On November 22, 2016, Judge Berle M. Schiller from the District Court for the Eastern District of Pennsylvania issued his Opinion and Order in Payne v. Allstate Insurance Company, granting summary judgment to Allstate and awarding them $25,000 in damages, after finding that the Plaintiff made material misrepresentations while securing the homeowners policy.

In 1989, Anthony Payne purchased property from the Philadelphia Housing Development Corporation. “Payne claims he intermittently lived in the Property over 20 years, most recently moving into the Property in either October or December 2009.” “On December 31, 2009, Payne entered into a homeowner’s insurance agreement with Allstate to insure the property. [] In response to the questions ‘does the insured have an alternative or supplemental heating source (excluding fireplace),’ Payne answered, ‘NO.’”   The agreement also included language which permitted Allstate to void the policy “in the event of any misrepresentation or concealment made.”

“On February 9, 2010, the Property caught fire. [] Payne subsequently filed a compensation claim and submitted to an examination under oath.” Mr. Payne testified that he utilized “kerosene heaters for warmth,” and “the fire may have been started by the kerosene fires.” Allstate investigated the loss and denied the claim.

Payne filed suit against Allstate for breach of contract. Thereafter, “Allstate countersued for breach of contract, breach of common law duty of good faith, and violation of the Pennsylvania Insurance Fraud Statute [] claiming that Payne made material misrepresentations on his insurance application.” During the litigation, “Payne and Allstate stipulated to specific damages. [] If Payne prevail[ed] on his claim, he [would] be entitled to $150,000. [] If Allstate prevail[ed] on any of its counterclaims, Allstate [would] be entitled to $25,000 in damages.” Ultimately, Allstate moved for summary judgment on their counterclaims and for dismissal of Payne’s breach of contract claim.

In his opinion, on Allstate’s breach of contract claim, Judge Schiller noted:

Insurance policies are viewed as ordinary contracts and are ‘subject to the laws that traditionally govern contractual relationships. [] Like ordinary contracts, insurance policies are ‘voidable by an insurer upon a finding that an insured had fraudulently misrepresented material information.’

[] For an insurer to void an insurance contract under Pennsylvania law, the insurer must demonstrate: ‘(1) a representation that the insured made was false; (2) the insured knew it to be false; and (3) the representations was materials to the risk being insured.’ []

In order for a misrepresentation to be material to the insured risk, it must affect the insurance company’s decision-making process in issuing a policy to the insured.

The Judge found, “Allstate was entitled to void the insurance contract with Payne because of a misrepresentation Payne made in securing the policy.” The misrepresentation being that, “there were no additional sources of heat for the Property. [] In fact, Payne used kerosene heaters to heat the Property because he did not have the gas turned on to his home,” and ultimately testified to this. The Judge also found that the misrepresentation was material:

Whether a house contains additional sources of hear pertains to the very risk at issue in this case: fire. Payne himself admitted that the kerosene heaters may have caused the fire. At a minimum, the added fire risk of heaters would be pertinent to Allstate in determining the premium. [] Therefore, Payne’s answer about additional sources of heat on the insurance application was material.

The Judge also found for Allstate on their counterclaims for breach of the common law duty of good faith and for violations of Pennsylvania’s Insurance Fraud Statute, noting:

Payne was not honest on his insurance application when he affirmed there were no additional sources of heat at his house. This misrepresentation of a clear fact occurred at the formation of the contract at issue. Therefore, Payne breached his duty of good faith. []

Payne made misrepresentations the he knew were false on the insurance application. Payne’s own deposition testimony that he had kerosene hearts to warm his house remains uncontroverted. Therefore, those statements are presumptively false.

Judge Schiller granted summary judgment to Allstate and awarded them the previously agreed upon, $25,000 in damages.

Here, the Plaintiff argued that he didn’t read the agreement for various reasons, which the court did not find to be persuasive. The take away for policyholders, is that you must be exceedingly careful with making sure that the information you provide to the insurance carriers is accurate.

I’ve looked at enough insurance policies to know that many aren’t easy to read or follow. If you have trouble understanding your insurance policy, application, or the terms included, ask your broker or agent to explain it to you carefully and thoroughly.   It could be the difference in an accidental loss being covered or denied.

As always I’ll leave you with a (mildly) related tune, here’s Billy Joel with We Didn’t Start the Fire:

  • shirley heflin

    Dear Mr. Mathis:

    The first thing that strikes me as being outrageous in this case is the Plaintiff and Defendant stipulating to damage amounts. Why would they do this? Negligence had not been established yet.

    Second, it says on the loss date that Mr. Payne’s gas was off. Maybe that’s why he used kerosene heaters to keep warm that night. When he completed his insurance application, he listed gas as the sole source of heat. He could not have known the exact date his gas would be off and he’d have to use kerosene heaters to keep warm. Should he freeze the night the gas was off and think “I’d better not use an alternative form of heating to keep warm because I told Allstate my house is only gas?” I think not.

    Third, I think Mr. Payne got the shaft.

    Respectfully,
    SHIRLEY HEFLIN
    Tampa, FL

  • Brent

    So…If the furnace breaks forcing the insured to supplement the heat with kerosene and the house goes up from a fire there may be some questions of coverage? I type this while my little electric heater is under my desk supplementing my gas furnace :)
    There has to be more to the story?