CONCEALMENT OR FRAUD PROVISION IN INSURANCE POLICY

It is common for insurance policies to have a concealment or fraud provision that ultimately says the policy is void if the insured engaged in fraudulent conduct, intentionally concealed or misrepresented material facts, or made false material statements.  In a nutshell, lying is bad, which includes intentionally withholding material facts.

An insured may make misrepresentations during the insurance application process.  Or, an insured may make misrepresentations after a loss occurs, referred to as the post-loss context. The misrepresentations require different burdens of proof.

With respect to misrepresentations (fraud) during the insurance application process, “an insurer can later void a policy based on an insured’s false statement without a showing of intent to mislead.”  Gracia v. Security First Ins. Co., 47 Fla.L.Weekly D1866a (Fla. 5th DCA 2022).

With respect to misrepresentations (fraud) during the post-loss context, there needs to be “proof of intent to mislead” by the insuredGracia, supra.

By way of example, in Gracia, summary judgment was entered in favor of the property insurer on a property insurance roof damage claim initiated by the insured based on misrepresentations the insured made regarding the pre-loss condition of her property. Prior to the issuance of the policy, there was an inspection report that indicated the property had prior roof and ceiling damage. During the insured’s deposition, the insured testified that the roof was in good condition during this time. The carrier, upon learning of this inspection report, raised the concealment or fraud provision in the policy claiming coverage should be voided and moved for summary judgment on this basis. Specifically, the insurer argued that the insured made false statements in her deposition concerning the pre-loss condition of her home supporting her coverage being voided. Yet, the insured’s position was that the loss subject of her claim occurred during the policy period, not before. Nonetheless, the trial court agreed with the insurer and granted summary judgment.  The appellate court reversed because the fraud in this post-loss context required the insurer to prove the insured’s INTENT. (The insurer needed to prove the element of intent.)  “Simply put, factual questions relating to fraudulent intent or state of mind are generally not ripe for summary judgment determination.” Gracia, supra.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: CAN A PARTY DISCLAIM LIABILITY IN THEIR CONTRACT TO FRAUD?

It is possible for a party to contractually disclaim or otherwise foreclose liability to a fraud claim.  However, let’s be honest.  It can be done, but rarely is and would require very specific language to EXPLICITLY disclaim or foreclose such liability to a fraud claim.

A recent case, discussed here, exemplifies this point where as-is language in a purchase-and-sale agreement was NOT specific to contractually foreclose or disclaim liability to a fraud claim.

For a party to contractually waive a fraud claim, there needs to be an express waiver of liability for fraud that might have been made and that any fraudulent misrepresentation, if such fraud was committed, was disclaimed and would not destroy the validity of the parties’ contract.

Without the right contractual disclaiming language, a fraud claim can survive a motion to dismiss and, potentially, even a summary judgment.  While the failure to include the disclaiming language will not go to the merits of the fraud, what it will do is preclude a claim from being dismissed purely because of contractual language.

On the other hand, with the right disclaiming language, the fraud claim may never see the light of day.

Check out the article on the recent case to understand what a party MUST include in their contract to contractually disclaim or foreclose liability to a fraud claim.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

BLINDLY RELYING ON PUBLIC ADJUSTER OR LOSS CONSULTANT’S FALSE ESTIMATE CAN PLAY OUT BADLY

Insurance policies, particularly property insurance policies, have a concealment or fraud provision that, in essence, gives the insurer an out if the insured submits a fraudulent claim, a false claim, or conceals material facts.   Unlike a traditional fraud claim where a party needs to prove intent, the provision is broad enough that it does not require any intent behind making a false statementSee Mezadieu v. Safepoint Ins. Co., 46 Fla.L.Weekly D691c (Fla. 4th DCA 2021).   For this reason, and as exemplified below, do NOT blindly rely on a public adjuster or loss consultant’s estimate that contains false statements because those false statements, particularly if you know they are false, can play out badly for you! Review the estimate and ask questions about it to make sure you understand what is being included in the loss or damages estimate.

In Mezadieu, a homeowner submitted a claim to her property insurance carrier due to a second-floor water leak emanating from her bathroom.  She submitted an estimate from her public adjuster that included damages for her kitchen cabinets directly below the second-floor bathroom, as well as other items on her first-floor.  Her carrier denied coverage based on the exclusion that the policy excludes damage caused by “[c]onstant or repeated seepage of water or steam…which occurs over a period of time.”

