Opinion
Civil Action No. 89-00551-R
February 28, 1990
John B. Boatwright, III, Esq., BOATWRIGHT LINKA, Richmond, VA.
Edward E. Nicholas, III, Esq., Barbara A. Williams, Esq., WRIGHT, ROBINSON, McCAMMON, OSTHIMER, TATUM, Richmond, VA.
Thomas M. Regan, Esq., COZEN O'CONNOR, Philadelphia, PA., Eric D. Freed, Esq.
FINAL ORDER
This matter is before the Court on defendants' motion for summary judgment. For reasons stated below, that motion will be granted.
The plaintiff in this case is Robert Chase, the sole proprietor of Richmond Automotive Machine, an automotive shop located in Richmond, Virginia. The defendants are CNA Insurance Companies (CNA), a group of insurance companies with its principal place of business in Chicago, Illinois, and Continental Casualty Company (Continental), a member of the CNA group and an Illinois corporation with its principal place of business in Chicago.
Continental issued plaintiff a commercial insurance policy, which included fire insurance covering the contents of plaintiff's shop. The insurance policy contained a strongly worded "false swearing" provision:
A. CONCEALMENMT, MISREPRESENTATION OR FRAUD This Coverage Part is void in any case of fraud, or false swearing by you as it relates to this coverage Part at any time. It is also void if you or any other insured at any time, intentionally conceal or misrepresent a material fact concerning: 1. This Coverage Part; 2. The Covered Property; 3. Your interest in the Covered Property; or 4. A claim under this Coverage Part.
Exhibit A to Affidavit of Leonard E. Barney. This clause is similar to the standard "false swearing" provision for fire insurance policies provided in Va. Code § 38.2-2105. It also resembles "false swearing" provisions considered in various Virginia cases. See, e.g., Virginia Fire Marine Ins. Co. v. Hogue, 105 Va. 355, 358, 54 S.E. 8, 9 (1906); C.C. Vaughan Co. v. Virginia Fire Marine Ins. Co., 102 Va. 541, 542, 46 S.E. 692, 693 (1904).
During the policy period a fire broke out at plaintiff's shop. Plaintiff made a claim on defendants for $76,344.75 worth of damage to the contents of the shop. Shortly after the fire, Leonard Barney, a claims consultant for CNA, requested that plaintiff complete an itemization of the damaged contents by indicating the original cost and an estimate of the replacement cost for each item, as veil as providing copies of any invoices he had reflecting the original costs. Barney received from plaintiff the requested itemization, including original cost figures, estimated replacement cost figures, and copies of invoices.
Plaintitf has admitted to altering two of the invoices that he submitted. He changed the original cost figure for Item 18 — an "align boring fixture" — from $1,683.00 to $4,683.00. He changed the original cost figure for Item 19 — a "No. 944 Van Norman boring bar" — from $1,200.00 to $4,200.00, See Affidavit of Counsel, Exhibit B to Defendants Motion for Summary Judgment.
II
Under Virginia law an insured violates the "false swearing" provision of a fire insurance policy if he makes a false statement concerning some fact material to the policy or to a claim under the policy. United States Fidelity Guar. Co. v. Haywood, 211 Va. 394, 397-398, 177 S.E.2d 530, 533 (1970) Vaughan, 102 Va. at 546, 46 S.E. at 694; Globe Rutgers Fire Ins. Co. v. Stallard, 68 F.2d 237, 240 (4th Cir. 1934). By violating the "false swearing" provision, the insured forfeits his right to recover under the insurance policy. Vaughan, 102 Va. at 542; Stallard, 68 F.2d at 240.
The insured's false statement causes a forfeiture, however, only if the statement was both intentional and material. Thus, the insured must first have made the false statement intentionally; an innocent misrepresentation does not trigger a "false swearing" provision. North British Mercantile Ins. Co. v. Nidiffer, 112 Va. 591, 595, 72 S.E. 130, 132 (1911); Hogue, 105 Va. at 366, 54 S.E. at 12. The false statement must also concern a fact material to the policy or to a claim under the policy. Haywood, 211 Va. at 398, 177 S.E.2d at 533. The Virginia Supreme Court has not developed a doctrinal framework for considering the materiality issue. It has indicated, however, that it considers statements concerning the value of items destroyed by fire to be material. See, e.g., Nidiffer, 112 Va. 591, 72 S.E. 130; Vaughan, 102 Va. 541, 46 S.E. 692; accord Stallard, 68 F.2d 237.
The Second Circuit has set out a useful doctrinal framework for considering the issue of materiality; In Fine v. Bellefonte underwriters Insurance Co., 725 F.2d 179, 183 (2d Cir.), cert. denied, 469 U.S. 874 (1984), the court held that "the materiality requirement is satisfied if the false statement concerns a subject relevant and germane to the insurer's investigation as it was then proceeding." The Fine court further explained that
[f]alse sworn answers are material if they might have affected the attitude and action of the insurer. They are equally material if they may be said to have been calculated either to discourage, mislead or deflect the company's investigation in any area that might seem to the company, at that time, a relevant or productive area to investigate.Id. at 184.
