CHAPTER 12

• Jurisdiction: United States

CHAPTER 12

Fraud and False Swearing

In the United States the oath to tell the truth, whether given in a court of law or elsewhere, is sacrosanct. First-party property insurance policies invariably contain provisions that require the person insured to present a claim under oath using a document called a sworn statement to prove loss. If there is a question about a claim or a need for proof of the loss, the insurer may also require an oral examination under oath. Insurers expect that the insured operating with the utmost good faith will truthfully respond to every question posed truthfully.

Most insurance policies, to make clear to the insured why truth under oath is important, place a condition in the policy that makes the policy void in the case of false swearing. In common language, the “false swearing” provision of a policy merely means if the insured lies under oath he or she will recover nothing under the policy.

False swearing is a crime in all states. An insured that is guilty of false swearing could be subject to criminal prosecution.

The U.S. Supreme Court stated the rule in 1884:

A false answer as to any matter of fact material to the inquiry, knowingly and willfully made, with an intent to deceive the insurer, would be fraudulent. If it accomplished its result, it would be a fraud effected; if failed, it would be a fraud attempted. No one can be permitted to say, in respect to his own statements upon a material matter, that he did not expect to be believed; their materiality, in the eye of the law, consists in their tendency to influence the conduct of the party who has an interest in them and to whom they are addressed.¹

A. False Swearing and Fraud

As you read the following case, determine if the insured breached a material condition of the policy and swore falsely with regard to the claim. Also consider whether there is an excuse for swearing falsely, that will allow the insured to recover regardless of the condition, when presenting a claim to an insurance company?

Cummings v. Fire Ins. Exch.
249 Cal. Rptr. 568 (Cal. Ct. App. 1988)

Plaintiff Mary L. Cummings, (plaintiff), appeals from a summary judgment granted to defendant Fire Insurance Exchange (defendant,² on her complaint seeking damages from defendant for its failure to pay a property damage claim and its allegedly malicious instigation of an unsuccessful criminal prosecution of plaintiff. Because the record demonstrates (1) that plaintiff knowingly and willfully filed a false claim on a casualty policy issued by the defendant and (2) that defendant had a reasonable basis for believing that plaintiff had violated the law in so doing, we affirm the judgment.

Factual Background

In her complaint, plaintiff alleged claims for breach of contract, false imprisonment, malicious prosecution, tortious breach of contract (which also included an allegation of a violation of Insurance Code section 790.03, subdivision (h)(5)) and intentional infliction of emotional distress. Each of these alleged causes of action arises from a claim which plaintiff made against a casualty insurance policy issued to plaintiff by defendant. Her claim was for damages sustained when her home and its contents were vandalized. The policy contains a provision (hereinafter sometimes referred to as the fraud and concealment provision) which states: “We do not cover an insured who has concealed or misrepresented any material fact or circumstance relating to this insurance, before or after the loss.”³

The vandalism occurred May 1, 1983, and plaintiff reported it to defendant the next day. Within a month, plaintiff’s premises had been almost completely repaired. Defendant expended $18,146 for repairs and $800 for living expenses for plaintiff.

On May 17, 1983, defendant received a call from one of plaintiff’s neighbors, a Mr. Wiley. He stated that another neighbor, Mr. Rodriguez, had told him that on the day the vandalism occurred, plaintiff’s son was in the premises and there was screaming, commotion and things being broken. In order to determine the facts, defendant retained an investigator. On May 24, 1983, the investigator interviewed plaintiff and recorded her statement concerning the events of May 1. In her statement, plaintiff gave a false version of those events.⁴ The next day, the investigator interviewed Mr. Wiley who gave him Mr. Rodriguez’s account of the incident. Mr. Wiley also indicated that plaintiff’s son was living with plaintiff.

Thereafter, on August 25, 1983, defendant examined plaintiff under oath. During that examination, she initially repeated the false version of what occurred; however, when she was confronted with the information which defendant’s investigation had uncovered, she changed her story and finally gave a true accounting of the vandalism to her home.

