Insured's Fraud can Void an Insurance Contract

Posted Saturday, April 29, 2017 by Ed Harper

Insured’s Fraud can Void an Insurance Contract

The case of Mutual of Enumclaw v. Clinton Cox, 110 Wn. 2nd 645, 750 P 2nd 499, points out that an insured’s overreaching and making “mistakes” in his itemization of lost items in a fire can void a contract.

In this case arising from a fire at a Clear Lake Washington home owned by Clinton C. Cox, Dr. Cox made numerous mistakes in his itemized inventory following a fire that destroyed his house on December 7, 1984. Dr. Cox had purchased a homeowner’s insurance policy with Mutual of Enumclaw Insurance Co. (MOE). Following the fire Dr. Cox provided a 143 page inventory list for items of his personal property he had lost. These items totaled $324,420. The amount greatly exceeded the $137,000 of unscheduled personal property coverage.

MOE hired an investigator to sift through the remaining fire debris. The investigator found no trace of certain items claimed lost by Dr. Cox. These items included such items as jewelry, a television, a video cassette recorder and 8 bronze sculptures. Then MOE deposed Dr. Cox to discuss these missing items. Cox denied that he tried to defraud MOE, but he admitted to making numerous mistakes on the inventory list. (See Cox, at 645 – 46.)

MOE commenced a declaratory judgment action against Cox. This was based on an antifraud provision within the policy. The antifraud provision reads as follows: “misrepresentation, concealment or fraud – this entire policy is void if, whether before or after a loss: an insured has willfully concealed or made up or misrepresented: any material fact or circumstance concerning this insurance; or to an insured’s interests herein.” A trial was held wherein Dr. Cox alleged bad faith arising from MOE’s denial of the claim. MOE in their defense claimed that Dr. Cox and his “mistaken” inventory list voided the policy. The anti-fraud provision stated “where there has been fraud or false swearing by an insured regarding any matter relating to this insurance or subject thereof.”

The trial court allowed the case to proceed to a jury trial in the Superior Court, and entered this order on an initial motion for summary judgment. 1. Even where the actual loss exceeds the policy limits, fraud is material and voids the policy; 2. As a matter of law the insurance policy was not severable and, therefore, fraud would void the entire policy; and 3. As a matter of law there was no waiver or estoppel resulting from interim payments by mutual Enumclaw to Cox when the trial ended the jury returned a verdict for Cox

However on MOE’s post-trial motion, the trial court granted a judgment notwithstanding the verdict to Mutual of Enumclaw. The court held that Cox’s fraud included his use of estoppel. Cox appealed the trial court’s decision to this court. The court held “if Cox’s misstatements had simply been errors in remembering what property was at Clear Lake, then clearly no fraud would’ve occurred. However Cox deliberately claimed that numerous expensive items had been destroyed although he knew that the items were not in the house at the time of the fire. We find no merit in Cox’s claim that Mutual of Enumclaw induces false statements.”

“Moreover a party claiming estoppel must have proceeded in good faith and with ‘clean hands.’” See 110 Wn. 2d 650

“Washington follows the rule that the doctrine of equitable estoppel is available to innocent parties only.” (Citing Christman v. General Construction Company). We see no reason to deviate from Christman.”

“Nevertheless the court finally realized that Cox’s assertion of estoppel was improper incorrectly gave a judgment notwithstanding the verdict in favor of MOE. (MOE v. Cox at 652)

This case points out that an insured has an obligation to be honest and not overreach in their listing of items requesting competence in their request for compensation from their insurance company.

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