III
When the above principles of law are applied to the present case, it becomes clear that plaintiff made a material misrepresentation and thus forfeited any right to recover under the policy. Defendants' motion for summary judgment must therefore be granted on grounds of fraud.
Plaintiff has conceded that he made false statements when he altered the invoice prices of two items destroyed in the fire. The Court finds that these false statements were both intentional and material. It is clear to the Court that plaintiff knowingly and intentionally altered the invoice prices. The uncontroverted evidence demonstrates that plaintiff marked two invoices so that actual purchase prices of $1,683.00 and $1,200.00 would appear as $4,683.00 and $4,200.00, respectively.
It is equally clear to the Court that plaintiff's false statements were material to his claim under the policy. Even assuming that plaintiff's policy was a replacement cost policy, the purchase prices of items damaged in the fire would still be relevant. The original cost of an item is obviously a useful starting point in determining its replacement value. CNA would not have inquired about the purchase prices of damaged items unless they were relevant to its investigation of plaintiff's claim. Plaintiff's false statements were thus material whether the Court applies the test developed in Fine, principles gleaned from Virginia cases, or simple common sense. See Fine, 725 F.2d at 183 ("the materiality requirement is satisfied if the false statement concerns a subject relevant and germane to the insurer's investigation"); see also Nidiffer, 112 Va. 591, 72 S.E. 130 (statements concerning value of items destroyed by fire are material); Vaughan, 102 Va. 541, 46 S.E. 692 (same).
Plaintiff attempts to avoid summary judgment by offering two "explanations" for his alteration of invoice prices. First, plaintiff claims that he believed the purchase prices of damaged items to be irrelevant because his policy was a replacement cost policy. Second, plaintiff claims to have been motivated by the fear that defendants would not believe that he had obtained items 18 and 19 at prices as low as he actually paid. Plaintiff reads Vaughan as requiring this Court to give him an opportunity to present these `explanations' to a jury.
The Court refuses to give Vaughan such a broad reading. In Vaughan the Virginia Supreme Court upheld an insurance company's demurrer to the evidence on the ground that the insured had engaged in "false swearing" when he submitted fraudulent invoices covering items not actually damaged in a fire. In reaching its decision the court noted that at trial the insurer had not even attempted to offer any explanation for his false statements. See Vaughan, 102 Va. at 545, 46 S.E. at 693-694. This Court thus construes Vaughan as standing for the following proposition: when an insured has been shown to have submitted false information to an insurer, he can recover only if he presents explanations which show that his actions were not in fact fraudulent. Plaintiff, on the other hand, reads Vaughan as holding that an insured who has made false statements can automatically get past summary judgment and get a jury trial by offering any explanation for his actions, no matter how implausible. The Court finds no such holding, explicit or implicit, in Vaughan.
Because Vaughan does not provide such blanket protection against summary judgment, the Court looks to and assesses the actual explanations offered by plaintiff. The Court finds these explanations insufficient to avoid summary judgment, for two reasons. First, the explanations are facially implausible. If plaintiff believed, as he asserts, that the original costs of items 18 and 19 were irrelevant, then one must wonder why he went to the trouble of altering them. Plaintiff's next assertion, that he feared defendants would not believe he had obtained items 18 and 19 for prices as low as he actually paid, is equally implausible. Implicit in it are two far-fetched contentions: (1) that the defendant insurance companies would be seriously concerned about plaintiff's understating the value of items for which he was making claims, and (2) that plaintiff so feared this contingency that he secretly altered the invoices for two items in order to raise their apparent purchase prices by three thousand dollars each. In this Court's estimation, no reasonable jury would give credence to either of plaintiff's proffered explanations.
Moreover, even if plaintiff's explanations could somehow be considered plausible, they are still insufficient to avoid summary judgment. In offering his explanations, plaintiff attempts only to explain hismotives for altering the invoices. The explanations do not even purport to remove the taint of fraud from his actions. Plaintiff does not attempt to show, for example, that his false statements were the product of innocent mistake or were the result of someone else's wrongdoing. He simply attempts to show that he had his own reasons for knowingly altering the invoices. Plaintiff has thus failed to offer the type of exculpatory explanation contemplated in Vaughan:
[It] was undoubtedly incumbent upon the plaintiff to entitle him to recover, to remove the suspicion which the facts proved in connection with the invoices in question justly excite; for nothing is better settled than that the assured must observe, in dealing with the insurer, the utmost good faith, without which there can be no recovery.Id. (emphasis added). Plaintiff's explanations have done nothing to remove this Court's suspicions about his fraudulent alteration of the invoices.
Accordingly, defendants' motion for summary judgment is hereby GRANTED.
And it is SO ORDERED.