There Can Never be a Fraud Too Small to Void a Policy.

• Date: 26 April 2021
• Author: Zalma, Barry
• Published date: 26 April 2021
• Author: Zalma, Barry

Material Misrepresentation Concerning the Extent of Loss Voids Policy

After the district court ruled for the defendant insurance company on cross-motions for summary judgment, ending the action, the plaintiff appealed that summary-judgment ruling. In Meat Town Inc. v. Sentinel Insurance Company, Case No. 19-2351, United States Court of Appeals for The Sixth Circuit (March 30, 2021) was asked to find the fraud wasn't big enough to stop the insured from collecting the remainder of its loss.

INSURANCE POLICY INTERPRETATION

A fundamental tenet of Michigan law is that unambiguous contracts must be enforced as written according to their unambiguous terms because doing so respects the freedom of individuals freely to arrange their affairs via contract.

Consequently, while exclusionary clauses in insurance policies are strictly construed in favor of the insured, it is impossible to hold an insurance company liable for a risk it did not assume, and, thus, clear and specific exclusions must be enforced.

The insurance policy in this case voids all coverage if the insured conceals or misrepresents material facts concerning its claim; e.g., commits fraud. Under Michigan law, to effectuate such a provision, the insurer must prove that the claim was (1) knowingly false or made in reckless disregard for the truth, and (2) material, such that the insured intended to induce the insurer to act upon it. Furthermore, under Michigan law, it matters not that the fraud was perpetrated in connection with only a portion of the loss claimed by an insured.

To void the policy, the insured is not required to lie about all of his or her losses; rather a lie related to a single loss operates to void the policy. In simple language you can't be a little bit dead.

FACTS

Meat Town Inc. was a retail butcher and grocer in Detroit, Michigan. Meat Town was the insured of a "Business Owner's Policy" with Sentinel Insurance Company, Ltd., that insures against the risk of loss of the real property, fixtures and equipment, inventory, and business interests due to, among other things, vandalism or fire.

On December 24, 2015, Meat Town filed a claim under this policy for losses arising from an after-hours break-in, robbery, and vandalism that occurred on November 10, 2015, which is referred to as the "Vandalism Event." On March 7, 2016, Meat Town filed a second, separate claim for losses arising from a fire on December 19, 2015, which is referred to as "the Fire." On October 4, 2016...