State Auto Property and Casualty Insurance Company v. Blair
Filing
120
MEMORANDUM Opinion and Order: State Auto's motion for summary judgment 109 is denied. The 8/28/2018 status hearing stands. Signed by the Honorable Thomas M. Durkin on 8/27/2018:Mailed notice(srn, )
Case: 1:15-cv-08026 Document #: 120 Filed: 08/27/18 Page 1 of 11 PageID #:1582
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
STATE AUTO PROPERTY & CASUALTY
INSURANCE COMPANY, INC.,
Plaintiff,
No. 15 C 8026
Judge Thomas M. Durkin
v.
ANTHONY BLAIR, JR.,
Defendant.
MEMORANDUM OPINION AND ORDER
State Auto Property & Casualty Insurance Company Inc. (“State Auto”) seeks
a declaratory judgment that it properly denied coverage under the homeowner’s
insurance policy it issued to Anthony Blair Jr. for the loss of his house to a fire. R. 1.
State Auto has filed a motion for summary judgment arguing that Blair made
material misrepresentations and false statements during State Auto’s investigation
of the fire. R. 109. For the following reasons, the motion is denied.
Legal Standard
Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317,
322-23 (1986). The Court considers the entire evidentiary record and must view all
of the evidence and draw all reasonable inferences from that evidence in the light
most favorable to the nonmovant. Horton v. Pobjecky, 883 F.3d 941, 948 (7th Cir.
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2018). To defeat summary judgment, a nonmovant must produce more than a “mere
scintilla of evidence” and come forward with “specific facts showing that there is a
genuine issue for trial.” Johnson v. Advocate Health and Hosps. Corp., 892 F.3d 887,
894, 896 (7th Cir. 2018). Ultimately, summary judgment is warranted only if a
reasonable jury could not return a verdict for the nonmovant. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
Analysis
Under Blair’s policy with State Auto, no coverage will be provided if the
insured has “intentionally concealed or misrepresented any material fact or
circumstance,” “engaged in fraudulent conduct,” or “made false statements.” R. 1124
at
35.
State
Auto
argues
that
Blair
made
the
following
material
misrepresentations or false statements: (1) he falsely testified during the
investigation about the circumstances under which he purchased his house; (2) he
made misrepresentations about whether he operated his business out of his house;
and (3) he concealed information and made false statements—particularly in the
Proof of Loss documents he submitted—about the rent he paid in the wake of the
fire.
The Seventh Circuit has explained the standard for such a claim on summary
judgment as follows:
Concealment and fraud provisions in insurance policies
have been enforced by both Illinois state courts and
federal courts, including this court. . . . [G]iven such
contract provisions, when an insured willfully makes false
statements in proofs of loss with intent to deceive the
insurer, the insured cannot recover any amount. If a false
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statement is knowingly made . . . with regard to a
material matter, the [insured’s] intent to defraud will be
inferred since the law presumes “every man to intend the
natural consequences of his acts.
....
Ordinarily, the defense of fraud and false swearing
presents a question of fact for the jury, but it becomes a
question of law when the insured’s misrepresentations
cannot be seen as innocent. Intent to deceive must be
present to find fraud. This intent can be inferred when a
person makes a statement knowing it to be false where
the statement was made for the purpose of inducing one
to whom the statement is made to act. In cases where
courts have found fraud as a matter of law, however, they
have not automatically inferred fraudulent intent merely
because an insured made a statement that is later shown
to be false. Illinois courts have observed that intent to
defraud should not be presumed and that the trier of fact
should make all reasonable allowance for lack of
knowledge or sound judgment or for honest mistake on
the part of the insured as well as for the tendency to
believe that which is to one’s own interest. Accordingly,
courts have inferred fraudulent intent as a matter of law
only where viewing the evidence in the light most
favorable to the insured, the court determines that any
reasonable jury would find that the insured knowingly
made false statements or willfully sought to defraud the
insurer by misrepresentation.
Trzcinski v. Am. Cas. Co., 953 F.2d 307, 313-14 (7th Cir. 1992) (internal citations
and quotation marks omitted).
Additionally, a “misrepresentation is material if reasonably careful and
intelligent persons would regard the facts as stated to substantially increase the
chances of the event insured against, so as to cause a rejection of the application.”
Methodist Med. Ctr. of Illinois v. Am. Med. Sec. Inc., 38 F.3d 316, 320 (7th Cir.
1994). “Although the materiality of a misrepresentation is ordinarily a question of
fact, summary judgment is appropriate where the misrepresentation is of such a
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nature that no one would dispute its materiality.” Id. In the context of a claim
investigation, “[f]alse sworn answers are material if they might have affected the
insurer’s action or attitude, or if they may be said to have been calculated to
discourage, mislead, or deflect the insurer’s investigation in any area that might
have seemed to it, at that time, a relevant area to investigate.” Passero v. Allstate
Ins. Co., 554 N.E.3d 384, 388 (Ill. App. Ct. 1st Dist. 1990); see also Barth v. State
Farm Fire and Cas. Co., 886 N.E.2d 976, 981-82 (Ill. 2008).
1.
