CHAPTER 12 FRAUD AND FALSE SWEARING

• Jurisdiction: United States

A. False Swearing

In the United States the oath to tell the truth, whether given in a court of law or elsewhere, is sacrosanct. The fear of a five-year term in prison for perjury keeps most people testifying honestly.

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

Most insurance policies, to make clear to the insured why truth under oath is important, place a condition in the policy making it void in the case of false swearing. In common language the "false swearing" provision of a policy merely means that if the insured lies under oath he or she will recover nothing under the policy.¹

The person swearing falsely as part of an insurance claim—even if there is no criminal prosecution—also destroys his or her right to recover under a policy of insurance.

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

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. ²

In Cummings v. Fire Ins. Exchange, 202 Cal. App. 3d 1407, 249 Cal. Rptr. 568 (Cal. Ct. App. 1988), plaintiff Mary L. Cummings appealed from a summary judgment granted to defendant Fire Insurance Exchange, on her complaint seeking damages from the defendant for its failure to pay a property damage claim and its allegedly malicious instigation of an unsuccessful criminal prosecution of the plaintiff. Because the record demonstrated (1) that the plaintiff knowingly and wilfully filed a false claim on a casualty policy issued by the defendant and (2) that the defendant had a reasonable basis for believing that the plaintiff had violated the law in so doing, the judgment was affirmed.

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. Shortly after the loss the insurer received a call from one of Plaintiff's neighbors who 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.

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.

What Plaintiff told the investigator during her recorded statement was that on the day the vandalism occurred, she left home in the morning and returned that evening to discover the damage. She said there was no one home when she left and that her son did not live with her. She stated she did not know who had caused the damage to her home and taken her personal property. The actual facts were that the vandalism was committed by Plaintiff's son acting in a rage of anger during an argument over a utility bill. Plaintiff was present when the damage was occurring and was driven out of her home at that time by her son, at the point of a gun, just shortly after he threatened to kill her if she told anyone about what he had done.

The next day, the investigator interviewed the witness who related the events and 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, Defendant denied further payments on her claim and reported the matter to the criminal authorities. Plaintiff was arrested for violation of Insurance Code § 556. She was bound over for trial at her preliminary hearing but the charges were later dismissed.

The court's review of false swearing begins nearly 100 years before the Cummings case with 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. The plaintiffs in the case were in turn assignees of Mr. Murphy, who had assigned the policies and his claims under them to the plaintiffs after the dry goods were damaged by fire. The policies all contained fraud and concealment provisions similar to the one in Cummings.

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 the 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 U.S. Supreme Court explained that the object of the provisions in the policies of insurance, requiring the assured to submit himself to an examination, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to its rights, to enable it to decide upon its obligations, and to protect it against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. It concluded that "A false answer as to any...