NSURANCE ADVOCATE - June 1993

Insurer Held to Bear Burden in Challenge of Proofs of Loss; Ambiguity is Cited.

The decision by Supreme Court Judge Shirley Fingerhood of a motion for summary judgement made by an insurer that alleged its insured/claimant had "willfully or intentionally" misrepresented the extent of the loss, as well as his prior loss history, has been upheld by the New York Appellate Division, First Department. Judge Fingerhood had ruled that the question of whether an action is willful or intentional on the part of an insured is triable issues of fact. The Appellate Division agreed.

In its decision handed down on May 20, the Appellate Division said that the insurance company, General Accident of America was correct in its assertion that the policy would be rendered void if it could be shown that the claimant had "willfully concealed or misrepresented any material fact or circumstance concerning the insurance." The court said the insurer was also correct on the right to void a policy if the claimant "willfully and fraudulently placed in the proofs of loss a statement of property lost which he did not possess, or has placed a false and fraudulent value upon the articles which he did own."

But the court also noted citing a variety of prior decisions that "it is the insurer which bears the burden of proving that the insured's alleged misrepresentations were, in fact, willful and intentional.

The situation in this case involved an insured who is a recent immigrant from Korea, who operated a store and who purchased both property and business interruption insurance from General Accident.

In supporting its finding that the burden of proof fell to the insurer, the Appellate Division said there was a failure to tender any proof of an intent to defraud. The court said that "the defendant's speculative and conclusory allegations of the plaintiff's alleged willful misrepresentation with respect to his present insurance loss and prior loss history, premised primarily upon the defendant's perception and evaluation of the testimony given by the plaintiff at examinations under oath and examination before trial, which reveal the plaintiff's lack of command of the English language and repeated inability to fully comprehend and respond to the questions being posed, provide no basis for vitiating the policy of insurance."

Turning to the second cause of action, the Appellate Division also upheld Judge Fingerhood's dismissal of the motion for summary judgement by General Accident, in her finding that judgment was precluded by ambiguity in the proof of loss provision in the policy. That alluded to the question of whether proof of loss was required to be filed by the insured for damages allegedly arising from business interruption due to the fire. The specific language of the policy, the Appellate Division said, "merely requires the insured to provide proof of loss stating---'the actual cash value of each item thereof and the amount of loss thereto." The court said this created an ambiguity as to whether the proof of loss is required only for tangible items or also includes intangibles, such as business interruption.

In its conclusion upholding Judge Fingerhood's dismissal of the motion for summary judgement by General Accident, the Appellate Division said that "ambiguity in the proof of loss provision of the policy which is subject to more than one reasonable interpretation, must be construed most favorably to the insured and strictly against the insurer, thereby placing the burden upon the insurer to establish a construction of the policy language which favors forfeiture and to prove that coverage does not exist or is limited." The Appellate Division cited the case of Sincoff v. Liberty Mutual Ins. Co., 11 NY2d 386, in support of the conclusion.

Dennis T. D'Antonio, principal attorney with the New York law firm of Weg & Myers, P.C., who represented the plaintiff/claimant Kyong Nam Chang d/b/a Mama Care, said the decision appears to be the continuation of a trend in the interpretation of the "sworn statement in proof of loss" in first-party suits. He said that the trend is away from the historical absolute defense to a claim, as an example, on the question of timely filing. He called attention to a decision by the Court of Appeals, Ball v. Allstate (Insurance Advocate April 13, 1993) in which the high court reversed the Appellate Division finding, and overruled a doctrine that stood for nearly a hundred years, and held that the date proofs of loss were placed in the mail, met the 60-day deadline test of "furnished," and not the date of receipt by the company. Weg and Myers represented Ball in that case.