Concealment or Fraud Exclusion and Insurer's Burden of Proof

This case involves a claim for losses resulting from the alleged theft of a Ford Thunderbird. The case is Dominick v. State Farm Mutual Automobile Insurance Company, 2013 WL 5175667.

Dominick was the registered owner of a Thunderbird and in October 2010, Dominick's wife drove the car to New Orleans for some shopping. She parked the car and after doing her shopping, she returned to find that the car was gone. After checking with the impound lots to no avail, Dominick reported the car had be stolen.

State Farm insured the car and the Dominicks made a claim for loss due to theft. The insurance company did an extensive investigation of the claim and concluded that it was unlikely that a covered loss occurred. The insurer denied coverage and the insureds filed a lawsuit against State Farm alleging breach of contract, monetary damages, inconvenience, mental duress, and loss of use.

The United States District Court for the Eastern District of Louisiana noted that the insureds have the initial burden of proving the existence of a policy, that coverage exists under the terms of the policy, and that a loss was occasioned by an event covered under the policy. The court found that this burden was met. Thus, the burden shifted to the insurer to prove that an exclusion applied. State Farm had denied coverage due to the concealment or fraud exclusion which stated that there was no coverage if the named insured made false statements with the intent to conceal or misrepresent any material fact or circumstances in connection with any claim.

The court found that State Farm presented no evidence to indicate fraud or misrepresentations on the part of the insureds. State Farm did show that the Dominicks made inconsistent statements regarding their claim history and financial situation. However, the court said that the testimony indicated that the inconsistencies were caused by lack of sophistication, education, and understanding rather than an intent to defraud. The court decided that State Farm failed to prove that the Dominicks acted with intent to conceal or misrepresent material facts in connection with the claim. The insurer thus failed to meet its burden of proving the applicability of the policy's exclusionary clause.

The court ruled that the loss of the car was covered by the policy and that the insurer had to pay the actual cash value of the loss. However, the court also ruled that the insureds did not prove that they suffered any additional damages from the failure to pay on the part of the insurer. So, the recovery was limited to the value of the vehicle plus interest and court costs.

Editor's Note: A very simple ruling by the U.S. District Court. The insureds had the burden of proving that a covered loss occurred; they did. The insurer had to prove an exclusion applied; it did not. Therefore, the insurer had to pay the insureds for the loss of the vehicle in accordance with the auto policy provisions.

Exclusions and the Need to Sign

A motorist brought an action against the insureds for injuries sustained when he swerved to avoid hitting the insureds' dog and added the insureds' homeowners insurer as a defendant. This case is Reaux v. Moresi, 120 So.3d 959 (2013).

Reaux filed a lawsuit against the Moresis for an auto accident when he swerved his car to avoid hitting the Moresis' dog in front of their house. Reaux added the insurer of the house, Southern Fidelity Insurance Company to the lawsuit.

The insurer filed a motion for summary judgment, arguing that the homeowners policy did not cover the claim due to the animal liability exclusion. The trial court ruled against the insurer and this appeal followed.

The Court of Appeal of Louisiana, Third Circuit, noted that the animal liability exclusion precluded all coverage relating to damages caused by an animal. The insureds argued that the exclusion was not valid because the signature line on the policy lacks a signature. So the court saw the only real issue was whether the exclusion was made part of the policy or whether the exclusion did not apply since there was no signature by the insureds. The court said that there is no statute in the state that requires the animal liability exclusion to be signed by the insured.

The court found that the animal liability exclusion was attached to the policy and listed under “forms and endorsements” on the declarations page. Therefore, the court said, the exclusion was part of the policy. A signature on the part of the insureds was not required by state law to make the exclusion valid.

An argument also was made that the exclusion was not valid because the insureds were unaware of the exclusion. The court stated that the insureds cannot claim ignorance of the exclusion to support their position since an insured is responsible for reading the policy and is presumed to know its contents. The court then assumed that the Moresis read and understood their policy before accepting it.

The ruling of the trial court was reversed.

Editor's Note: The Court of Appeal in this ruling underscored two important points.

State law did not require a signature by the insureds to make a liability exclusion valid. State law did declare that uninsured motorists clauses in an auto policy had to be signed in order to be valid, but the animal liability exclusion in this case did not. The exclusion was in writing and physically made part of the policy and in the possession of the insureds, so that was all that was required under state law.

The court also pointed out that the insured has the responsibility to read his insurance policy and courts will thus presume he knows the contents of that policy. Ignorance of an exclusion on the part of the insured will not make that exclusion invalid.

Need for Independent Counsel at Issue

The University of Miami (UM), an additional insured under a general liability policy insuring the operator of summer swim camp held on the university campus, brought an action against the insurer, alleging a breach of contract based on the insurer's failure to provide separate independent counsel in a negligence action brought against the swim camp operator and the university. This case is University of Miami v. Great American Assurance Company, 112 So.3d 504 (2013).

