Most of my blog posts are about hurricanes, roof leaks and fires This week I write about a theft claim submitted under a property insurance policy. American Pepper was a business insured under a policy with Federal Insurance Company. When property was stolen from American Pepper, notice of the loss was given to Federal. After its investigation, Federal sent a letter denying the claim under the concealment and misrepresentation provisions in the policy.
The concealment provision in the policy reflects, in part, the following:
This insurance is void if you or any other insured intentionally conceals or misrepresents any material fact or circumstance relating to this insurance at any time.
Federal referred the claim to its special investigations unit on grounds that the claim was suspicious because of alleged inconsistencies regarding where the stolen property was actually located at the time of the theft and the actual items stolen. American Pepper sued Federal for breach of contract and bad faith. During the trial on the matter, the Court told the jury that Federal had to prove the policy defense of concealment or misrepresentation by “clear and convincing” evidence . The jury ruled in favor of American Pepper and awarded $15,000. The Supreme Court of Arizona later examined what the burden is for an insurance company when, as a defense to a claim, it asserts concealment or misrepresentation.
American Pepper took the position that the higher burden of "clear and convicing evidence" applied because Federal’s defenses of concealment and misrepresentation sounded in fraud. The Court, however, agreed with Federal, that the appropriate burden of proof for Federal’s defense of concealment or misrepresentation was a "preponderance of the evidence." As such, the Supreme Court of Arizona sent the case back to the lower court for an application of the appropriate standard to American Pepper’s breach of contract and bad faith claim against Federal.
Please keep in mind that this ruling is specific to Arizona. Other courts might rule differently on the same issue.