misrepresentations and concealments by the policyholder’s sole principal. The court held that the district court did not err in granting summary judgment or in concluding that there were no genuine issues of material fact based on the material misrepresentation calculated to mislead the insurance company’s investigation into the spray-painting claim.

The court noted that concealment, misrepresentation and fraud clauses like the ones in the policy in this case were enforceable under Ohio law.  To void the contract, the misrepresentation must be material.  Here, the court found that the principal’s statements concerning prior claims were not believable.  As the court said, “[t]his is one of the rare instances in which testimony should be rejected without a trial at the summary judgment stage because no reasonable person would believe it.”  The court held that the misrepresentation about a prior suit brought against the policyholder for making a similar fraudulent insurance claim was material.  Because the misrepresentation concerning the prior fraudulent insurance claim (same property, similar spray-painting damage) was sufficient to grant summary judgment to the insurer, the court did not need to discuss the other alleged material misrepresentations.

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