Policyholders Inflate Estimates At Their Own Risk (PA)
A recent decision from the United States District Court for the Eastern District of Pennsylvania demonstrates the risks involved when an insurance policy holder inflates the replacement value of the property covered under their commercial insurance policy. See State Auto Prop. & Cas. Ins. Co. v. Sigismondi Foreign Car Specialists, Inc. No. CV 19-5578, 2021 WL 1343116 (E.D. Pa. Apr. 12, 2021).
The insurance policy at the center of the case was executed between State Auto, a commercial insurer, and Sigismondi Foreign Car Specialists, an automobile sales and repair business in Philadelphia. In January 2019, the auto shop presented a claim under the policy for water damage to the building and the business’ automobile inventory. The auto shop hired a public adjuster and an appraiser to calculate the value and replacement cost of the automobiles it had in inventory that were damaged. However, the owner of the auto shop then allegedly substituted in his own replacement cost figures. As the court put it, “Many of those figures were substantially greater than the values determined by [the adjuster and appraiser].” To support these inflated values, the owner allegedly fraudulently altered vendor invoices and submitted them to State Auto. He allegedly later admitted in deposition testimony that he used computer software to alter these invoices.
State Auto denied the auto shop’s claim under the insurance policy citing misrepresentation. Ultimately, State Auto was victorious on a Motion for Summary Judgment when the court held that the auto shop violated the “Concealment, Misrepresentation or Fraud” condition of the insurance policy and therefore State Auto was not obligated to provide coverage for the claim. This case shows that an insurer or its counsel should typically obtain a reliable valuation to ascertain whether the policyholders’ claims are within the realm of reason.
Thanks to Jason Laicha for his contribution to this post. If you have any questions, please email Matthew Care.