Declaring a Policy Void

When a Policy Is Void For Subscribers to Excellence in Claims Handling

In almost every policy of insurance, there is a clause declaring the policy void if the insured misrepresents or conceals material facts or commits fraud. For example:

We do not pay for bodily injury or property damage which is expected by, directed by, or intended by an insured. This exclusion does not apply to bodily injury that arises out of the use of reasonable force to protect people or property. (AAIS Form BP-200, (c) 1987 AAIS).

or:

This Coverage Form is void in any case of fraud by you at any time as it relates to this Coverage Form. It is also void if you or any other “insured,” at any time, intentionally conceal or misrepresent a material fact concerning: a. This Coverage Form; b. The covered “auto”; c. Your interest in the covered “auto”; or d. A claim under this Coverage Form. (Insurance Services Office form CA 00 01 01 87).

The policy wording requires that the insurer prove, not only that the insured misrepresented or concealed a material fact but must also prove that the insured did so with the intent to deceive.

Absent the rare confession it is often difficult to prove intentional deceit. The insured will usually claim that he or she was mistaken and had no intent to deceive. In more than 50 years of investigation of fraudulent insurance claims I only once received from an insured an under oath statement that the insured intentionally deceived the insurer and then, not in person, but by correcting false testimony in the transcript of an examination under oath.

If fraud or mutual mistake is an issue, insurers and insureds doing business in Oklahoma must resort to courts of general jurisdiction for a determination of contractual rights.^[1] In Oklahoma, the Workers’ Compensation court does not have the right to rescind or declare a policy of Workers’ Compensation insurance void. However, where there is a misrepresentation with intent to deceive and the putative insured recognized the materiality of the misrepresentation the insurance policy is void from its inception.^[2]

In Florida, Florida Statutes (2006), state in pertinent part:

any insurance fraud shall void all coverage arising from the claim related to such fraud under the personal injury protection coverage of the insured person who committed the fraud.

In harmony with this statutory provision, the fraud provision in an insurance policy set forth: “any insurance fraud shall void all personal injury protection coverage arising from the claim with respect to the insured who committed the fraud” is appropriate and enforceable. [Bosem v. Commerce & Indus. Ins. Co., 35 So.3d 944 (Fla. App., 2010)]

In Matlack v. Mountain West Farm Bureau Mutual Insurance Co., 2002 WY 60, 44 P.3d 73 (Wyo. 04/15/2002), Moore pulled a well casing onto her property, thereby damaging Matlack’s property. Applying policy language similar to that quoted above, the Wyoming Supreme Court found that there is no coverage for the intentional tort of trespass and, after finding the insured stipulated to a judgment (agreed with the plaintiff that a judgment could be entered against her and in favor of the plaintiff), stated:

Ms. Moore’s stipulation to the entry of a judgment which included punitive damages deserves mention. This court has recognized that a trespasser who believe she is authorized to enter another’s property but does so in the face of the owner’s opposition or who should have known of the owner’s claim to the property is subject to punitive damages. See Roberts Construction Company v. Vondriska, 547 P. 2d 1171, 1180 (Wyo. 1976); Hall Oil Co. v. Barquin, 33 Wyo. 92, 237 P. 255, 274 (1925). In Hall, an oil company drilled on property it believed was covered by a lease, but the owner contended otherwise and made his position known. In that circumstance, this court pointed out that, ‘though an entry is made upon real estate under a conviction that the right to do so exists, if it is in fact wrongful, and willful injury is done to the plaintiff’s property, the defendant will be liable for exemplary damages.’ 237 P. at 274. In this case, the parties stipulated to punitive damages demonstrating they agreed the actions were of a willful and wanton nature. There may well exist other situations in which an action justifying punitive damages can also be considered an accident, and we are not holding that, any time punitive damages are claimed or adjudged, no coverage or duty to defend exists.

We do hold the particular facts of this case—an intentional trespass with full knowledge of disputed ownership—does not trigger coverage. (Emphasis added.)

