RPA Lunch & Learn

1. RPA Lunch & Learn Friday, June 18, 2010 The meeting will start at 12:00 noon CST (Note: The system causes the “your meeting is starting” e-mail to go out early.) Toll Free Dial In Number is (877) 873-8017. The Access Code is 5577415 Please consider muting your phone at times when you are not talking.

2. Welcome to Lunch and Learn • Len Murphy • VP & General Counsel for PLRB • You be the judge! • Elise Farnham • President, Illumine Consulting • Alert! The Economy's Impact on Claims

3. You be the Judge! Friday, June 18, 2010

4. Case 1- Loss • Loss • Fire destroyed the insured home • Home became uninhabitable • Insurer started paying the claim . . . including ALE • Part of the ALE claim included a receipt . . .

5. Case 1- Receipt Batkin Bed & Breakfast 39 Skylark Drive Greenwich, CT August 4th, 2006 [insureds’ names] July 16th to August 4th– 19 nights 3 bedrooms /3 baths 2 meals $180/night Total Due - $3,420.00 Thank you!

6. Case 1- Google it!

7. Case 1- Coverage? Conditions The entire policy will be void if, whether before or after a loss, an “insured” has: • Intentionally concealed or misrepresented any material fact or circumstance • Engaged in Fraudulent conduct, or • Made False Statements. relating to this insurance.

8. Case 1- Insurer Reaction • Insurer reaction • Sent an ROR letter • Said it was a fraud to represent the friend’s home as a B&B • Determined that home was not a registered B&B • Fraud voided the entire policy • No more coverage under any portion

9. Question Case 1-ALE The trial court ruled that the insureds’ conduct in submitting the receipt: • Voided the entire policy • Voided coverage D. for ALE coverage • Was not concealment or fraud and did not void the policy.

10. Was it a Misrepresentation? • Misrepresentation - to represent incorrectly, improperly, or falsely • B&B - A private residence, several rooms of which are set aside for overnight guests whose paid accommodations include breakfast.

11. Was it material? • Was the $180 reasonable? • How’d the $180/night compare with other lodging and a rental house?

12. Overvaluation –case law • Presumptively fraudulent if grossly overvalued. • Lath v. Towers Ins. Co., 38 A.D.3d 321 (N.Y. App. Div. 2007). • Negligent overvaluation is insufficient. • Shields v. Nationwide 301 S.E.2d 439 (N.C. App. 1983).

13. Was it material? • There was a value to them being at a friend’s house • This was only part of the ALE claim? • Other portions undisputed (hotel – then rental home)?

14. What if . . . ? • What if the receipt said “friend’s house?” • They had fair rental value coverage – How much would that have been? • Can that be mixed?

15. Divisibility • What if the court found fraud? • Divisibility of coverage? i.e. would the entire policy have been voided? • Home – A • Structures - B • Personal Property –C • ALE - D

16. Divisibility – case law • Voided Part • Wisconsin(Tempelis v. Aetna, 485 N.W.2d 217 (Wis. 217)(only ALE voided; misrepresentation was proved on the ALE but the insurer could not prove arson). • South Carolina (Kerr v. State Farm, 552 F. Supp. 992)(S.C. 1982)(misrepresented contents) • Mississippi (Merchant’s Bank v. SE Fire Ins., 751 F.2d 771(5th Cir. Miss. 1985)(concealment on personal property) • Voided all • Washington (Johnson v. Allstate, 108 P.3d 1273 Wash. App.1995) (concealment regarding contents). • North Carolina (Dale v. Iowa Mutual, 1979 Cire & Casualty(CCH) 691 (N.C. App. 1979)(misrepresentation re: contents) • Illinois (State Farm v. Best in West Foods, 667 N.E.2d 1340 (Ill.App. 1996)(grocery store misrepresented inventory and BI) and Powell v. State Farm, 1993 WL 67786 (Ill. App. 1993)(misrepresented personal property); John Welter Florist. v. Travelers, USDC N. D. Ill. (Eastern Div. Case No. 80 C 6807, 9/14/82)(misrepresented BI) • Minnesota (Collins v. USAA, 580 N.W.2d 55 (Minn. App. 1998)(misrepresentation to personal property value) • Oklahoma (American Commerce Ins. Co. v. Harris, No. CIV-07-423-SPS, 2009 WL 3233738 (USDC E.D .Okla. 9/25/09)(inflated personal property)

17. Tactical – Economics – Good faith • They denied entire claim? • Did they consider divisibility potential? • What if insurer just voided D? • What if they kept paying? • Did they consider that they would need to pay the mortgage company (i.e. mortgagee) Coverage A anyway? • Are there things we don’t know? (i.e. was there other evidence of fraud and they hung their hat on this)?

18. Case 1-ALE Holding Court held: C. Not fraud or concealment • It only mattered that they actually stayed and • Intended to pay the amount Grossman v. Homesite Ins. Co., 2010 WL 1233907 (Conn. Super. 2010)(note: this is an unpublished trial court opinion)

19. Disagree with Reasoning, but probably a reasonable result • Misrepresentation with intent to deceive • The receipt in and of itself (per se) was deceitful • Not a bed & breakfast • Was a friends home • They didn’t actually pay (until litigation)(“incur” means to become liable) • They could have discussed this with the adjuster • Not necessarily Material • How’d the $180/night compare with other lodging and a rental house? • They had fair rental value coverage – How much would that have been. • There was a value to them being at a friend’s house