You Didn’t Start the Fire, but Does that Mean the Insurer has to Pay Out?

From the desk of Melanie Rose:

Oregon denies a plaintiff’s claim for breach of contract related to fire insurance and ultimately grants the insurance company’s motion for summary judgment.

Claims Pointer:

Here, a defendant insurance carrier investigated a claim related to a fire that destroyed plaintiff’s house. The carrier ultimately denied the claim. The plaintiff then brought an action for breach of contract related to the denied claim. During the resulting litigation, the carrier alleged—and the court agreed—that the plaintiff had made misrepresentations during the investigation and thus, the insurance contract was void. Accordingly, the court granted summary judgment in favor of the carrier, dismissing the suit. The plaintiff appealed, assigning error to the trial court’s grant of summary judgement, but the Oregon Court of Appeals ultimately upheld the trial court’s decision.

Kelly v. State Farm Fire and Casualty Co., 312 Or App 361 (2021).

Facts:

The plaintiff owned real property in the state of Oregon. In 2017, a large house on the property—which was insured under a homeowner’s policy—was completely destroyed in a fire. The plaintiff filed an insurance claim and the carrier made an advance payment of $10,000 for loss of personal property. The plaintiff then began living on another piece of property which he claimed he was renting at the cost of $1,500 a month. Shortly after, the carrier’s special investigation unit began investigating concerns of potential fraud in connection with the insurance claim, which included an interview with the plaintiff. The carrier’s investigation revealed that part the property owned by the plaintiff had not been destroyed in the fire and that he had not moved into or lived at the property he had alleged he was renting since the fire occurred. Instead, the carrier’s investigators learned that the plaintiff was in jail for approximately six months of the time he was allegedly renting the replacement property. Additionally, the carrier uncovered that the salary plaintiff had alleged he made yearly was fraudulent and that he had not received any income for the year of 2017. The carrier ultimately rejected plaintiff’s insurance claim upon learning of these misrepresentations.

Following the claim denial, the plaintiff filed suit for breach of contract seeking over a million dollars in damages. During the suit, the plaintiff did not deny he had made misrepresentations about where he was living or about the alleged $1,500/month in additional living expenses. Instead, the plaintiff argued that these misrepresentations were immaterial to the insurance contract which had previously existed between the two parties. The carrier filed a motion for summary judgment arguing that the plaintiff’s misrepresentations were material and voided the contract.

Law:

Summary judgement is appropriate when the pleadings, evidence, and admissions on file illustrate that there is no genuine dispute of material fact and that the moving party is therefore entitle to judgment as a matter of law. When an Appellate Court reviews a trial court’s grant of summary judgement, it must view the record and all reasonable inferences that may be drawn from it, in the light most favorable to the nonmoving party.

Analysis:

Oregon law requires a fire insurance policy to contain a provision regarding concealment, misrepresentation, or fraud by the insured. (ORS 742.208) The provision in the plaintiff’s fire insurance policy was identical in substance to the statutory language. When such policy language matches the requirements of the statute, the court then approaches the issue of interpretation of the policy as a matter of statutory construction.

When an insurer claims that a policyholder has made misrepresentations that void the policy, the insurer then bears the burden of proving so by a preponderance of evidence. However, a single misrepresentation of a material fact following a loss will forfeit the entire insurance contract. The court therefore began its analysis with the misrepresentation that the plaintiff rented a premises for $1,500 a month as alternative living arrangements following the fire. The court concluded that this alone would void plaintiff’s insurance contract, not to mention the plaintiff’s other fraudulent representations regarding his yearly income. After finding that these misrepresentations were material in nature, the Court of Appeals held that the trial court had correctly concluded that there was no genuine dispute between the parties, and that the misrepresentations of the plaintiff voided the insurance contract.

The Big Picture:

A single misrepresentation, regarding a significant fact, during an investigation of a claim can cause the entire insurance contract to be void. It is always best to make sure a thorough claim investigation is done into claimant’s factual assertions underpinning their claimed damages.