Circumstances of Purchase
Regarding his purchase of the house, Blair testified that he saw the house
while driving along the highway and purchased it from the bank for $8,000. R. 113
¶¶ 20-21. But he actually acquired the home when his grandmother gave him a
quitclaim deed in exchange for three payments of $8,000. Id. ¶¶ 23, 27. When
confronted with the quitclaim deed, Blair said he had been confused because the
transaction was eight years ago, and he had received a number of other properties
from his grandmother. R. 118 ¶ 24.
One would think Blair would remember the circumstances of his acquisition
of the house. On the other hand, he had no reason to lie about this information. It is
undisputed that Blair owns the house, and State Auto does not contend that the
purchase price is relevant to its coverage decision. Furthermore, there is no
conceivable reason for Blair to undervalue the house. Absent a readily apparent
motive to lie, the Court holds that a reasonable jury could find that Blair had no
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intent to deceive when he gave incorrect testimony about how he acquired the
house. See Trzcinski, 953 F.2d at 313. 1
2.
Conducting Business
Blair owns a business selling printed materials, such as posters, flyers, and tshirts. Blair testified that “he did not conduct business” at his house, R. 113 ¶ 37,
and that he rented an office space to conduct sales of printing services that he
outsourced to other printers, id. ¶¶ 29-30. State Auto argues that no reasonable
jury could believe Blair’s assertion that he did not conduct business at the house
because it is contradicted by the following undisputed facts: (1) Blair kept four or
five commercial printing machines in the basement; (2) Blair testified he used at
least one of the machines to make t-shirts; (3) there were blank t-shirts in the
basement; (4) there were bottles of paint in the basement; (5) there was blank paper
and vinyl in the basement; (5) there was office furniture in the basement; (6) Blair
displayed advertising outside the house; (7) there was a drop box on the house’s
fence; (8) the house’s address was the address listed with the Illinois Secretary of
State for his business; and (9) the house address was associated with the business’s
phone number. R. 113 ¶¶ 31-49.
Blair also argues that the circumstances of his purchase of the house are not
material because “State Auto has made no showing that the purchase price was
material to its coverage decision.” R. 115 at 9. But materiality is determined with
reference to the investigation, not the coverage decision itself. See Passero, 554
N.E.3d at 388; Barth, 886 N.E.2d at 981-82. While the purchase price might not be
entirely material, whether Blair, the insured, actually owns the house is certainly
relevant and material to the investigation.
1
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Blair does not dispute these facts on this motion, and he did not testify to the
contrary during the investigation. In fact, his testimony included reasonable
explanations for these facts. He testified that only one of the printers in the
basement worked, and he used it to print t-shirts for neighborhood events as a
hobby. R. 113 ¶ 36, 38. He admitted that he took business phone calls and received
some business shipments at his home, id. ¶¶ 45, 53, but that he rented an office
space to meet clients and conduct regular business, id. ¶ 54. He explained that he
posted advertising outside his house because it was immediately adjacent to the
expressway where it would be seen by drivers. Id. ¶ 43. He registered his home
address with the Illinois Secretary of State because he was unsure how permanent
his office lease would be. See R. 112-3 at 8 (183:10-21). Similarly, the business
phone was registered at the house, but is a phone number Blair used prior to
owning the house and continues to use even though he no longer lives in the house.
R. 118 ¶¶ 17-19. Blair argues further in his brief that the volume of his business is
much greater than any of the materials in the basement could support. See R. 115
at 11-12.
Although State Auto surmises that the contents of the house and Blair’s
activities there mean that Blair must have been conducting his business out of the
house, this is simply not the only reasonable conclusion. Many people conduct some
aspect of their business from their home. Taking calls, receiving packages, even
posting advertisements, are not particularly extraordinary activities, and they do
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not necessarily indicate that a residence is also a primary business location. Blair’s
explanations are plausible.
Additionally, it is not clear what the threshold of materiality is from State
Auto’s perspective. State Auto never explains what it means by “conducting
business,” or what kind of business conduct at the house would be material to its
risk assessment for the policy. State Auto has not pointed to a definition of
“conducting business” in any of the relevant policy documentation that would
permit the Court to assess materiality as a matter of law.
On the question of whether Blair misrepresented that he “conducted
business” in his house, the undisputed facts and Blair’s testimony are not
necessarily inconsistent. Therefore, a jury must decide whether Blair made any
material misrepresentations, and if so, whether those misrepresentations were
intentional.
3.
Living Expenses
Lastly, State Auto argues that Blair made false statements about his living
expenses after the fire. Specifically, Blair testified that he was leasing space in his
grandmother’s house for $470 per month. R. 113 ¶ 56. He produced rent receipts
from his grandmother for $475 per month. Id. ¶ 62. He never provided a copy of a
lease. Id. ¶ 66. State Auto argues that all of this evidence is contradicted by the
Proof of Loss prepared by an agent from Nationwide Insurance Company Blair
hired for that purpose, claiming $4,500 a month in living expenses. Id. ¶ 69.
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The discrepancies between Blair’s and his grandmother’s testimonies do not
necessarily indicate an intent to deceive. The difference in rental amount is too
small, and it is entirely reasonable and unsurprising that family members would
use the term “lease” in an informal sense.
