|FROM:||The Legal Taxi|
|RE:||What claims are available for denial of an insurance claim for a loss caused by a burglary?|
What is the liability of the insurance company to pay for the loss caused from a burglary?
Client Mike came into see us about an insurance claim. Farm State has refused to pay his claim for loss from a burglary. He was staying at his father’s house. His father came back late one night and then Mike. The father, a cop, found the house had been broken into. The police were called. A claim was filed. Mike had made a similar claim, a burglary at the same house, about 3 years before. Farm State talked to some witnesses, but not to Mike’s alibi witness. Farm State deposed Mike& his father. In the end, they refused payment claiming that the claim was a fraud. Mike wants to know if he can sue. Does he have a cause of action? What would he have to prove? What can he recover?
Standard Research Memo
- Highlighted Copies of Key Cases.
- Summaries of Key Cases.
Liability of the insurance company to pay for the loss caused from a burglary?
Texas statutes and case law.
Under an insurance contract, parties are duty bound to exercise under good faith and fair dealing. The Texas Insurance Code imposes a duty on the insurer to report any allegation of insurance fraud. Our research centers on the following issues:
- What is insurance fraud,
- On whom does burden of proof lie to prove the charge of insurance fraud,
- What duty does Farm State have to report for investigation of insurance fraud, and
- What might Mike recover?
A burglary was committed at Mike’s house. Texas Penal Code § 30.02 defines Burglary:
- A person commits an offense if, without the effective consent of the owner, the
- Enters a habitation, or a building (or any portion of a building) not then open to the public, with intent to commit a felony, theft, or an assault; or
- Remains concealed, with intent to commit a felony, theft, or an assault, in a building or habitation; or
- Enters a building or habitation and commits or attempts to commit a felony, theft, or an assault.
- For purposes of this section, "enter" means to intrude:
- Any part of the body; or
- Any physical object connected with the body.
The facts of the query indicate that Mike’s father (a cop) found the house had been broken into, so we can posit that burglary was committed at house.
Tex. Penal Code § 35.02 defines “Insurance Fraud”:
- A person commits an offense if, with intent to defraud or deceive an insurer, the
person, in support of a claim for payment under an insurance policy:
- prepares or causes to be prepared a statement that:
- The person knows contains false or misleading material information; and
- is presented to an insurer; or
- prepares or causes to be prepared a statement that:
- Presents or causes to be presented to an insurer a statement that the person knows contains false or misleading material information.
Farm State in the present query claims that Mike is attempting an insurance fraud. They base their claim on the fact that about three years before this Mike filed a very similar claim based on a burglary. Farm State alleges that Mike is making false statements in his claim. However, Farm State has brought forth no further evidence to show that that Mike’s claim is fraudulent; i.e., that someone else did in fact break into Mike’s house.
The common indicators of insurance fraud were explained by the court in Farm State Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 46 (Tex. 1998), these include:
- A recently purchased policy or a recently increased policy;
- A policy that significantly exceeds the insured property's value;
- Efforts by the insured to sell the property or other concrete indications that the insured intended to move;
- Prior fire losses;
- A strong alibi for the insured;
- Unusual money problems, such as high medical bills or legal fees;
- The removal of furniture or personal items before the fire; or,
- A "huge burden" resulting from the strain of meeting everyday expenses.
In this set of facts involving Mike, none of the first six criteria were met. Mike can argue against the alleged fraud by pointing to the factors that don’t apply to his situation
When a person enters into an insurance contract, a duty of good faith and fair dealing arises from a special relationship between the parties. Different courts have affirmed this principle, e.g., Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992), Aranda v. Insurance Co. of N.A., 748 S.W.2d 210, 212 (Tex. 1988); Arnold v. National County Mut Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987)
Duty of Farm State
The court in Townsend v. Farm State Lloyds, 1998 Tex. App. LEXIS 6494 (Tex. App. Houston 1st Dist. Oct. 15, 1998) stated that Farm State , as an insurer, has a duty to deal fairly and in good faith with it’s insured in the processing and payment of claims.
