False Swearing & Fraud in Claim Presentation Voids Policy
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NEVER LIE TO YOUR INSURER ABOUT THE EXTENT OF DAMAGE
Post 4833
An insurance coverage dispute that arose from a pipe burst in the historic Pittsfield Building in downtown Chicago. On December 17, 2016, two pipes burst on the tenth floor of the Pittsfield Building, causing water damage to the first ten floors. After the loss event, the Pittsfield Entities filed a claim for the damage with their insurer, The Travelers Indemnity Company (“Travelers”) and could not agree on the extent of damage.
In Pittsfield Development LLC, et al. v. The Travelers Indemnity Company, No. 18CV06576, United States District Court, N.D. Illinois (July 3, 2024) the USDC resolved the action and Travelers’ claim of fraud in the claim presentation discovered during discovery in the plaintiffs’ breach of contract suit.
After initial motion practice and discovery, Travelers amended it answer to assert a counterclaim for breach of contract. Travelers asserted that the Pittsfield Entities intentionally misrepresented their alleged damages by more than $1.1 million, and that the misrepresentation renders the policy void.
BACKGROUND
At all relevant times, Robert Danial acted as the sole managing member of the Pittsfield Entities with authority to direct the activities of all three entities. The Policy contains the the standard Concealment, Misrepresentation, or Fraud condition that declares the policy void if established.
The Water Loss Event and the Pittsfield Entities’ Insurance Claim
The Pittsfield Entities hired Joseph Sabbagh, a licensed public adjuster to assist the Pittsfield Entities with submitting their claim and preparing their own estimate.
Sabbagh inspected the damage at the Pittsfield Building on June 12, 2017, spending about five hours at the property, and then used a computer program called “Xactimate” to draft an estimate. Sabbagh estimated the total ACV of the repair and replacement work caused by the water damage at $8,593,200.40. Sabbagh’s estimate included as a line-item a “Bid Item from Bluestone Environmental” for “Lead Paint & Asbestos Removal.”
Travelers estimated the total loss as a result of the water damage at $401,537.95. After accounting for the $100,000.00 deductible, Travelers ultimately made payments on the claim totaling $301,537.95.
Travelers’ Counterclaim and the Disputed Bluestone Environmental Bid
In the Complaint, the Pittsfield Entities alleged that Travelers failed to pay the actual total amount of damages owed under the Policy for the water-loss event, which they contend was $8,592,961.40.
The plaintiffs’ pleading notably includes Sabbagh’s estimate as an attached exhibit. Danial testified that Sabbagh’s estimate formed the basis of the Pittsfield Entities claim for damages and that he believed it accurately stated the amount they were owed under the Policy, less anything that Travelers had already paid.
Travelers also deposed Sabbagh who testified that this was an oral estimate received over the phone from an employee of Bluestone Environmental, later identified as Tonia Williams. Deposition testimony and declarations from Bluestone Environmental employee Tonia Williams, as well as Bluestone Environmental’s president and owner David O’Dea stated that while ballpark or rough estimates were occasionally given verbally, she had “not heard of” a verbal estimate ever being given for $950,000, and that the largest over the phone estimate she could recall was in the $20,000-$25,000 range.
It was undisputed that Bluestone has no written record of ever providing a quote, bid, or estimate, written or oral, for the Pittsfield Building. Sabbagh testified that, if the Pittsfield Entities had asked him whether to attach his estimate to their complaint to prove their damages, he would have told them to get a second opinion.
The Pittsfield Entities disclosed Stephen Harmon,was submitted as an expert on damages. Harmon based his opinions on his review of Sabbagh’s estimate, conversations with Sabbagh and Pittsfield, and his review of photographs and other documentary evidence of the damage. Although Harmon could not recall the details of the bid item in his deposition, he reaffirmed that he “looked it over,” and that, in his opinion, the Pittsfield Entities were owed $1,235,000 by Travelers for that line item.
DISCUSSION
Travelers’ counterclaim for breach of the insurance Policy is governed by the same general standards applicable to any claim for breach of contract under Illinois law.
