(Note: This guest blog is by Kathryn Ray, a Summer Law Clerk in our Tampa office)
When sustaining property or casualty damage and after filing a claim with an insurance company, the insurance company may then request a proof of loss. A proof of loss is defined as “a policyholder’s statement of the amount of money being requested, signed to and sworn to by the policyholder with documentation to support the amount being requested.”1 In New York, if an insurance company gives the insured a written notice, after a loss, requesting a proof of loss the insured shall then have 60 days after receiving this notice to comply with the insurance company’s request.2 This compliance period to provide the insurance company with a proof of loss may also be longer than 60 days if the insurer specifies so in their written notice.3
As someone whose family went through loss and damage during Hurricane Katrina, I have seen how difficult it is to deal with the aftermath of a disaster, besides trying to get everything documented and turned into the insurance company as well. It is a lot to ask of a policyholder right after a catastrophic event. Given this relatively short period of time to compile so much information after a catastrophe, what happens if a mistake is made on a proof of loss? Can an insurance company deny coverage by alleging fraud if you make an innocent mistake on a proof of loss?
In New York if a mistake is made on a proof of loss, the important question to ask is: was there intent? “[I]ntent is the key element to be assessed in determining whether [an insured] intentionally misrepresented [his] claims.”4 Errors and omissions that are not intentional are not enough to be considered fraud.5 Although in regards to a misrepresentation in the inducement, in which even an innocent mistake can void an insurance contract, when there is an attempt to deny coverage based on an allegation of fraud in a proof of loss, a showing of willful and intentional misrepresentation is necessary.6 New York law has found that to void an insurance contract due to fraud, it is the burden of the insurer to prove by evidence that is clear and convincing that the insured “willfully made a false and material statement under oath with the intent to defraud the insurer.”7
Not only must there be intent for the insurance company to deny coverage by alleging fraud, but the intentional misrepresentation or omission must be material. “[T]he materiality requirement is satisfied if the false statement concerns a subject relevant and germane to the insurer’s investigation as it was then proceeding.”8 “[Q]uestions as to ownership, liens and encumbrances, and changes of interest in property are material as a matter of law.”9 Further, a determination of materiality is generally a determination of fact for a jury to decide and conclusory statements from insurance employees are not enough to create materiality as a matter of law.10
It is important for policyholders to remember, if after experiencing casualty or property damage the insurance company requests a proof of loss, the policyholders must then provide the insurance company with one within the compliance period, which in New York is 60 days after receiving notice of their request or longer if the insurer specifies so in their notice. It is also important to be aware that, if a mistake is made on the proof of loss provided to the insurance company this does not automatically mean the insurance company can deny your coverage by alleging fraud. The bottom line is – in New York if there is an innocent mistake or omission made on a proof of loss, not a material statement or omission made with the intent to misrepresent or defraud, then the insurance company cannot allege fraud on the proof of loss and deny coverage because of it.
For more on insurers using an insureds mistake on post-loss duties as a reason for cancellation or forfeiture of policy benefits on technicalities, see Chip Merlin’s posts earlier this week and yesterday’s Tuesday at 2 With Chip Merlin.
1 FEMA, Proof of Loss, https://www.fema.gov/media-library/assets/documents/9343 (last visited July 22, 2018).
2 NY CLS Ins. § 3407(a).
4 D’Andrea, v. Encompass Ins. Co. of Am., 2018 U.S. Dist. LEXIS 146446 *8 (W.D.N.Y. Aug. 28, 2018) (citing Fold-Pak Corp. v. Liberty Mut. Fire Ins. Co., 784 F. Supp. 49, 59 (W.D.N.Y. 1992)).
5 Id (citing Magie v. Preferred Mut. Ins. Co., 91 A.D.3d 1232, 1233-34, 937 N.Y.S.2d 452 [3d Dep’t 2012] (“Incorrect information is not necessarily tantamount to fraud or material misrepresentation as the insured must tender ‘proof of intent to defraud — a necessary element to the defense.'”) (quoting Deitsch Textiles, Inc. v. New York Property Ins. Underwriting Ass’n, 479 N.Y.S.2d 487, 62 N.Y.2d 999, 468 N.E.2d 669 (N.Y. 1984)).
6 East 115th St. Realty Corp. v. Focus & Struga Bldg. Devs. LLC, 910 N.Y.S.2d 404, 404 , 2010 NY Slip OP 50572(U) (N.Y. Sup. Ct. Mar. 9, 2010) (citing Chang v. Gen. Acc. Ins. Co. of Am., 193 AD2d 521, 521, 598 N.Y.S.2d 178 [NY App. Div., 1st Dept. 1993] (requiring a showing of willful and intentional misrepresentation in a proof of loss); Deitsch Textiles Inc. v. New York Prop. Ins. Underwriting Assoc., 62 N.Y.2d 999, 1001, 468 N.E.2d 669, 479 N.Y.S.2d 487  (finding fraudulent proof of loss required willfulness of misrepresentation); Geer v. Union Mut. Life Ins., Co., 273 N.Y. 261, 271, 7 N.E.2d 125 (1937); In re Liquidation of Union Indem. Inc. Co. of New York, 89 NY2d 94, 107 (1996)).
7 D’Andrea, 2018 U.S. Dist. LEXIS 146446 at *7 (W.D.N.Y. August 28, 2018) (citing Staten Island Supply Co., Inc. v. Lumbermens Mut. Cas. Co., No. 02-CV-6390, 2005 U.S. Dist. LEXIS 4921, 2005 WL 711678, at *5 (E.D.N.Y. Mar. 29, 2005); Fold-Pak Corp., 784 F. Supp. at 57 (acknowledging clear and convincing evidence standard)).
8 Id. at *7-8. (citing Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 [2d Cir. 1984]).
9 Id. at *8 (citing Carlin v. Crum & Forster Ins. Co., 191 A.D.2d 373, 373, 595 N.Y.S.2d 420 [1st Dep’t 1993]).
10 Walker v. Tighe, 142 A.D.3d 549, 551 (N.Y. App. Div. 2d Dep’t August 10, 2016) (citing Parmar v. Hermitage Ins. Co., 21 AD3d 538, 540-541, 800 NYS2d 726 ; Christophersen v. Allstate Ins. Co., 34 AD3d 515, 824 NYS2d 171 [N.Y. App. 2006]).