Illinois Insurance - Illinois Supreme Court Upholds Fraud Exclusion in a First Party Property Policy
Barth v. State Farm Fire & Cas. Co., Docket No. 104378 (Ill.Sup.Ct. March 20, 2008)
In Barth v. State Farm Fire & Casualty Company, the Illinois Supreme Court recently addressed the application of the Fraud Exclusion to a claim submitted under a first party property policy. At trial, the policyholder
asserted that all of the common law elements of fraud (including intent, reasonable reliance and prejudice) had to be proved in order for the insurer to deny the claim based upon the Fraud Exclusion. Since the insurer detected the
fraud prior to paying the claim, the policyholder argued that the insurer could not prove reasonable reliance, prejudice or damages as a proximate result of the fraud. In opposition, the insurer asserted that the common law elements
were not part of the exclusion.
The Fraud Exclusion at issue provided, in pertinent part, as follows:
Concealment or Fraud: This policy is void as to you …, if you … intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss.
Citing Passero v. Allstate Insurance Company, 196 Ill.App.3d 602 (1990) and Claflin v. Commonwealth Insurance Company, 110 U.S. 81 (1884), the Illinois Supreme Court stated that a policyholder has an affirmative obligation
to accurately answer every question relevant to the insurer’s investigation and that willfully making a false statement, intended to deceive the insurer, is a breach of the policy conditions and bars the insured’s recovery.
Because the specific Fraud Exclusion at issue only required intentional concealment or misrepresentation, and did not expressly require fraud, the Illinois Supreme Court refused to read the common law elements of fraud into the exclusion.
Although the insurer still had to show that the misrepresentation was material and that there was a reasonable connection between the insured’s concealment, misrepresentation or false statement and the insurer’s actions
in investigating the claim, the insurer did not need to prove reasonable reliance or prejudice based upon the concealment or misrepresentation.
This decision is significant because it allows the insurer to rely upon the Fraud Exclusion even though the attempted fraud was discovered before the insurer actually paid the claim.