Fraudulent Claim Voids Policy

Making a Claim for Loss to Personal Property not Damaged is Fraud

Dec 14, 2021

BACKGROUND

In June 2019, a fire occurred at Kenny Thomas’s home in Pine Bluff, Arkansas. Following the fire, Thomas submitted a insurance claim to Lloyd’s for the total loss of his home and for the loss of personal property, including furniture. At the time of the fire, Thomas was behind on his mortgage payments and the home was listed for sale.

When the Pine Bluff Fire Marshal inspected the property, he did not locate any remnants or debris to indicate furniture was destroyed in the fire. Lloyd’s also hired Midwest Fire Consulting Group (“Midwest Fire”) to investigate, and Midwest Fire concluded there was no evidence that furniture or personal items were destroyed in the fire. Midwest Fire further concluded that the fire was incendiary with the use of ignitable liquid to enhance the burning process, and that the ignition source was an open flame device held by a human hand.

In July 2019, Thomas prepared a proof of loss statement that included a couch, loveseat, and ottoman that he reported he purchased from Ashley Furniture. Thomas later testified at an examination under oath that the proof of loss he prepared was accurate, and that the furniture he reported as lost was his property and had been moved into the home prior to the fire.

Lloyd’s, faced with obvious false swearing and an attempt at fraud, denied coverage for Thomas’ claim. Lloyd’s, denied the claim after determining that he intentionally caused the fire and breached the policy’s concealment or fraud condition, which rendered the policy void. Following this denial, Thomas sued Lloyd’s for breach of contract and bad faith denial of insurance benefits.

The Arkansas Insurance Department (“AID”) subsequently began a criminal investigation of Thomas’s insurance claim. AID discovered that almost nine months after the fire, Thomas’s girlfriend submitted a claim under a furniture protection plan and obtained a replacement cushion for one of the sofas from Ashley Furniture that Thomas claimed had been destroyed. The replacement cushion was delivered to a home where Thomas and his girlfriend had both lived. AID obtained a search warrant for Thomas and his girlfriend’s current residence, and found that the Ashley Furniture items were present in the home and had not been destroyed in the fire as Thomas had represented throughout the investigation of the claim. Lloyd’s concluded that the evidence obtained by AID was conclusive evidence of fraud.

Lloyd’s moved for summary judgment claiming that Thomas’s false representations voided his homeowner’s insurance policy and that coverage for Thomas’s claim was properly denied. Thomas did not respond to Lloyd’s motion.

DISCUSSION

Summary judgment is appropriate because Lloyd’s properly denied Thomas’s homeowner’s insurance claim under the policy’s concealment or fraud condition. The relevant provision in Thomas’s policy with Lloyd’s states: “This entire policy is void when, either before or after a loss, there have been fraudulent acts or false statements made or material facts or circumstances concealed or misrepresented in regard to the insured property, the insurance coverage, or the loss.”

There is no genuine dispute that Thomas falsely represented he had lost certain furniture items in the fire. Law enforcement found the items Thomas claimed were lost in a different home where he and his girlfriend were living. Moreover, by not responding to Lloyd’s motion for summary judgment or filing his own statement of facts, Thomas’s misrepresentations are deemed admitted.

Thomas’s breach of the concealment or fraud condition unambiguously voided his homeowner’s insurance policy. Lloyd’s is also entitled to summary judgment on Thomas’s claim for bad faith denial of insurance benefits. Thomas can recover for bad faith only if Lloyd’s affirmatively engaged in dishonest, malicious, or oppressive misconduct in trying to avoid liability under the policy, without a good faith reason for doing so. This is a difficult standard to satisfy. Nothing in the record indicates Lloyd’s’ actions were dishonest, malicious, or oppressive. On the contrary, Lloyd’s’ denial of insurance benefits was consistent with the now overwhelming evidence that Thomas voided the policy through misrepresentations regarding his loss. Mere refusal to pay a claim does not constitute the first party tort of bad faith when a valid controversy exists with respect to liability on the policy.

CONCLUSION

Summary judgment was granted because Lloyd’s properly denied Thomas’s homeowner’s insurance claim under the policy’s concealment or fraud condition.

ZALMA OPINION

Thomas did not have the skill, intelligence or ability to cause an arson-for-profit fire or a fraudulent insurance claim. His inadequacy allowed Lloyd’s, and the AID, to establish that he attempted fraud. Even if the fire was covered the claim for non-damaged contents voided the entire contract and he lost his entire claim for an Ashley furniture sofa. He should be arrested, tried and convicted of the major intentional violent crime of arson and the crime of insurance fraud. Of course, his mortgage holder may have a claim.

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 also serves as an arbitrator or mediator for insurance related disputes. 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.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com, the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at