In Stewart Title Guar. Co. v. Aiello, 941 S.W.2d 68, 70-71 (Tex. 1997), the court specifically imposed a duty of good faith and fair dealing on an insurer to investigate claims and make timely payment on covered losses.
In that case court also stated that:
In the insurance context a special relationship arises out of the parties' unequal bargaining power and the nature of insurance contracts which would allow unscrupulous insurers to take advantage of their insured’s misfortunes in bargaining for settlement or resolution of claims. In addition, without such a cause of action insurers can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed. An insurance company has exclusive control over the evaluation, processing and denial of claims. For these reasons, a duty [of good faith and fair dealing] is imposed.
Here Farm State is under a duty of good faith to investigate whether the insurance fraud has committed by Mike. To Farm State ’s credit, they did perform some investigation, but most significantly, they did not interview Mike’s alibi witness.
In Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 50-51 (Tex. 1997) the court stated that:
An insurer breaches its duty of good faith and fair dealing when the insurer had no reasonable basis for denying or delaying payment of a claim, and the insurer knew or should have known that fact.
Because the insurance company is claiming that Mike’s claim is a fraud, Farm State has a duty to report this under Texas Insurance Code § 701.051.The code establishes a duty to report any alleged insurance fraud. The code states:
- Not later than the 30th day after the date the person makes the determination or reasonably suspects that a fraudulent insurance act has been or is about to be committed in this state, the person:
- Shall report the information in writing to the insurance fraud unit of the department, in the format prescribed by the fraud unit or by the National Association of Insurance Commissioners; and
- May also report the information to another authorized governmental agency.
- A person who is a member of an organization primarily dedicated to the detection, investigation, and prosecution of insurance fraud fully complies with the person's obligations under Subsection (a) by authorizing the organization to report on the person's behalf information required to be reported under Subsection (a). The person retains any liability resulting from the failure of the organization to report in a manner that complies with Subsection (a).
The insurance company has a duty to report any alleged fraud to the appropriate authority and to request an investigation under § 701.109, detail the request of insurer for investigation:
- An insurer who conducts an independent investigation of suspected insurance fraud is not required to complete that investigation before requesting that the commissioner conduct an investigation.
- When requesting the commissioner to conduct an investigation, the insurer shall draft a report of the insurer's findings and submit the report and any related investigation file to the commissioner as soon as practicable on the conclusion of the insurer's independent investigation.
In the present query there is no evidence that shows that the report for insurance fraud is made to any investigation authority. This weighs in Mike’s favor.
Cause of Action & Burden of proof
In Arnold v. Nat'l County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987) court explained the elements of a cause of action for bad faith against an insurance carrier in Texas:
- A contract between the insurer and the insured;
- The insurer denied the insured's claim or delayed in payment; and
- (a) The insurer knew that it had no reasonable basis for denying the claim or delaying in payment; or (b) the insurer failed to determine whether there was any reasonable basis for the denial or delay.
Going by theses elements, a cause of action for Mike’s claim seems to meet the prima facie requirements of a cause of action.
Further Insurance Code § 554.002 defines the relevant burden of proof and pleading:
The burden of proof lies on Farm State to prove the charge of insurance fraud against Mike.
A burglary was committed in client’s house, and Farm State rejected the claim on grounds of fraud. A strong argument can be made that the insurance company is violating the duty of good faith by not thoroughly investigating the facts of the alleged fraud. Most importantly, the carrier can be seen as violating its duty by not interviewing Mike’s alibi witness. Based on this review of the relevant statutory and case law, we believe that Mike has sufficient grounds to bring suit against Farm State for Farm State’s failure to pay the claim. The burden of proof lies on the Farm State to prove that insurance fraud is being attempted by Mike. Farm State has a duty to report any alleged fraud to the State and to request an investigation. Mike may claim for compensation for the damages incurred.
1. Highlighted copies of Key Cases.
2. Summaries of Key case.
3. Referred Statutes.
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