In many jurisdictions, for an insurer to carry its burden of proving that coverage is void due to a material misrepresentation, the insurer must prove not only that the misrepresented fact was something that the insurer wanted to know, but that the misrepresentation affected the insurer’s investigation. In other words, that the misrepresentation was material. The question often becomes, how is materiality determined?
In Borchardt v. State Farm Fire and Casualty Company,1 State Farm had denied coverage for two reasons: first, State Farm alleged that the insureds had either set the fire or arranged for someone to set the fire; and second, that the insureds had lied about the items of personal property lost in the fire. Ultimately, the case was tried and the jury returned a mixed verdict. The jury found that State Farm had not satisfied its burden to prove the insureds set or procured the fire but found that the insureds had each “willfully and with intent to defraud State Farm conceal[ed] or misrepresent[ed] any material fact or circumstances relating to the fire or [the] claim.”
In relevant part, the court had instructed the jury:
For a concealment or misrepresentation to be “material,” it must be sufficiently substantial to matter to a reasonable insurer. As concealment or misrepresentation that impacts the investigation of an insurer into the cause of a fire is material. Likewise, a concealment or misrepresentation about items of personal property that were allegedly destroyed by a fire is material unless the amount of money involved in the concealment or misrepresentation is so small that a reasonable insurer is not likely to care about it.
The insureds argued that the verdict could not stand because State Farm failed to present evidence of whether a reasonable insurer in general would have considered the misrepresentations in this instance to be material.
The trial court found, in part, that expert testimony was unnecessary to equip the jury to determine whether the insured’s misrepresentations were material. The testimony offered by the insureds regarding their items of personal property differed from the items claimed to have been lost on the inventory list. The court denied the insureds’ motion for judgment as a matter of law, concluding that the evidence introduced at trial was sufficient to allow a reasonable jury to concluded that the value of the personal property was overstated by thousands. As such, the jury was permitted to decide that an attempt to steal thousands of dollars from an insurance company was material.
1 Borchardt v. State Farm Fire and Cas. Co., 2018 WL 3122339 (D. Minn. June 26, 2018).