Insurance Law Hawaii

Fifth Circuit Again Finds in Favor of Policy-Holder

    Continuing its recent trend in post-Katrina cases to find for the policy-holder (see Dickerson v. Lexington Ins. Co., 2008 WL 5295389 (5th Cir. Dec. 22, 2008)[ reviewed here]; Grilletta v. Lexington Ins. Co. 2009 U.S. App. LEXIS 276 (5th Cir. Jan. 8, 2009)[reviewed here]), the Fifth Circuit reversed an award of summary judgment in favor of the insured in Campo v. Allstate Ins. Co., No. 07-31165, 2009 U.S. App. LEXIS 5460 (5th Cir. March 17, 2009).  

    Prior to August 2005, and for over twenty years, the insured held a Standard Flood Insurance Policy ("SFIP") through Allstate, which issued the policy as a Write-Your-Own ("WYO") carrier.  The insured's policy expired on August 12, 2005, when a premium of $1,237 was due to reinstate coverage for 2005-2006.   Hurricane Katrina struck on August 29, 2005, destroying the insured's home.  The policy included a 30-day grace period, so that if the insured paid the premium by September 13, he would have avoided a gap in coverage.  After Hurricane Katrina, FEMA extended the 30-day grace period for an additional ninety days. 

    Shortly after the hurricane, the insured filed a claim under the expired policy.  Allstate processed the claim and sent an advance check of $2,500 to the insured.  Allstate never informed the insured that these payments were conditional on receipt of the $1,237 premium.

    On December 12, 2005, the extended grace period expired without the insured having submitted his premium.  In late December, Allstate informed the insured that it must repay the $2,500 it had advanced. 

    The insured sued, alleging Allstate made negligent misrepresentations that prevented the insured from renewing his policy.  The District Court noted FEMA regulations governed the methods by which WYO carriers adjust and pay claims.  The Court granted Allstate's motion for summary judgment, holding that the insured's claims were handling-related and thus preempted by federal law.

    The Fifth Circuit reversed.  Although federal law preempted state law tort claims arising from claims handling by a WYO, claims related to procurement of insurance were not preempted.  Here, the insured's policy had expired subject to restoration if he paid the premium within the extended grace period.  Allstate was thus incapable of handling any new claims based on post-expiration occurrences.  As a former policy-holder, the insured would have had to procure flood insurance. 

    Next, the Fifth Circuit determined federal law did not preempt state-law procurement-based claims.  First, Congress, through its delegation of regulatory power to FEMA over flood claims, had expressly preempted state law only as to handling-related claims.  Second, unlike handling-based cases, prosecution of procurement-related state-law tort suits did not impede the full purposes and objectives of Congress.  Therefore, state-law tort claims related to procurement did not interfere with Congress's objectives.

Eighth Circuit Determines Alleged Misrepresentation Not Material

     The Eighth Circuit recently considered whether State Farm was authorized to deny coverage for fire loss based on the insured's alleged misrepresentation.  See Warren v. State Farm Fire & Casualty Co., No. 07-2010 (8th Cir. July 10, 2008).

     The insured's home was destroyed by a fire in the early morning hours while she slept elsewhere. The insured gave two statements to State Farm which were the source of the alleged misrepresentations.  In her first statement, she denied having any prior insurance loss claims.  She also denied having any judgments entered against her.  In the second statement, however, she admitted she had a 2002 insurance loss claim arising from a car fire.  Further, the insured claimed she was unaware of a 2001 default judgment entered against her son and herself as a co-signer on a car note.

     State Farm denied the claim based on material misrepresentations.  The insured sued.  After the insured prevailed in the district court and was awarded damages, State Farm appealed.  The Eighth Circuit looked to the terms of the policy, which stated a material misrepresentation existed where the insured "intentionally concealed or misrepresented any material fact or circumstances relating to the insurance whether before or after a loss."  Therefore, State Farm had to show a misrepresentation was both intentional and material. 

     The incorrect statement that insured had no outstanding judgments was not a material misrepresentation because State Farm presented no evidence that the insured possessed the requisite intention to mislead.  Further, whatever relevance the prior car fire claim had, State Farm presented no evidence that its investigation would have been different had it known of the prior fire loss in the insured's first statement.  Therefore, the initial misrepresentation was not material.

     Hawai`i approach to an insured's alleged misrepresentation was expressed in Park v. Government Employees Ins. Co., 89 Haw. 394, 399974 P.2d 34, 39 (1999).  There, the Hawai`i Supreme Court adopted the general rule regarding materiality stated in 7 Couch on Insurance 2d sec. 35:45 (1985).  This rule states that, "generally, a misrepresentation is material either when the insurer would not, as a careful and intelligent man, have issued the policy had the truth been known, or would have issued it only at a higher rate of premium." 

Insurance Fraud

While not exactly an insurance coverage case per se, the Intermediate Court of Appeals just came out with a new decision on jury instructions in a criminal insurance fraud case.  See State v. Watanabe, No. 26777 (December 31, 2007).  In short, an individual damaged his own car and attempted to file a vandalism claim against AIG.  AIG representatives became suspicious when they noted the systematic nature of the damage and the fact that some of the damaged areas appeared to be rusted (indicating the damaged had occurred previously). 

This case is a good reminder that insurance fraud is theft and will be treated accordingly.