Despite the many authorities obligating insurers to treat their insureds fairly, to thoroughly investigate claims and to timely pay claims, it should come as no surprise that insurers look for reasons to keep their money by delaying or denying claims. One method used by insurers with increasing frequency to avert payment on the claim is the defense of “material misrepresentation.”
The California Standard Form Fire Insurance Policy provides: “Concealment, fraud: This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto.”1
When an insurer seeks to rescind a policy because of a fraudulent claim (as distinguished from misrepresentations in the insurance application), an objective test is utilized: “The materiality of the statement will be determined by the objective standard of its effect upon a reasonable insurer.”2 Moreover, the facts misrepresented need not be dispositive of the claim. It is enough that the subject is “reasonably relevant” to the investigation and that a reasonable insurer would attach importance to the facts misrepresented.3
If an insured knowingly makes a false statement as to the nature or amount of a covered loss, the insurer can rescind the policy from that time forward. Alternatively, without rescinding, the insurer may simply deny the claim on the ground of fraud because fraudulent claims are usually expressly excluded.4
However, rescission for false claims requires a fraudulent intent:
“(I)n order to void a policy based upon the insured’s violation of the standard fraud and concealment clause, the false statement must have been knowingly and willfully made with the intent … of deceiving the insurer.”5
Whereas false answers to any material question by the insurer are sufficient to establish the insured’s fraudulent intent — “(I)f the matter were material and the statement false, to the knowledge of the party making it, and willfully made, the intention to deceive the insurer would be necessarily implied, for the law presumes every man to intend the natural consequences of his acts”6 — unintentional omissions or misstatements do not justify rescission of the policy or denial of the claim on matters unaffected thereby.7
Based on the foregoing, it is extremely important that all policyholders be forthright in the presentation of their claim, that they timely and truthfully respond to the insurer’s inquiries, and that they provide documentation in support of the claim upon request. Since insurers are forever on the look-out for reasons to deny claims, it is important that policyholders do not give them grounds for denials.
1 Cal. Ins. Code § 2071.
2 Cummings v. Fire Ins. Exchange (1988) 202 Cal. App. 3d 1407, 1415.
3 Id. at 1417.
4 Feldman v. Allstate Ins. Co. (9th Cir. 2003) 322 F. 3d 660, 670.
5 Cummings, supra, 202 Cal. App. 3d at 1414–1415; LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal. App. 4th 1259, 1270.
6 Cummings, supra, 202 Cal. App. 3d at 1416.
7 Miller v. Fireman’s Fund Ins. Co. of San Francisco (1907) 6 Cal. App 395, 398.