Insurance – Fraud Counterclaim – Fire Damage – Plant Expansion

The parties have forecasted conflicting evidence as to whether the plaintiff-insured attempted to have the defendant-insurers pay, not solely for the damage that fire caused to plaintiff’s facility, but also for plaintiff’s expansion of the facility. Plaintiff is not entitled to summary judgment on defendants’ claim of insurance fraud.

Motion denied.

G.S. § 58-44-16(f) contains a number of provisions that must be contained in fire insurance policies covering property in this state. One of these provisions provides, “(2) Concealment or fraud. — This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject of this insurance, or the interest of the insured in the subject of this insurance, or in the case of any fraud or false swearing by the insured relating [to] the subject of this insurance.”

There is very little case law interpreting § 58-44-16(f)(2). However, our Supreme Court has held that under a prior—and virtually identical— version of this statutory provision an insurer seeking to void a policy on the basis of a material misrepresentation “must prove that the insured made statements that were: 1) false, 2) material, and 3) knowingly and willfully made.” Bryant v. Nationwide Mut. Fire Ins. Co., 313 N.C. 362 (1985).

Furthermore, Bryant expressly stated the court’s approval of the trial court’s instructions to the jury in that case on the following elements of the insurer’s statutory fraud defense: (1) that “a misrepresentation is material if the facts misrepresented would reasonably be expected to influence the decision of the [insurer] in investigating, adjusting or paying the claim”; (2) that if a false statement is knowingly made by an insured concerning a material matter, “the law infers or presumes that the insured intended to deceive the insurer”; and (3) that the jury was not required to find either that the insurer was “actually deceived, prejudiced, or injured by” the insured’s fraudulent statement or that the insurer “relied or acted upon the statements of the insured to its detriment[.]”

Here, the defendant-insurers contend that plaintiff knowingly claimed entitlement to insurance proceeds for costs that had nothing to do with the fire damage in furtherance of its scheme to have defendants fund a substantial portion of its expansion project.

Although it is clear that plaintiff made no effort to hide from defendants (or their agents) the fact that it intended to embark on a project to expand and upgrade the plant at the same time the portions of the facility damaged by the fire were being renovated, this does not—as plaintiff appears to believe— immunize it from a claim for violation of § 58-44-16(f)(2). If plaintiff deliberately claimed entitlement to insurance proceeds as part of its fire loss claim for costs unrelated to the fire damage and instead stemming solely from its desire to expand the plant, that is more than a mere difference of opinion over value between the insured and the insurer. Rather, such conduct could constitute a violation of § 58-44-16(f)(2).

Although a jury may or may not ultimately find that plaintiff actually engaged in such acts, the court is satisfied that defendants have put forth sufficient evidence to survive summary judgment on their counterclaims— particularly in light of the broad language contained in § 58-44-16(f)(2).

Motion denied.

Brakebush Brothers, Inc. v. Certain Underwriters at Lloyd’s of London (Lawyers Weekly No. 020-037-23, 19 pp.) (Mark Davis, J.) 2023 NCBC 27. Susan Boyles, Vernle Durocher, Eric Weisenburger and Kathryn Johnson for plaintiffs; Gray Wilson, Linda Helms, Timothy Jabbour, Anthony Tessitore, Kiera Fitzpatrick, Clark Schirle, Andrew Watson, Khrystyne Smith, Bryan Scott and Jasmine Pitt for defendants. North Carolina Business Court