The homeowner filed a lawsuit against her property insurance carrier.  In interrogatory answers, she verified she was seeking the damages per the estimate prepared by her public adjuster.  During her deposition, she reiterated this point.  However, and this is a big however, she acknowledged that her public adjuster’s estimate contained false statements: “when asked if the reported leak caused damage to the kitchen cabinets, [she] disclosed that the cabinets had actually been damaged by a prior leak in the kitchen – a leak which [she] made a claim for with a different insurer – and the leak did not cause any damage to the kitchen cabinets.”  Mezadieu, supra.   Indeed, she conceded that her second-floor bathroom leak caused no damage to her kitchen and she did see any water damage on her first floor, although such damage was included in her public adjuster’s estimate.

The insurance carrier, after amending its affirmative defenses, moved for summary judgment based on the concealment or fraud provision which excluded coverage if an insured: “(1) Intentionally concealed or misrepresented any material fact or circumstance; (2) Engaged in fraudulent conduct; or (3) Made a false statement; relating to this insurance.Mezadieu, supra.

The trial court granted summary judgment attributing the false statements to the homeowner “because she adopted the estimate as her own in both her sworn interrogatory answers and deposition testimony, and because [her adjuster] was acting as her agent.”  Mezadieu, supra.  The appellate court concurred because: (a) she adopted the estimate as her own statement; and (b) even if she did not intend to rely on false statements in her public adjuster’s estimate, the policy does not require that a false statement needs to be made with intent.  As the appellate court explained, and reinforcing why reviewing and asking questions about any estimate is a must:

[An] insured cannot blindly rely on and adopt an estimate prepared by his or her loss consultant without consequence.  This is not to say that an insured will always be bound by the representations made in an estimate prepared by his or her loss consultant. However, when an insured relied on or adopt an estimate containing material false statements to support his or her claim, the insured is bound by the estimate and cannot avoid application of the concealment or fraud simply because he or she did not prepare the estimate.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

BASIS TO RESCIND A CONTRACT UNDER EQUITABLE REMEDY OF RESCISSION

When a seller of residential real property fails to knowingly disclose defects that are not readily observable and materially affects the value of the real property, this gives rise to a fraudulent nondisclosure or concealment claim, otherwise known as a Johnson v. Davis claim.  (See this article that discusses this claim.).   This is not the easiest claim to prove because a seller rarely will concede they knew of a hidden defect that they failed to disclose.  Thus, discovery is warranted to show they evidently knew but elected not to disclose because doing so would have impacted the sale or the value of the sale.  If you believe you have a fraudulent nondisclosure claim, make sure to consult with counsel so that you understand your rights relative to the facts associated with the claim.

In a recent case, Rost Investments, LLC v. Cameron, 45 Fla. L. Weekly D1717a (Fla. 2d DCA 2020), a lessee/potential buyer of residential property entered into a lease with an option to purchase contract.   The option to purchase needed to be exercised by the lessee.  Immediately after entering into this contract, the lessee claimed the contract should be rescinded based on the lessor’s fraudulent nondisclosure of defects that materially affect the value of the real property and the seller’s refusal to complete warranty-type items on an intake sheet.

First, the lessee claimed that when they moved into the house, the lessor agreed it would repair certain items that were identified on an intake sheet – hot water in the showers, low water pressure, two remote controls for the garage, and the refrigerator needed to be replaced.  The lessor did not.

Second, the lessee claimed there were latent defects with the property that the lessor knew about but failed to disclose.

After trial, the trial court granted rescission in favor of the lessee.  The Second District Court of Appeals reversed.

Rescission of a contract is an equitable remedy if the party seeking rescission has no adequate remedy at law (such as with a breach of contract claim where monetary damages would be awarded for the breach).  Rost Investments, supra (citation omitted).

“[A] party who voluntarily executes a document . . . is bound by its terms in the absence of coercion, duress, fraud in the inducement or some other independent ground justifying rescission.” 

***

While an agreement may be rescinded for fraud relating to an existing fact, as a general rule, rescission will not be granted “for failure to perform a covenant or promise to do an act in the future, unless the covenant breached is a dependent one.”  “A covenant is dependent where it goes to the whole consideration of the contract; where it is such an essential part of the bargain that the failure of it must be considered as destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted.”

Rost Investments, supra (internal quotations and citations omitted).

The Second District held that the items on the intake sheet that the seller did not address “were [not] so essential to the bargain that [the lessor’s] failure to attend to them destroyed the contracts.”  These are items that could have been resolved with money damages through a breach of contract claim, i.e., an action at law.  Hence, the lessor’s failure to fix these items did not serve as a basis for the lessee to rescind the contract.