In Lawrence v. State Farm Fire and Casualty Co., 133 P.3d 976, 2006 WY 56 (Wyo. 05/10/2006), a different finding was reached because the facts alleged did not match the “label” attached to the cause of action. Wyoming precedent and the policy language required State Farm to defend Johnson because there was the potential that she would be adjudged legally liable for damages.

In Mitchell v. United Nat. Ins. Co., 25 Cal.Rptr.3d 627, 127 Cal.App.4th 457 (Cal. App. 2005), a case where the author examined the insured under oath and advised the insurer, the Court of Appeal found that the undisputed evidence showed that there were material misrepresentations in Mitchell's application for insurance. United National had the right to, and did, rescind the policy based on these misrepresentations. The trial court therefore properly granted summary judgment to the insurer and declared the policy void ab intio. Because the Court of Appeal upheld the summary judgment on it had no need to determine whether the policy's dishonest act exclusion barred coverage in since its decision rendered the policy non-existent.

In Hamilton v. State Farm Fire & Casualty Co., 270 F.3d 778 (9th Cir., 2001) the investigation of the circumstances surrounding a claim had convinced State Farm that Hamilton was probably responsible for the vandalism and theft, and that he had at least violated the policy's concealment or fraud provision, voiding coverage. In a November 3, 1997 letter, State Farm advised Hamilton that the claim was denied on the basis that Hamilton had failed to produce documents in support of his claim, that Hamilton had misrepresented the extent of his financial difficulties, his whereabouts on May 29, 1997, and the existence or location of the allegedly stolen appliances. The bankruptcy court agreed and the Ninth Circuit adopted the decision of the Bankruptcy court.

The Burden of Proof

Whenever an insurer attempts to refuse coverage because a loss is caused by the intentional act of an insured, it must understand that it has the burden of proving that intent by a preponderance of available evidence. Denial for intentional acts without sufficient evidence can be the basis for a suit against the insurer.

In Crown Tree Service, Inc. And Anthony Koenn, Dba Crown Tree Service v. Atain Specialty Insurance Company, A Michigan Corporation Domiciled in The State of Texas and Doing Business in California, No. 16-17117, United States Court of Appeals for The Ninth Circuit (February 26, 2018) the Ninth Circuit was asked by Anthony Koenn and Crown Tree Services, Inc. (collectively, Koenn) to reverse the grant of summary judgment in favor of Atain Specialty Insurance Company.

The insurance coverage dispute arose from a commercial general liability policy sold by Atain to Koenn. The Bear Yuba Land Trust sued Koenn after he removed trees from Bear Yuba’s property under a belief the trees belonged to a neighbor. Koenn’s policy provided a duty to defend claims for property damage caused by an “occurrence,” which is defined as “an accident.”

There is inconsistent authority among California Court of Appeal cases on whether an insured’s reasonable belief, as was Koenn’s belief in this case, transforms an intentional act into an accident.

Federal courts in California, without agreement from state appellate courts, are entitled to predict what the California Supreme Court would hold. The Ninth Circuit predicted that the California Supreme Court would conclude that an insured’s subjective belief—no matter how reasonable—cannot transform an intentional act into accidental conduct.

Without reference to California Insurance Code Section 22, The Ninth Circuit reasonably concluded that the chopping down of trees without right – a trespass – even if done without guile and in error – was an intentional act.

The Ninth Circuit noted that the California Supreme Court has held that an insured’s unreasonable belief cannot turn a “purposeful and intentional act” into “an accident,” and that no California court has held that a subjective belief of a litigant may influence the accident analysis and change an intentional act into an accident.

Further, a potential for coverage does not exist merely because some California courts have interpreted the policy term “accident” differently. There are no known cases suggesting that an insurer has a duty to defend where the only potential for liability turns on resolution of a legal question.

Unless there is an accident – a fortuitous event – that is neither expected nor intended by the insured there can be no coverage under a liability insurance policy. In this case the insured intended to trespass upon the land of Bear Yuba, chopped down its trees, and caused it damage. That it subjectively believed it had a right to do so did not change the fact that intended to do what it did.