Article by Daniel Inadomi, Esq.
The Third Circuit recently affirmed a District Court’s granting of summary judgment in favor of an insurer on the insurer’s declaratory judgment action and statutory insurance fraud claims. The Third Circuit found that the insured knowingly made material misrepresentations when it submitted falsified invoices to the insurer during the claim process. See State Auto Prop. and Cas. Ins. Co. v. Sigismondi Foreign Car Specialists, Inc., 2022 WL 17076035 (3d Cir. Nov. 18, 2022).
In Sigismondi, the insured requested an insurance payment for water damage pursuant to a commercial insurance policy issued by the insurer that provided coverage for the insured’s car repair shop. During the claims-adjustment process, the insured and insurer retained adjusters to value the damaged inventory. The insured valued certain items higher than the insurer’s adjuster estimated or could verify, so the insurer requested “invoice support” or other “documentation for the value claimed.” In response, the insured provided what appeared to be original invoices from various vendors, but the purportedly original invoices had been edited by the insured to change the items and prices listed by the vendors.
After the insurer’s further investigation confirmed that the invoices had been altered, the insurer denied the claim, citing fraud. The insurer additionally filed suit and sought a declaratory judgment that the policy was void for misrepresentation of a material fact concerning the claim. The insurer also requested damages for statutory insurance fraud, common law fraud, and reverse bad faith. At the summary judgment stage, the insured argued that its misrepresentations were not material. The insured subsequently sought leave to address a recent Superior Court decision and then offered new arguments: that the altered invoices were not knowingly made to contain false or misleading information and that they were not misleading. The District Court granted summary judgment in favor of the insured after finding that the insured’s new arguments were forfeited and the misrepresentations made by the insured were material.
On appeal, the insured argued that there was a genuine dispute of material fact as to whether the edited invoices were knowingly made to be false or misleading, whether they were misleading at all, and whether they were material—necessary elements of both the declaratory judgment and statutory fraud causes of action.
With respect to the insured’s argument that it did not knowingly provide false or misleading information and that the invoices were not misleading, the Third Circuit held that the District Court correctly concluded that the insured forfeited these arguments. The Third Circuit found that the District Court only granted the insured leave to address the impact of recent case law on the materiality question—it was not an invitation to raise new arguments.
As for materiality, the Third Circuit found that the altered invoices were material because they were provided in response to a request for documentation in support of the value of the claimed items. The Third Circuit concluded that the invoices were part of an effort to determine the value of the insured items, and the falsified invoices that indicated prices charged by vendors were “undoubtedly material.” Accordingly, the Third Circuit found that the District Court properly granted summary judgment for the insurer on its declaratory judgment and statutory insurance fraud claims.