Innocent Spouse, Lying Insured, Concealment / Fraud

Here is a 2003 case from the Amarillo Court of Appeals that deals with a situation where the spouse is innocent but an insured on the policy is committing fraud.  The case is styled, McEwin v. Allstate Texas Lloyds.

Here are the facts.

The husband and wife were both named insureds on their homeowners policy.  The husband set the house on fire but the wife was unaware of the arson and was not involved.  The proof of loss form did not inquire into whether the insureds were involved and did not reference the origin of the fire.  An examination under oath was taken from both insureds who both denied knowledge or involvement in the loss.  The husband was subsequently convicted of the arson and the couple divorced.  The insurer denied the claim presented by the wife who had received all interest in the insurance proceeds in the divorce and the wife filed suit.  The insurer argued that denial was proper based on the concealment or fraud provision of the policy, which stated in part that “this policy is void as to you or any other insured, if you or any other insured … intentionally concealed or misrepresented any material fact or circumstance, made false statements or committed fraud relating to this insurance ….”  The trial court found this provision to be unambiguous and held that the husband’s fraudulent misrepresentations, concealment and fraud voided the policy as to all insureds, thereby precluding the wife’s recovery for the fire loss.  The wife claimed she was an innocent spouse and that all policy benefits would be her separate property pursuant to the divorce decree.  She further asserted that Texas Insurance Code, Section 705.003 required that the insurer prove it waived or lost a valid policy defense based on misrepresentation in order to void the policy.  The trial court disagreed and granted the insurer’s motion for summary judgment.  This appeal followed.

On appeal the Amarillo Court of Appeals affirmed the take nothing judgment in favor of the insurer, agreeing with the trial court that there was no ambiguity in the concealment and fraud provision of the policy and noting that the policy would be void as to the wife if it was voided because of the husband’s actions.  Addressing the innocent spouse argument, the court noted that the wife’s status as an innocent spouse “does not determine her right to recover … if the contract terms provide otherwise.”  The court then considered the wife’s argument that Section 705.003 was ineffective in voiding the policy due to the insured’s misrepresentation in submitting a proof of loss because the misrepresentation did not cause the insurer to waive or lose a valid policy defense.  The court found that it did not need to reach this issue because the husband’s actions in burning the house and filing a loss report without disclosing his complicity in the fire, and the resulting expense and detriment to the insurer, constituted fraud on the insurer even without considering the subsequent false statements in his examination under oath.