Furthermore, there is a genuine fact dispute regarding Blair’s intent to seek
$4,500 per month in living expenses from State Auto. The evidence relevant to this
issue is Blair’s testimony and the testimony of the agent he hired to prepare the
Proof of Loss. Blair testified that he could not remember whether he saw the Proof
of Loss document before his agent submitted it to State Auto, or whether he even
authorized the agent to submit the Proof of Loss. See R. 118 ¶¶ 7-9.
The agent’s testimony is entirely ambiguous as to how he determined the
claim for $4,500 per month. But it tends to show that the agent did not base the
claim for $4,500 per month on Blair’s actual rent:
Q. Do you remember how you got the temporary rent
amount of $4,500 a month?
A. I don’t remember how I got exact [sic], but it was given
to me—either he was at a place already—I am not sure
how I got that information. But it must have been a
temporary lease. I am not sure exactly. But it was
calculated at 4,500 a month, with furniture I am
assuming.
Q. And that was for 14 months?
A. I took it—that’s correct.
Q. You are saying the amount of the monthly expense
wouldn’t have been a calculation—strike that—wouldn’t
have been a number that you would have chosen by
yourself. It would have had some input from Mr. Blair?
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A. No, not saying Mr. Blair. I mean some of it could have
been from Mr. Blair. But some it could be from, you know,
the office how long would it take to reconstruct the
property, you know. If there was no delays or anything in
that matter, temporary rent could have been already, a
lease or something agreed on, you know. I don’t have all
the details here. And that’s how that’s come about.
*
*
*
*
Q. So back to what you were saying about moving in and
not having any money. But if he testified that he paid his
grandmother money to live there as rent, would that
change your opinion as to the estimate for alternate living
expenses?
A. No. Because you see what he paid, I don’t know what
he paid her. It indicates some amount. It's what he was
able to pay. It’s not the same as what he can afford. I
mean for what he was entitled to.
Q. So you are saying that you believe he is entitled to
$4,500 per month for rental expenses?
A. No. I'm saying that he is entitled to like-kind quality of
a home that he had that burned. And I have seen many
ALE claims come through and what the rental goes with
furniture. It’s around 2,000 to 3,500 a month usually.
When they have a temporary rental place and it’s three or
four-bedroom lease, at least three bedrooms at least, so in
order to rent that on a temporary facility with insurance
that I have seen it’s always around 3,000 up.
Q. What is your understanding in general that insurance
companies will pay more to an insured for rental expenses
that they are actually incurring?
A. No, no. No, that’s not what I am saying.
Q. Back to the amount $4,500 though. I am still not
understanding where it came from if you don’t recall
seeing any letter of a lease for 4,500. And it sounds to be
more than what you typically would see for a fully
furnished three to four-bedroom home.
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A. I can’t tell you where I got that number from.
Q. But is it your testimony then that that’s what you
believe that he is owed of like-kind?
A. Yes. I mean—if he had three-bedroom house, like-kind
quality, would put him in a place, and if it’s a rental is
going there at that rate for the time that he is to rebuild
the place, he should be entitled that. I mean if this claim
was not denied and he was put in a place, they would put
him in a temporary home, easily.
Q. But you believe it was denied?
A. Oh, yeah.
Q. How do you typically figure out the like-kind amount
for monthly rent?
A. Well, I don’t actually do that. I don’t. But I've seen a lot
of claims come through and I have I seen rental,
temporary rental leases.
Q. Understand. Do you know how that amount is typically
figured?
A. Well, from my understanding they look at
corresponding neighborhoods. And temporary rental
places cost a whole lot more than a four-year rental or,
you know. When you rent something for six months or
three months, it's maybe double or two times as much,
plus you have to add furniture.
Q. So you don’t calculate the number?
A. No, I didn’t calculate that particular
Q. Do you recall why you have 14 months instead of 12
months or eight months?
A. Yeah, I probably put the time limit on some kind of
investigation process. I mean I don't know what the policy
limit was here. I mean as far as time, if it wasn't no time
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limits, sometimes the policies put a 12-month limit. I am
not sure if that was the case. But it's a dollar amount
limit.
Q. Understand. And you are saying the 14 months you
were counting for repair and investigation time?
A. Yeah.
R. 114-2 at 11-13 (37:17–38:15, 43:1–45:24). Based on this testimony, a reasonable
juror could find that Blair’s agent calculated the $4,500 in additional living
expenses based on the market rent of Blair’s burned down house, including the
value of the furniture, and that he did not believe that Blair’s actual rent was
relevant to this calculation. A reasonable juror could also find that Blair had no
actual knowledge of the agent’s decisions, and even if he did, that he believed the
agent was correct about the proper method of calculation (i.e., using the market
value of the house, not the actual rent Blair was paying). Only a jury can decide
who is telling the truth, and whether inaccurate testimony constitutes the intent to
deceive necessary for State Auto to prevail.
Conclusion
For the foregoing reasons, State Auto’s motion for summary judgment, R.
109, is denied.
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: August 27, 2018
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