Umm, Should I Buy UM?

Many insurance policies contain a Concealment or Fraud provision that provides no coverage where the insured concealed or misrepresented any material fact or circumstance, engaged in fraudulent conduct, or made false statements related to the insurance.

But will a court enforce the Concealment or Fraud provision to deny an insured recovery on an otherwise covered peril? According to a recent decision out of the Eastern District of Louisiana, the answer is YES.

In Fahimipour v. United Property & Casualty Insurance Company, the plaintiffs sought contractual and extra-contractual damages from their insurance carrier for damages to their residential property allegedly sustained during Hurricane Zeta. After a bench trial, Judge Morgan concluded Plaintiffs’ application for insurance included a false statement made with knowledge of its falsity and voided the insurance policy from inception, in its entirety.

Citing Talbert v. State Farm Fire & Cas. Ins. Co., the Fahimipour court noted that “Under Louisiana law, an insurance policy is voided entirely and from its inception when the insured makes a material misrepresentation in the application for insurance with the intent to deceive the insurer.” The insurer must prove by a preponderance of the evidence the following elements in order to succeed on such a claim:

(1) the insured made a false statement;

(2) the false statement was material; and

(3) the false statement was made with intent to deceive.

With regard to the first factor, the Court found the insureds obtained and read an inspection report in connection with their purchase of the property. They “were concerned enough about the findings of the inspectors to contact their real estate agent” about the issues. The insureds represented in their insurance application that the property was well maintained, and free of damage, debris, and liability hazards, despite the extensive contradictory findings in the inspection report.

Regarding the second element, the carrier’s in-house expert testified that the insurer would not have bound coverage if the application contained the information from the inspection report. Therefore, the court found the insured’s false statements were material.

The third element – intent to deceive – “must be determined from the surrounding circumstances indicating the insured’s knowledge of the falsity of the representations made in the application and his recognition of the materiality of his representations, or from circumstances which create a reasonable assumption that the insured recognized the materiality.”

In finding the insurer established the third element, the Court noted the insureds were “sophisticated users of insurance.” Evidence showed the insureds previously purchased houses for renovation and resale, owned multiple properties, submitted insurance applications before, and also submitted claims for coverage on at least three prior occasions.

Ultimately, the Court denied plaintiffs any recovery for alleged hurricane damages because of the misrepresentations they made in their application for insurance coverage.

Prior to Fahimipour,Courts had found that post-loss misrepresentations may also void a policy. In Roach v. Allstate Indem. Co., 476 Fed. App’x 778, 779 (5^th Cir. 2012), the plaintiff’s house was damaged in a fire. The Fifth Circuit upheld a summary judgment that voided the plaintiff’s policy after he submitted a falsified claim that included contents not located on inspection following a fire at the residence.

The policy at issue in Roach included a similar Concealment or Fraud provision that stated the policy would provide no coverage if the insured misrepresented any material fact before or after a loss. In granting summary judgment, the district court applied the same three factors used in the Fahimipour case to find the plaintiff made material misrepresentations in his personal property claim when he claimed items not located on inspection.

While the policy in Fahimipour was voided in part because the insureds were “sophisticated users of insurance,” it remains to be seen whether a Louisiana court will void coverage based on a similar provision brought by a less sophisticated insured under a different set of facts.

However, the Fahimipour and Roach decisions show that a court can void a policy, from its inception, because of an insured’s misrepresentations, whether they occur in connection with the application for the policy or after a loss. These rulings also suggest that Louisiana law recognizes an insured also has a reciprocal duty of good faith in its relationship with its insurer.

Case References: Behnaz Fahimipour, et al. v. United Property & Casualty Insurance Company, 2022 WL 16833693 (E.D. La. Nov. 9, 2022); Roach v. Allstate Indem. Co., 476 Fed. App’x 778, 779 (5^th Cir. 2012); Talbert v. State Farm Fire & Cas. Ins. Co., 971 So.2d 1206 (La. App. 4 Cir. 2007).