Based on plaintiff’s admitted misrepresentations,⁵ defendant denied further payments on her claim and reported the matter to the criminal authorities. Plaintiff was arrested for violation of Insurance Code section 556, which makes it a crime to knowingly present a false claim for payment of a loss.⁶ She was bound over for trial at her preliminary hearing but the charges were later dismissed when the superior court granted her Penal Code section 995 motion (although it is not clear from the record before us upon what ground(s) the motion was granted).

Contentions on Appeal

Plaintiff contends on appeal that issues of fact existed with respect to the materiality of the alleged misrepresentation and defendant’s reliance thereon and that the trial court erred in determining that, as a matter of law, plaintiff could assert no claims for malicious prosecution, false imprisonment or emotional distress. She argues that summary judgment was therefore improper.

Discussion

“Summary judgment is properly granted only when the evidence in support of the moving party establishes that there is no triable issue of fact and that the moving party is entitled to a judgment as a matter of law. [Citations.]” (Isaacs v. Huntington Mem’l Hosp., 38 Cal. 3d 112, 134 [695 P.2d 653] (1985).) Thus, issue finding and not issue resolution characterizes a hearing on a motion for summary judgment. All doubts about granting such a motion must be resolved against the moving party, who bears the burden of producing evidence which establishes the invalidity of the claims of the adverse party. (Mann v. Cracchiolo, 38 Cal. 3d 18, 35–36 [694 P.2d 1134] (1985), and cases cited therein.) Our review of the record convinces us that the defendant has met its burden on all of plaintiff’s causes of action.

1. Breach of Contract (Including the “Tortious Breach” Claim)

Plaintiff’s first and fourth causes of action, for breach of contract and tortious breach of contract,⁷ allege a wrongful refusal by defendant to pay plaintiff’s entire claim.

Defendant’s answer asserts as an affirmative defense that the insurance policy was voided, in accordance with its fraud and concealment provision, because plaintiff made material concealments and misrepresentations in the processing of her claim.

The motion for summary judgment focused on this affirmative defense.⁸ In neither her opposition to that motion nor in her briefs on appeal does plaintiff deny that she misrepresented to defendant the facts surrounding the vandalism of her property. The materiality of a representation made in an application for a contract of insurance is determined by a subjective standard (i.e., its effect on the particular insurer to whom it was made) and rescission will be allowed even though the misrepresentation was the result of negligence or the product of innocence. (Imperial Cas. and Indem. Co. v. Sogomonian, 198 Cal. App. 3d 169, 182, fn. 10 (1988).) On the other hand, in order to void a policy based upon the insured’s violation of the standard fraud and concealment clause (and/or Ins. Code, § 556), the false statement must have been knowingly and willfully made with the intent (express or implied) of deceiving the insurer. The materiality of the statement will be determined by the objective standard of its effect upon a reasonable insurer.

On appeal plaintiff asserts that the trial court erred in granting summary judgment on the breach of contract causes of action because certain factual issues are still unresolved. She contends that whether she lied as to any material facts, whether she intended to defraud defendant and whether defendant relied on her misrepresentations are all issues which a trial court cannot properly resolve in a motion for summary judgment, because they are for a jury’s consideration. However, these arguments ignore the body of law which has developed during the past 100 years with respect to the “fraud and concealment” provisions found in most property insurance policies.

Our review of that law begins with a United States Supreme Court case, Claflin v. Commonwealth Ins. Co., 110 U.S. 81 (1884). Claflin involved one William Murphy, assignee of the original owner of certain dry goods and the policies of insurance issued by defendant insurance companies on those dry goods. Plaintiffs in the case were in turn assignees of Mr. Murphy, who had assigned the policies and his claims under them to plaintiffs after the dry goods were damaged by fire. The policies all contained fraud and concealment provisions similar to the one in the instant case.

The evidence in Claflin showed that when Murphy appeared for examination by defendants’ agent concerning his loss and claim, he gave false information relating to the consideration he paid his assignor for that stock. He did so not to deceive defendants but rather to make a statement which would be consistent with the one he had previously made to a commercial agency in hopes of securing commercial credit. The answer filed by defendants alleged that the sale to Murphy was fictitious, that he never gave consideration for it and that consequently he had no insurable interest in the goods. At trial, plaintiff requested a...