Remember being told to always tell the truth?
There are many reasons to follow this advice. One that might
not spring to mind is that your insurance company can use
a “material misrepresentation” against you.
Allstate Insurance recently sued a policyholder rather
than pay a fire insurance claim. The Washington Court
of Appeals ultimately held that Allstate owed nothing
on the claim, even though a jury found that the policyholder
did not commit arson.
The issue boiled down to the policy language. It did
not require payment where “any insured person has concealed
or misrepresented any material fact or circumstance.”
Insurance policies are supposed to be understandable.
The rule in Washington is that unclear language will be
resolved in favor of a policyholder.
Because of this rule, some courts have allowed the denial
of claims for misrepresentations before a loss, but not
at other times.
Allowing denial for mis-representations before a loss
makes sense.
For example, if you applied for coverage on two cars
and said you primarily drove a Subaru but actually normally
drive a Ferrari, your insurance could rightfully refuse
to pay a claim. This is fair because driving in a Ferrari
probably is riskier than in a Subaru.
In the Allstate case, however, the court found that the
policy clearly denied coverage for misrepresentations
both before and after a loss.
The record did not show any misrepresentations before
the loss. My opinion from reviewing the case is that Allstate
created “misrepresentations” after the loss so it could
deny the claim.