Uninsured/underinsured motorist coverage (“UM coverage”) is included in all automobile liability policies by Louisiana law unless the insured “rejects [UM] coverage, selects lower limits, or selects economic only coverage.” What constitutes an adequate rejection of UM coverage has been the crux of countless lawsuits across the state. Recently, in Havard v. Jeanlouis, et al, 2021-C-00810 (La. 6/29/22), the Louisiana Supreme Court examined the validity of a corporate representative’s signature in the context of execution of a UM waiver form. Louisiana courts have found that without a valid signature, UM coverage generally may not be waived.

The Havard court recognized that a corporation cannot “sign” its own name, and that an authorized representative must act on its behalf. Under the facts of this case, an administrative assistant attempted to execute a UM waiver form at the corporate representative’s direction with a stamp of the representative’s signature. The plaintiff argued that the use of the stamp did not meet the requirements for proper execution of the UM waiver form at issue.

Considering these facts, the court noted that Louisiana law of mandate provides that “when the law prescribes a certain form for an act, a mandate authorizing the act must be in that form.” The court continued: “Accordingly, where one individual signs a UM form on behalf of another individual and authority is not conferred by law, our Civil Code requires this authority be in writing.”

While the corporate representative in Havard verbally instructed his administrative assistant to complete the waiver with his signature stamp, no written mandate existed between the representative and the assistant to confirm this authority. Absent the written mandate, the court disregarded the express intention of the corporate representative and held the form invalid.

The court recognized the impracticality of its holding. However, it also commented “Concerns over the practical impact within the insurance industry in scrutinizing stamped signed UM forms are unavailing. Inconvenience is not absurdity. The insurer has the authority, opportunity, and responsibility to assure the UM form is completed properly. … Practical considerations regarding increased due diligence requirements are matters of policy best directed to the legislature.”

Cases involving UM waiver forms are fact-sensitive. Havard involved unique facts where the company’s authorized agent did not sign the UM waiver form personally. While Havard may be limited to its facts, it reminds that proper execution of a UM waiver form is necessary for UM coverage to be properly waived.

Louisiana Supreme Court Provides Updated Guidance on Execution of UM Waiver Forms

Winning or losing in court often comes down to who possesses the burden of proof. Like a driver at a four-way stop, a litigant has to know when it is their turn.

Civil Procedure Article 966, the "Summary Judgment Article," provides that the mover bears the burden of proof. The Louisiana Supreme Court recently addressed this burden in Dan Veuleman & Jody Veuleman v. Mustang Homes, LLC, 2013-C-190 (La. 4/5/13), - So. 3d - in the context of insurance coverage.

The general rule in Louisiana is that an insurer bears the burden of proving that a loss falls within a policy exclusion. In Veuleman, the insurer argued that the loss was excluded through a "work product" exclusion. However, the "work product" exclusion contained a "subcontractor" exception. The plaintiffs argued that the work was performed by a subcontractor and should for that reason be covered under the policy.

At the hearing, the insurer introduced its policy as evidence of the exclusion. However, it offered no evidence to show who performed the work at issue. The plaintiffs attempted to introduce an affidavit to establish that the work was performed by a subcontractor. The court of appeal rejected the affidavit as insufficient and concluded that the plaintiffs did not establish that their claims were spared from the work product exclusion.

The Louisiana Supreme Court disagreed. It stressed that the insurer, not the plaintiff, possessed the burden of proving that the policy exclusion applied. The Court stated that "[t]he insurer offered no proof to accomplish its burden." Id. at 1.　

The Veuleman Court held that the appellate court "erroneously shifted the burden of proof on the motion for summary judgment" to the plaintiffs and that the insurer had the burden to show that "the exception [to the exclusion] is not met." In keeping, the Court vacated the summary judgment and remanded the matter for further proceedings.

The Veuleman decision reminds that a litigant should be aware when it is their turn to go.