My Red Bank colleague, Dan Ballard, and I recently gave a presentation about Misrepresentations & Mistakes at the 2020 Fall Conference of the Professional Public Adjusters Association of New Jersey (PPAANJ). During that presentation, I discussed New York case law providing that a homeowners insurance policy may be voided if the insured willfully and fraudulently places in the proof of loss a statement of property lost which the insured did not possess, or places a false and fraudulent value upon the articles which the insured did not own.
Not surprisingly, insurers have attempted to use that case law and argue it is fraud or a material misrepresentation any time an insured provides any incorrect information in a proof of loss. For example, after a fire destroyed or damaged virtually everything at the insured’s dwelling, the insurer sought to void the policy based upon its conclusion that the insured had misrepresented material facts as to the value of their personal property and engaged in fraudulent conduct regarding some of the insured’s claims. Specifically, the insurer pointed to a small number of the thousands of damaged items on the insured’s proof of loss as reflecting incorrect information.
The court rejected the insurer’s misrepresentation defense, noting that providing incorrect information is not necessarily tantamount to fraud.1 In that regard, there was no proof that the insured intended to defraud the insurer, as the insured offered explanations as to the value of some of the items based upon his extensive experience as an owner and collector of those items. Moreover, the fact that the insured did not have documentation for some losses was explained by documentation being lost in the fire.
Another Department of the New York Appellate Division recently came to a similar conclusion. In that case,2 an insured’s home suffered extensive damage as a result of a water leak in the second floor master bathroom. The insured submitted a proof of loss which contained a description of the damage to the home and a contractor’s estimate of the cost to repair the home in the amount of $72,748. The insurer denied coverage on the insured’s claim on the grounds the claim was inflated and there was prior damage that was not disclosed.
The court found that the insurer failed to establish the claim was inflated so as to constitute fraud. In finding so, the court noted that while there was a disparity between the estimates of the insurer’s and insured’s contractors of the amount of damage and the loss, the insured’s proof of loss did not include duplicative items, unincurred expenses, or substantial sums of money that were unaccounted for.
1 Magie v. Preferred Mut. Ins. Co., 91 A.D.3d 1232 (2012).
2 Magnano v. Allegany Co-Op Ins. Co., 187 A.D.3d 1533 (2020).