The phrase “intentional misrepresentation of material fact” does not incorporate the elements of common-law fraud and does not require a showing of such things as reliance or prejudice. Instead, all that matters is whether the misrepresentation was calculated to discourage, mislead or deflect the insurer’s investigation on a topic on which a reasonable insurer would undeniably attach importance.
The Pittsfield Entities Intentionally Misrepresented Their Damages
The Court concluded that the Pittsfield Entities did in fact make an intentional and material misrepresentation as a matter of law. The Pittsfield Entities’ repeated reliance on that figure as part of their overall damages was a material misrepresentation about their claim. The $950,000 oral estimate from Bluestone Environmental was not an actual bid or proposal for work that needed to be done in connection with the water loss event.
Critically, when asked for their “proof” of that figure, the Pittsfield Entities claimed that they “have a proposal from a contractor that says it.” Danial’s statement that the Pittsfield Entities “had a proposal” substantiating that they were owed $1,140,000 is simply false. The Pittsfield Entities misrepresented their damages by boldly and repeatedly asserting that they were entitled to $1,140,000 under the Policy for asbestos removal.
The Pittsfield Entities’ use of this illusory figure to misrepresent their damages did not stop there. Harmon’s statements are deeply misleading. The obvious implication from the contention that he “reviewed the estimate” is that there was some written estimate or proposal for asbestos removal work to review. But there was not, because the estimate, if given at all, was given orally.
This testimony that the figure reflects necessary work is simply false.
In sum, the Court found the Pittsfield Entities misrepresented their damages by claiming they were owed $1,140,000.00 under the Policy for asbestos abatement as a result of the water loss event in December 2016. An insured that willfully makes false statements about their loss with the intent to deceive the insurer is not entitled to recover any amount under their policy.
The Pittsfield Entities simply had no basis to cite the Bluestone Environmental “quote” as proof that they were entitled to payment of over $1 million for asbestos removal based on the water damage. The only conclusion that can be drawn from the Pittsfield Entities’ repeated presentation of this hypothetical quote as proof of their damages, despite the fact that it had no factual connection to work that actually had to be done, is that the Pittsfield Entities submitted that false number with the intent of deceiving or misleading Travelers into paying that amount. The USDC concluded that all Plaintiff had as proof of their claim was an illusory estimate that they never bothered to verify.
Travelers’ motion for summary judgment was granted in full and the Pittsfield Entities’ motions were denied. The Court concluded that the Pittsfield Entities violated the terms of the insurance policy by materially misrepresenting the extent of their damages. Travelers was entitled to summary judgment in its favor on its counterclaim as a matter of law, which also requires judgment in favor of Travelers. Travelers was awarded damages in the amount of $301,537.95, plus interest and costs.
ZALMA OPINION
Every lawyer learns that clients sometimes, if not often, lie to their lawyer. When a lie is established a lawyer has two choices, withdraw as counsel or amend the litigation to fit the real facts. After the testimony of Bluestone, Sabbagh and Harmon is should have been clear to Plaintiffs’ counsel that there was no estimate for removal of asbestos and lead and the plaintiff could not prove a right to that money. Instead, they insisted on an entitlement to the imaginary and unprovable loss and continued pursuing its demands which were fraudulent when first presented to Travelers and continued with two “experts” presented to prove the amount of loss and the testimony of the Insured Danial. The court had no choice but to find that the Plaintiffs submitted a fraudulent claim for more than a million dollars based on a short phone call that was neither a bid nor evidence of damage.
You can find a permanent public version of the document here: https://public.fastcase.com/
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Post 5240
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Post 5238
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On August 18, 2020, Hall signed a limited liability release under OCGA § 33-24-41.1, releasing Harvey, Dovers, and their insurer (Georgia Farm Bureau Insurance Company) from liability for the accident in exchange for $50,000, “except to the extent other insurance coverage is available which covers the claim.”
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Post 5219
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Understand how to negotiate a fair and reasonable settlement with the insured that is fair and reasonable to both the insured and the insurer.
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Post 5210
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I was initially sat at a desk reading a text-book on insurance ...
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The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...