United States: Fraud In Part, Fraud In Whole?

In the first-party insurance context, most policies provide more than one type of coverage. A homeowner's policy will usually contain a liability component and a property component, as well as providing different types of property coverage—coverage for structure or dwelling damage versus coverage for damage to personal property and contents. Often times, one event or loss will trigger more than one type of coverage under the same policy, such as in a fire loss.

For example, an insured files a claim for a fire loss that consumed his entire home and destroyed his personal belongings therein. The insured submits a lengthy contents inventory form for over $120,000 worth of personal property; however, he does not submit any receipts or documentation verifying ownership of the contents, and his financial statements and tax returns indicate that he only earned around $15,000 in each of the last several years. There is also a stark contrast between the number of items in the inventory list and the number of items in the fire debris, further suggesting that the items claimed were not in the house at the time of the fire. Consequently, the insurer concludes that the insured misrepresented the amount of personal property lost in the fire and denies the claim pursuant to the policy's fraud and concealment provision. Should the fraud and concealment provision operate to void dwelling coverage too?

The Georgia legal authority directly addressing this question is scarce but it suggests that where fraud or misrepresentation relates only to personal property and not to dwelling damage, an insured will still be entitled to collect on that portion of the policy covering dwelling damage. These courts have suggested that the insurance policy is divisible or severable such that the materiality of the misrepresentation must directly relate to the particular type of covering being sought. Scott v. Allstate Prop. & Cas. Ins. Co., No. 408-cv-236, 2010 WL 1254295 (S.D. Ga. Mar. 30, 2010) addressed this question in the context of whether misrepresentation pertaining to additional living expenses would void coverage for the insured's personal property. In Scott, an insured, Michelle Scott, was incarcerated when her home was destroyed by fire, and her daughter, Ayesha Baker, filed an insurance claim, representing that she was the named insured. By posing as her mother, Baker received, endorsed, and cashed a check made payable to her mother for $2000 for additional living expenses. Allstate later denied the claim in its entirety based on the breach of the policy's concealment or fraud provision, which stated that Allstate would "not cover any loss or occurrence in which any insured person has concealed or misrepresented any material fact or circumstance." The Court found that Baker, an insured under the policy, misrepresented herself as the named insured, and that this misrepresentation was material since it actually affected the adjustment of the claim. The $2000 advancement was unnecessary since Scott was incarcerated, and thus there was no coverage for additional living expenses. However, the Court determined that the question of materiality should be bifurcated and held that Baker's misrepresentation was "not material to the settlement or adjustment of Scott's claims for personal property loss and structural damage."

A few years later, another Georgia district court addressed whether misrepresentation in personal property valuations provided a basis for denying an insureds' claim for loss of their dwelling. In Ussery v. Allstate Fire & Cas. Ins. Co., 150 F. Supp. 3d 1329 (M.D. Ga. 2015), an insurer denied the insureds' entire fire loss claim based on inconsistent personal property valuations in the insureds' contents inventory list and a bankruptcy petition filed by the insureds shortly before the fire. The denial was based on a policy provision providing that the insurer "does not cover any loss or occurrence in which any insured person has concealed or misrepresented any material fact or circumstance." The Court first determined the insurer could not establish that the insureds fraudulently overvalued their personal property claim but next addressed whether the insurer was entitled to deny coverage for the dwelling portion of the claim even if it established misrepresentation for the personal property claim. While acknowledging that some insurance policies provide that the "entire policy shall be void" in the case of fraud or misrepresentation, the Court pointed out that the policy at issue did not contain such a blanket exclusion but rather read to apply the exclusion "to a particular loss or occurrence where there are material misrepresentations." Citing Scott, the Court also noted that an inflated personal property valuation would not be material to the settlement of the insureds' dwelling loss claim and would not affect the amount the insurer would be required to pay for the loss of the insureds' dwelling. The Court further noted that Georgia's Valued Policy Statute applied and fixed the amount the insurer was required to pay for the dwelling loss, regardless of whether the insureds made material misrepresentations regarding the value of their personal property. Since there was no evidence the insureds made material misrepresentations in connection with the loss of their dwelling, the Court granted summary judgment in favor of the insureds.

For insurers in Georgia debating whether an insured's fraud in one aspect of a claim will void the entire claim, the answer will depend heavily on the language of the policy. In the absence of a blanket "entire policy will be void" provision, material false statements or misrepresentations as to contents will not necessarily support denying an insured's entire claim or an insured's claim for dwelling coverage. Even where a fraud provision provides a blanket exclusion, an insurer may want to pause before prematurely denying an entire claim where there is fraud in one component of the claim but not in another, given the holding in Ussery. That being said, it is important to note that Ussery avoided commenting on a situation involving a blanket fraud exclusion and arguably distinguished fraud provisions providing blanket exclusions. Where a policy provision unambiguously voids "an entire policy if an insured intentionally conceals or misrepresents any material fact or circumstance," a court would have to go to great lengths and effectively rewrite the insurance contract in order to hold that only the portion of the claim to which fraud related was void.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.