Thanks to a reader who submitted this question – what types of misrepresentations are material in that the insurer would be entitled to deny coverage if these misrepresentations were made? I presume the question was posed because of provisions existing in most insurance policies which indicate the policy is void “if you or any other insured under this policy has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance.” An insurance company may defend a suit for the proceeds of a fire insurance policy by proving that the insured(s) intentionally concealed and/or misrepresented a material fact during the claims process. Hendrix v. Insurance Co. of N. Am., 675 S.W.2d 476, 481 (Tenn. Ct. App.1984);Wilder v. Tennessee Farmers Mut. Ins. Co., 912 S.W.2d 722, 725-26 (Tenn. Ct. App. 1995).
The question then is – what is material? Also, note that it is not just a matter of telling the truth, as all attorneys tell their clients to do under oath, but its also a matter of concealment, as coverage can be denied where an insured intentionally withheld a full disclosure of the truth as to material issues relating to the insurance. Southern Guaranty Ins. Co. v. Dean, 252 Miss. 69, 172 So. 2d 553 (1965).
Under Tennessee law, in order to void an insurance policy based upon post-loss misrepresentations by the insured, the insurer must establish that the insured’s misrepresentations were material in nature and were “willfully and knowingly made with the intent to deceive or defraud the insurer.” Wassom v. State Farm Mut. Auto. Ins. Co., 173 S.W.3d 775, 783 (Tenn. Ct. App. 2005). Obviously, if the insured knows that the fire was of incendiary origin and swears that the origin is unknown, he or she commits fraud and violates a stipulation against fraud and false swearing. Union Fire Ins. Co. of Paris, France, v. Ryals, 25 Ala. App. 300, 145 So. 503 (1932). But that’s an easy one, isn’t it? What else can be material?
Obviously, if the insured knows that the fire was of incendiary origin and swears that the origin is unknown, he or she commits fraud and violates a stipulation against fraud and false swearing. Union Fire Ins. Co. of Paris, France, v. Ryals, 25 Ala. App. 300, 145 So. 503 (1932). But that’s an easy one, isn’t it? What else can be material? What else is sufficient?
The Wassom case established at least five principles applicable to post-loss misrepresentation:
1. An insurer is entitled to accurate information to determine how the loss occurred. Wassom, at 784.
2. A misrepresentation is material when it impacts how a company investigates the claim. Id.
3. It does not matter that the insured later “decided to come clean and tell [the insurer] what really happened….” Id. at 785.
4. “In determining whether a misrepresentation was material, the misrepresentation must be viewed at the time it was made and not in hindsight.” Id.
5. “An insurance company need not establish that it relied to its prejudice upon false or fraudulent statements in a proof of loss in order to establish a breach of contract and void the policy.” Id.
Other courts have expressed the same sentiment that post-loss misrepresentations were material if any such statement “might have affected the attitude and action of the insurer.” Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 (2d Cir. 1984). Likewise, the Second Circuit found materiality of post-loss misrepresentations to exist if the misrepresentations “may be said to have been calculated either to discourage, mislead or deflect the company’s investigation in any area that might seem to the company, at that time, a relevant or productive area to investigate.” Id.
So, use these general rules to apply to your facts. I submit to the readers that Tennessee law no longer requires a misrepresentation as to value – anything that had the potential to affect the attitude and actions of the insurer, and was intended to mislead parts of the company’s investigation at the time made, can be material. It’s a case by case analysis.
Keep those reader’s questions coming!