Next, the fraudulent nondisclosure claim for latent defects did not apply because the lessee was leasing the house as the option to purchase the real property had not been exercised.  The fraudulent nondisclosure claim applies to buyers of real property.   While perhaps the lessee had an argument for fraudulent misrepresentation, the trial court found that the lessor’s nondisclosure of certain defects was not intentional and, without the intent, there was no basis for a fraudulent misrepresentation claim.  (Notably, in a fraudulent nondisclosure claim that applies to buyers of real property, a seller’s state of mind is not at-issue– what is at-issue is that the seller had knowledge of a defect not readily observable that materially affects the value of the real property and did not disclose it.)  See Rost Investments, supra, n.7.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DEMONSTRATING A FRAUDULENT INDUCEMENT CLAIM OR DEFENSE

In a recent case, Florida’s Fourth District Court of Appeal reversed a trial court’s denial of a motion for a temporary injunction sought by an employer due to an independent contractor’s violation of a non-compete and non-solicitation provision in an employment / independent contractor agreement (“employment agreement”). You can find more on this case and the enforcement of the non-compete and non-solicitation clause here.

A worthy discussion in this case centers on the independent contractor’s fraudulent inducement defense. Specifically, the independent contractor, as a defense to the injunction, claimed that he was fraudulently induced into entering into the employment agreement because the employer promised he would make a certain amount of money and he would work predominantly in one geographic location. The employment agreement contained NO such representations. Instead, the employment agreement contained a fee and services schedule and the independent contractor would be compensated based on that schedule. It stated nothing as to the independent contractor only having to work, or predominantly working, in one geographic location, or that the independent contractor would be guaranteed “X” amount of money working in that location. Why is this important?

In order to support a claim or defense of fraudulent inducement, a party must prove the following elements: “1) a false statement concerning a material fact, 2) knowledge by the person making the statement that the representation is false, 3) intent by the person making the statement that the representation will induce another to act upon it, and 4) [justifiable] reliance on the representation to the injury of the other party.” GEICO General Ins. Co. v. Hoy, 136 So.3d 647, 651 (Fla. 2d DCA 2013 (citation omitted); see also Hillcrest Pacific Corp. v. Yamamura, 727 So.2d 1053, 1055 (Fla. 4th DCA 1999). “[T]o satisfy the element of an injury, the claimant must establish that he or she has sustained pecuniary damage or injury by which he or she has been placed in a worse position than he or she would have been absent the fraud.” Hoy, 136 So.3d at 651.

However, and this is a BIG however, “[A] party cannot recover in fraud for oral misrepresentations that are [covered or] later contradicted in a written contract.” Picture It Sold Photography, LLC v. Bunkelman, 45 Fla. L. Weekly D74a (Fla. 4th DCA 2020).

The employment agreement stated it was the entire agreement between the parties. (There is a reason why agreements contain language that states that the agreement is the final and complete agreement between the parties and supersedes prior agreements and representations between the parties. Such provision is not for naught!)

Hence, the independent contractor’s claim that he was induced into entering the agreement based on making a certain amount of money was covered by the agreement that contained a schedule for services and the corresponding fees.  As mentioned, the agreement did not promise a certain amount of money and/or the money would be based on the independent contractor working in a certain location.   In other words, you cannot claim fraud in the inducement if your contract contradicts what you are claiming or the agreement covers that issue.

Further, even if there was an argument that there were misrepresentations as to money and location, the independent contractor would still need to demonstrate that he justifiably relied on the misrepresentations. “Without justifiable reliance, there can be no actionable fraud.” Bunkelman, supra (citation omitted).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

RELEASE OF “UNKNOWN” CLAIM DOES NOT BAR RELEASE OF “UNACCRUED” CLAIM: FAIR OR UNFAIR?

A general release of “unknown” claims through the effective date of the release does NOT bar “unaccrued” claims.   This is especially important when it comes to fraud claims where the facts giving rise to the fraud may have occurred prior to the effective date in the release, but a party did  not learn of the fraud until well after the effective date in the release.  A recent opinion maintained that a general release that bars unknown claims does NOT mean a fraud claim will be barred since the last element to prove a fraud had not occurred, and thus, the fraud claim had not accrued until after the effective date in the release.  See Falsetto v. Liss, Fla. L. Weekly D1340D (Fla. 3d DCA 2019) (“The 2014 [Settlement] Agreement’s plain language released the parties only from “known or unknown” claims, not future or unaccrued claims. Because there is a genuine issue of material fact as to whether the fraud claim had accrued — that is, whether Falsetto [party to Settlement Agreement] knew or through the exercise of due diligence should have known about the alleged fraud at the time the 2014 Agreement was executed — the trial court erred in granting summary judgment on those fraud claims.”).  

 

Fair or unfair?  In certain contexts, perhaps fair — such as when the facts giving rise to the fraud took place after the effective date of the release.   In other contexts, perhaps unfair — such as when the facts giving rise to the fraud occurred prior to the effective date in the release but were unknown.  

 

What are your thoughts?    However, modifying a release to now include “unaccrued” claims may not be the answer as this could have broad implications relating to future claims, which a party may be cautious about releasing in light of current or future relations between the parties.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.