The 5th Amendment and Insurance Coverage
When a property is destroyed by fire, the property owner’s property insurance likely will cover the loss all things being equal. But if the fire was intentionally set, coverage likely will be denied. In the case of a residential property, policies often condition coverage on occupation of the premises. In a recent case before the Third Circuit Court of Appeals, all these issues collided.
In Brown v. Certain Underwriters at Lloyd’s, London, No. 18-2977 (3rd Cir. Sep. 17, 2019) (Not Precedential), a fire destroyed a house and the owner brought a claim for the full policy limits. Prior to the fire, the owner obtained a residential lease showing a near-future tenant. The fire occurred on the day the tenant was supposed to move in. The insurance policy had a clause that required, as a condition of coverage, that the home be occupied. The investigation indicated that the fire began in multiple locations and was spread by accelerants. The insurer investigated the fire and held the claim pending during the investigation.
The policyholder sued after a year claiming breach of contract and seeking full policy limits plus loss of rental income. During discovery, the policyholder refused to answer questions at deposition about the insurance policy, the house or the fire, invoking his 5th Amendment right against self-incrimination. The insurer moved for discovery sanctions to preclude the policyholder from introducing evidence on these subjects. The district court partially granted the motion, but allowed the policyholder to introduce evidence on those subjects from other sources.
The insurer moved for partial summary judgment against the policyholder’s claim and on several of its counterclaims. The insurer presented unchallenged testimony from the purported tenant that she never intended to move into the house and only signed the lease so the policyholder could obtain insurance for the house. The policyholder failed to respond to the motion and the district court granted it in its entirety. The district court found no genuine dispute that there were misrepresentations of material facts made by the policyholder to the insurer in the application process.
On appeal, the policyholder sought to raise various arguments about how the district court abused its discretion and about deficiencies in the summary judgment record. The appellate court rejected all of these arguments holding that the policyholder had waived them, and affirmed the summary judgment order. The court stated that when an argument is not raised in the district court, that failure is a waiver of the argument on appeal. The policyholder’s failure to respond to the summary judgment motion was “tantamount to not raising an argument, making the argument unavailable on appeal.”
The lesson here is that if you seek insurance coverage, but invoke your 5th Amendment right against self-incrimination, you still have to make arguments and present other competent evidence supporting a basis for coverage. Silence may be golden, but it precludes an insurance recovery in this context.