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The Rough Notes Company Inc.



March 29
06:55 2021

Both sides now: Lie voids coverage

Jose and Hilda Alvarez owned a house that was insured under an all-risks homeowners policy with State Farm Florida Insurance Company. In 2009, the Alvarezes experienced kitchen drain problems. A plumber replaced and rerouted the kitchen drain line.

The Alvarezes experienced bathroom backups and attempted to correct the drainage problems. In 2010, with the assistance of a public adjuster, they filed a claim with State Farm Florida. A claim representative of the insurer investigated and denied coverage in part based on the Alvarezes’ statement that the toilets had not overflowed, that they had the kitchen drain line repaired, and there was no water damage to the interior of their house.

State Farm Florida reported finding no accidental direct physical loss, thus no covered claim, and sent the Alvarezes two letters in November 2010 and April 2011 confirming denial of coverage. The letters noted that the insureds were not claiming any direct water damage loss inside the house. The Alvarezes did not seek to appeal the decision or contradict the letters of denial.

In March 2012, the insureds’ public adjuster sent State Farm Florida a sworn proof of loss signed by the insureds asserting that a water damage loss occurred in 2009 and attesting to loss in the amount of $82,967.92. State Farm’s claim reviewer noted that the 2009-10 inspector’s report indicated no interior water damage, just slow toilets and a repaired kitchen J-pipe and drainage. In 2013, State Farm conducted an extensive reinspection of the Alvarezes’ house and found nothing to indicate water damage except a small warping of one lower cabinet toe-kick, attributed not to water damage but to improper installation.

The Alvarezes filed a complaint against State Farm for breach of contract. State Farm answered, citing policy exclusions and asserting the defense that the insureds had made material misrepresentations in pursuing their claim related to the scope and amount of loss claimed. The court granted the Alvarezes’ motion for partial summary judgment (identifying the issue as one of “liability” rather than “coverage”) and reserved the question of damages for the jury. Upon the original trial judge’s retirement, a successor judge was appointed to the case. The successor judge denied the Alvarezes’ motion for summary judgment on State Farm’s misrepresentation defense, allowing that issue to proceed to trial. Discovery included reports from the original 2010 insurance inspection, as well as proof that the Alvarezes had applied to Citizens Property Insurance Corporation for homeowners insurance, certifying that their house had no existing damage, in direct contradiction to their sworn proof of loss to State Farm.

At trial, the successor judge ruled that the case would proceed on the issues of damages and material misrepresentation. The verdict form asked the jury to determine whether the Alvarezes made a material misrepresentation to State Farm “by exaggerating the extent of the loss” and how much damages should be awarded. The jury found that the Alvarezes had materially misrepresented the facts and awarded $6,000 (the amount State Farm’s plumber testified the kitchen drain repairs would cost).

State Farm filed a motion for final judgment with no entitlement to damages. The Alvarezes filed a motion to set aside the verdict and to enter JNOV (judgment notwithstanding the verdict). The court granted State Farm’s motion and denied the Alvarezes’ motion. The Alvarezes appealed.

On appeal, the court noted that the policy contained a provision that voided the policy upon material misrepresentation of fact by the insured. The fact that the jury awarded damages did not alter the outcome on appeal.

The court found the Alvarezes’ argument that the jury rendered a “compromised” verdict to be without merit. The court pointed out that at trial the Alvarezes did not raise any inconsistency objection to the verdict, so on appeal they could not complain of a “compromise” error in obtaining the damages answer in the face of a verdict that the Alvarezes materially misrepresented facts in their claim to State Farm.

The trial court properly determined that the jury’s verdict finding material misrepresentation voided the Alvarezes’ coverage for the claimed loss and correctly rendered judgment in favor of State Farm with no entitlement to damages.

The judgment of the trial court was affirmed.

Alvarez v. State Farm Florida Insurance Company—District Court of Appeal of Florida, Third District—April 17, 2019—No. 3D17-2261.

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