SO SAYS THE 8TH CIRCUIT.
A new ruling from the 8th Circuit affirms what we all know to be true: people who exaggerate their insurance claim losses should never be rewarded.
But why is this new case interesting to us, Dear Readers? Because the 8th Circuit refused to sever the claims that were untruthful from those that were truthful and rejected them all.
Insurance Carrier: 1 Policyholder: -0-
The new case of Neidenbach v. Amica Mutual Ins. Co., No. 16-1400, 2016 WL 6775961, slip op. (8th Cir. Nov. 16, 2016) is worth addressing for its strict construction of the policy terms. There, the policyholders suffered a $375,000 fire loss to their main residence. They filed a claim against their insurer, Amica. They also claimed a personal property loss in excess of $300,000. This second claim included losses for household furnishings, clothing, equipment and what not.
For those of us who are homeowners that claim for loss of contents does seem like a bit much, right?
Amica denied both claims. The problem for the Neidenbachs was that they had filed for bankruptcy a year before the fire. Under oath and penalty of perjury the Neidenbach’s told the bankruptcy court that they owned only $7000 worth of personal property in total. Whoops!
The Amica policy had an anti-fraud provision – which is typical in homeowner’s polices. Amica would not provide coverage to insureds…
under this policy if, before or after a loss, an insured has intentionally concealed or misrepresented any material fact or circumstance … or made false statements relating to this insurance.
(Emphasis added). The Neidenbachs did not dispute that they did not accumulate over $255,000 worth of property after they filed for bankruptcy. Thus, they tacitly admitted something was fishy between the two valuations made just one year apart.
The trial court found, as a matter of law, that “no reasonable jury would be able to reconcile the difference between the value of the personal property the Neidenbachs reported as lost in the fire and the value of the personal property they reported in their bankruptcy petition a year earlier.” Id., slip op. at 3.
The 8th Circuit affirmed. It determined as a matter of law that the insurance policy was void.
Let’s think about that ruling for a minute. If the whole policy was void, what about the legitimate claim for the fire loss of the main residence? In equity (or by contract) that loss should still be covered. The Neidenbachs made no material misrepresentation on the value of that loss. Right? Right?
BTW: for some subversive legal humor read the whole opinion. The Neidenbachs offer numerous prevarications to justify the gross discrepancy between the two valuations. They are trying desperately to find an issue of fact for the jury to decide in order to avoid summary judgement. This part is not so much funny, but frustrating. No wonder the public has somewhat lost faith in lawyers for manipulating the truth to suit our client’s needs.
What is funny, though, is how the Circuit judges respectfully treat each silly justification offered by the Neidenbachs with an opposing and reasoned legal analysis – as if the Neidenbach’s senseless arguments to explain the discrepancy are worthy of any intellectual consideration whatsoever. What a waste of cerebral energy! Going tit for tat with the Neidenbachs, the Court dissects in detail why each of their arguments fail – even though the Court rules at the outset of the opinion that the mere size of the discrepancy makes the Neidenbach’s claim untruthful as a matter of law. The opinion gently avoids calling the policyholders outright liars when the only proof in the case shows unequivocally that they are just that.
Anyway back to the serious legal question at hand: is the residence loss, which the Neidenbachs did not misrepresent, covered under the policy?
Again the 8th Circuit said no. The Circuit found that the contract explicitly denied all coverage “under this policy…” in the anti-fraud clause. This means what it says. The whole policy is void in its entirety because of the Neidenbach’s misrepresentations. The claim for the residence is not separate. If a policyholder…
…breaches an insurance policy by committing a misrepresentation as to one class of coverage, such misrepresentation may void the entire policy, even if the policy would otherwise be severable.
Id., slip op. at 9. The 8th Circuit found that the anti-fraud clause was unambiguous. It referred to all claims made under the entire policy, not just the personal property coverage. Id.
Liars lose. As they should.
However I am going to give you some food for further thought Dear Readers. Was it fair for the insurance company to collect premiums and then deny coverage for the legitimate loss to the residence? You should remember from previous blog posts that sometimes a court in equity will review an insurance contract and find that, if one party is to lose in court, it should be the insurer who was paid a premium to cover legitimate losses. This is the minority rule of law in other jurisdictions. But apparently not in Missouri, where the claim arose, or the 8th Circuit, who affirmed the case.
What do you think about this ruling? I will tell you this: the dissent was uncomfortable with denying coverage on the residence loss. I look forward to your thoughts Dear Readers. I look forward to your thoughts…