Lies on Application the Sole Responsibility of the Insured who Signed the Application

People who lie to their insurer to obtain an insurance policy cannot claim it was the agent’s fault for not stopping the applicant from fabrication. When the insured sought coverage on a rental dwelling that had no water, electricity or gas service and had a bootleg and illegal electrical service attempted to defraud the insurer when he applied for a homeowners policy. When a fire occurred the insurer learned of the fraud and refused to pay the claim. The insurer sued for declaratory relief and the insured’s sued for damages against the insurer and the agent who placed the business and tried to get out of federal court by that action.

In Michael Odoms and Ericka Odoms v. Geovera Specialty Insurance Company And Susan Angelica Insurance Agency, LLC, Civil Action No. 19-12477 SECTION M (4), United States District Court Eastern District of Louisiana (November 14, 2019) Michael Odoms (“Odoms”) and Ericka Odoms (“Ericka”) (collectively, “Plaintiffs”) moved the USDC to remand this action to the 24th Judicial District Court, Parish of Jefferson, State of Louisiana, for lack of subject-matter jurisdiction.

BACKGROUND

Odoms, a citizen of Louisiana, entered into an agreement to purchase a property located at 6565 Benedict Drive in Marrero, Louisiana and then sought insurance from Susan Angelica Insurance Agency, LLC (“SAIA”), also a Louisiana citizen. Odoms advised SAIA of his insurance needs and alleged that he answered truthfully all questions asked by SAIA. All of the underwriting questions were answered in the negative.

Odoms signed the insurance application on June 21, 2018, acknowledging that he had “read the above applications and any attachments and declare[d] that the information is true and complete” and that the “information [was] being offered to the company as an inducement to issue the policy for which [he was] applying.”

GeoVera, relying on the application, issued a tenant-occupied homeowners insurance policy for the Benedict Drive. On July 21, 2018, the Benedict Drive property was damaged by a fire and a claim was presented to GeoVera.

GeoVera, concerned about the claim, required Odoms to provide sworn testimony at two examinations under oath (“EUO”).  Odoms testified that he participated in applying for the insurance, SAIA explained the underwriting questions to him, he answered the questions, and he signed the application. With respect to the bankruptcy question, Odoms testified that he was aware that Ericka was making payments on debts related to a bankruptcy until October 2015, and that answering “no” to the bankruptcy underwriting question was incorrect. Indeed, Odoms acknowledged that the bankruptcy question was incorrectly answered in the negative on all seven insurance applications that were discussed in the EUO, including the insurance application for the Benedict Drive property.

GeoVera determined it has no duty to indemnify Odoms because he submitted false answers on the insurance application for the Benedict Drive property. GeoVera noted that Odoms and Ericka (his live in) submitted several insurance applications in which one, or both, of them falsely affirmed that neither was “involved in” a bankruptcy proceeding in the previous five years.

GeoVera stated that Odoms falsely represented that the Benedict Drive property was connected to public utilities, when in fact, the property did not have water or gas, and the electricity was obtained via an illegal meter attached by the squatters who previously occupied the property. GeoVera further stated that it would not have issued the policy if Odoms had provided accurate information in the insurance application.

GeoVera contended that SAIA’s Louisiana citizenship did not destroy complete diversity because it was improperly joined. GeoVera further alleged that the amount in controversy threshold of $75,000 was met because Plaintiffs seek the full value of the property damage, plus attorney’s fees and penalties for bad faith.

LAW & ANALYSIS

If a plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder, the district court may, in its discretion, pierce the pleadings and conduct a summary inquiry.

Odoms’ claims for breach of contract, negligence, failure to use reasonable diligence, and detrimental reliance that the policy was secured, are not truly separate claims, but really one claim that SAIA breached its alleged duty to procure adequate insurance coverage for the Benedict Drive property. In Louisiana, an insurance agent owes a duty of “reasonable diligence” to its customer which is fulfilled when the agent procures the insurance requested. An insured has a valid claim against the agent only when the insured demonstrates that:

  • the insurance agent agreed to procure the insurance;
  • the agent failed to use reasonable diligence in attempting to procure the insurance and failed to notify the client promptly that the agent did not obtain insurance; and
  • the agent acted in such a way that the client could assume he was insured.

The agent has no obligation to spontaneously, or affirmatively, identify the scope or amount of insurance coverage the client needs.

The court concluded that Odoms could not maintain a claim that SAIA breached its duty to procure the insurance requested, and by extension, cannot maintain a similar breach of contract, negligence, or detrimental reliance suit against the agent. Odoms requested that SAIA obtain a tenant-occupied homeowners insurance policy for the Benedict Drive property, which is exactly what SAIA did. There is no allegation that SAIA obtained the wrong type of policy on Odoms’s behalf or failed to account for a known relevant history in making insurance recommendations.

The critical issue in this case is not the procurement of the policy, but rather whether there were material misrepresentations made in the insurance application that would result in rescission of the policy.

By signing the insurance application, Odoms acknowledged that he read it and affirmed that all answers provided were true. Because Odoms cannot maintain any claims against SAIA under Louisiana law, SAIA was improperly joined and the motion to remand was denied.

ZALMA OPINION

Removal failed because the agent he sued to defeat diversity did nothing more than was requested and the suit against the agent was dismissed.  In addition, it is obvious that the Odoms’ lied when they  obtained the insurance about material facts. If GeoVera had moved for judgment on the rescission ground, or on the breach of contract ground, relating to fraud in the inception the court would have invariably granted the motion. I assume that a motion for summary judgment will be forthcoming shortly if the insurer’s lawyers have any sense.


© 2020 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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