UM was an additional insured on a Great American commercial general liability policy insuring MagiCamp, which ran a summer swim camp for kids using the pool on the campus of the university. In 2000, a four-year-old child was enrolled in the swim camp and was pulled, unresponsive, from the bottom of the pool. He suffered extensive injuries and his parents sued MagiCamp and UM claiming that the injuries were due to lack of supervision.

Great American retained the services of one law firm to represent both MagiCamp and UM. However, both MagiCamp and UM filed answers claiming that the other party was negligent. In spite of this, Great American took the position that there was no conflict of interest in providing single counsel in the representation of both MagiCamp and UM. The insurer refused to provide separate counsel.

UM then retained its own counsel to protect its interests and after the case was settled, brought this indemnification declaratory action requesting a declaration that Great American had breached its contractual duty to the university be refusing to provide separate and independent counsel. The trial court entered summary judgment in favor of the insurer and this appeal followed.

The District Court of Appeal of Florida, Third District, said that the precise question presented by the appeal is whether in this factual scenario, where both the insured and the additional insured have been sued, and the allegations claim that each is directly negligent for the injuries sustained, a conflict exists between the insured and the additional insured so as require the insurer to provide separate and independent counsel for each.

The court said that there does exist a conflict in the defenses based on the allegations in the complaint that each defendant is directly liable and in the answer and affirmative defenses set forth by both MagiCamp and UM. Each defendant presented its position that, through no fault of its own, but through the fault of the other party, the camper was injured. To the court, these allegations created diverse legal positions that are inherently adverse. The conflicting legal positions presented in defense to individual active negligence claims against MagiCamp and the university meant that legal counsel would have had to necessarily imply blame to one co-defendant to the detriment of the other.

On these facts, the court said that the legal dilemma clearly created a conflict of interest between the defenses of the insureds sufficient to qualify for indemnification for attorney's fees and costs for independent counsel. The ruling of the trial court was reversed and remanded.

Editor' Note: The insurer took the position that because MagiCamp was contractually bound to indemnify and hold harmless UM for any liability arising out of the use of its facilities by MagiCamp, there could be no conflict of interest in its single representation by counsel. However, since the named insured and the additional insured each alleged that the injury to the child arose out of the other party's negligence, the appeals court found no support for the insurer's position.

It is interesting to note that the views of the retained law firm are not mentioned in this opinion. It would seem reasonable that the law firm would recognize the conflicting interests of the insured and the additional insured in this case and mention that to the insurer.

Loud Noise Leads to Property Damage Claim

Liberty Surplus Insurance filed a motion for judgment on the pleadings and the question of the duty to defend. This case is Bourbon Heat v. Liberty Surplus Insurance Corp., 2013 WL 5673582.

Bourbon Heat operates a nightclub in New Orleans. Pellerin, who resides less than 200 feet from the nightclub intervened in state court proceedings between Bourbon Heat and New Orleans and alleged that the noises emanating from the club are too loud. She seeks damages, alleging that the noises are sufficient to cause physical discomfort and annoyance, and she has suffered diminished property value, inconvenience, and loss of use of her property.

Bourbon asked Liberty, its general liability insurer, to defend and indemnify it against Pellerin's petition. Liberty refused. Bourbon Heat filed an action against Liberty alleging breach of contract and breach of the contractual duty of good faith and fair dealing. Liberty then moved for judgment on the pleadings under the federal civil proceedings regulations.

The United States District Court for the Eastern District of Louisiana noted that under Louisiana's eight corners rule, it must assess whether there is a duty to defend by applying the allegations of the complaint to the underlying policy without resort to extrinsic evidence. Liberty argued that the petition did not allege property damage or an occurrence in accordance with the definitions in the policy. However, the court said that Pellerin's petition does disclose a possibility of liability under the policy. She alleged that she has suffered diminishment of her property value and the loss of use of her property. By alleging that she has lost the use of her property, Pellerin has alleged “loss of use of tangible property that is not physically injured”, which meets the definition of property damage as listed in the policy.

The insurer also claimed that an occurrence was not alleged as required by the policy. The court said that under Louisiana law, courts interpret whether an event is an accident (or occurrence) from the viewpoint of the victim. So the question was whether Pellerin expected her alleged damages. The court found no indication that she did. It was entirely plausible that Pellerin did not expect Bourbon Heat to produce noise at unlawful volumes and to cause her damage. Thus, the court ruled, the complaint alleges facts that would fall within coverage.

The court decided that Liberty has a duty to defend Bourbon Heat. The question of whether Liberty owes a duty to indemnify Bourbon Heat was decided by the court to be premature at this time.

Editor's Note: In this decision, the U.S. District Court did not rule that loud noise constitutes property damage as such. The court decided that since the complaint against the insured alleged loss of use of property, that meant the definition of property damage in the policy was met and so, that is why the insurer had a duty to defend. There was a “possibility of liability under the policy” and that requires the insurer to honor its duty to defend the insured as called for in the insuring agreement of the policy.