Insurer Can’t Prove Fraudulent Intent on Summary Judgment

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Mariana Gracia appealed the trial court’s grant of final summary judgment in favor of Security First Insurance Company (“Security First”). The trial court found Gracia had made affirmative misrepresentations regarding the pre-loss condition of her property, warranting forfeiture of coverage under the concealment or fraud provision of her homeowner’s insurance policy. Mariana Gracia v. Security First Insurance Company, No. 5D21-1456, Florida Court of Appeals, Fifth District (September 9, 2022)

FACTS

Security First insured Gracia for the risks of loss to her home located in Orlando, Florida. Gracia reported a loss due to roof damage allegedly caused by a storm. Security First investigated the claim and extended approximately $11,000 in coverage for damages. However, Gracia then submitted a sworn proof of loss, claiming more damages than what Security First had covered.

After Security First denied the supplemental claim, Gracia sued alleging breach of contract and seeking additional damages to cover roof repairs and interior water damage. During her deposition, Gracia revealed that a home inspection had been performed in 2015, prior to her purchasing the property. When asked the results of the inspection, she stated, “Everything was good” and that the “roof was in good condition.”

After Security First obtained the 2015 inspection report, it amended its affirmative defenses to include the concealment or fraud provision of the policy, as the inspection report indicated that the property had roof and interior ceiling damage in 2015. The inspection report contained photographs revealing the damage and specifically noted roof leaks around the chimney, water damage in the attic, and interior ceiling damage caused by water-areas consistent with those noted by Gracia in her instant claim.

Security First moved for summary judgment on several grounds but focused exclusively on its concealment or fraud defense at the summary judgment hearing. The trial court agreed with Security First. To obtain summary judgment Security First was required to establish that Gracia’s statements regarding the pre-loss condition of her property were made with the intent to mislead. Because this case was decided under the new Florida Rule of Civil Procedure 1.510, summary judgment is appropriate when “the evidence is such that a reasonable jury could not return a verdict for the nonmoving party.” In re Amends. to Fla. R. Civ. P. 1.510, 317 So.3d 72, 75 (Fla. 2021) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

The trial court interpreted this new standard as allowing it to weigh and judge the credibility of the evidence. Credibility determinations and weighing the evidence are jury functions, not those of a judge, when ruling on a motion for summary judgment. Gracia argued that where Security First relied upon subsection (3) of the concealment or fraud provision, it was required to meet its initial burden of establishing that her statements were made with an intent to mislead and were material. She contends there was no such showing and that the trial court effectively decided these fact questions when it granted summary judgment.

ANALYSIS

The Court of Appeal found it important to highlight the distinction between misrepresentation during the insurance application process and misrepresentation in the post-loss context. With respect to the former, the law in Florida is clear: an insurer can later void a policy based on an insured’s false statement without a showing of intent to mislead. A misrepresentation need not be fraudulently or knowingly made but need only affect the insurer’s risk or be a fact which, if known, would have caused the insurer not to issue the policy or not to issue it in so large an amount.

A different standard is applied to false statements in the post-loss context, requiring proof of intent to mislead. For post-loss conduct, the policy requires proof of knowing or intentional fraudulent conduct by the insureds to trigger the application of the “Concealment or Fraud” provision to void the policy. At least some portion of the “Concealment or Fraud” provision will be rendered superfluous if subsection (3) is read to dispense with an intent requirement then subsections (1) and (2)’s inclusion of an intent requirement are rendered superfluous: mere proof of incorrectness under subsection (3) would forfeit coverage thus eliminating any need for proof of intentional misrepresentation or fraud so prominently featured in subsections (1) and (2). In these circumstances, where either of the competing interpretations will render some language a nullity, the rule of construction requiring avoidance of interpretations that make any language superfluous loses traction.

The fault is not in the rule of construction but in the policy language. The Court of Appeal interpreted the reference to “false statements” in the “Concealment or Fraud” provision as requiring an element of fraudulent intent. Despite having maintained below that fraudulent intent was not required, Security First argues on appeal that affirmance is warranted because its evidence undoubtedly established Gracia’s intent to mislead. Simply put, factual questions relating to fraudulent intent or state of mind are generally not ripe for summary judgment determination.

Had Security First required Gracia to submit to an examination under oath and found that she lied about the inspection report that was prepared before the policy their summary judgment would have been granted and affirmed since the misrepresentation or concealment preceded the filing of suit. They only learned of the fraud in a deposition which is not part of the claims process. There is no question that Gracia had the report before she acquired a policy from Security First and should have disclosed that fact to her insurer. At trial Security First will bring in that evidence or will file a new summary judgment motion with an affidavit from the underwriter who will probably testify that the policy would not have been issued had the insurer known of the existing damage.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.