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Revisiting Alvarez v. State Farm: What does it really mean?

Posted by Michael A. Cassel | Mar 16, 2020 | 0 Comments

On April 24, 2019, we posted about the Third District Court of Appeal decision in Jose Alvarez and Hilda Alvarez v. State Farm Florida Insurance Company (" Alvarez"). [1]  Since then, we have seen, for lack of a better term in today's climate, an epidemic of reliance on this case where insurance carriers and their counsel utilize it for the proposition that an overinflated estimate is  de facto fraud/material misrepresentation.  Let me make this perfectly clear:  Alvarez stands for nothing of the sort. 

The facts of the Alvarez claim are as follows:  In 2009, the insureds sustained damages as a result of a kitchen drain leak which was repaired by their plumber.  In 2010, the insureds filed their claim with State Farm and presented a preliminary estimate in the amount of $10,487.80.  At some point they submitted a revised estimate in the amount of $19,853.14.  Each of these estimates reflected plumbing access through the exterior of the property with no interior damages accounted for.   During the initial inspection of the property by State Farm, in line with the estimates presented, the insureds advised the carrier's adjuster that there was no water damage to the interior of the property nor was there ever a water loss.  In November 2010 and April 2011, State Farm sent correspondences denying the claim based, in part, that no accidental direct physical ensuing loss occurred and, therefore, no coverage was available under the policy. [2]  In March 2011, the insured executed an application with a new insurance carrier which attested, under oath, that there was no existing damage at the property.  In March 2012, the insureds' public adjuster provided an executed sworn proof of loss alleging that a water loss did, in fact, occur, and caused damages in the amount of $82,967.92.

At trial, the jury was asked to weigh whether the assertion that water damage actually occurred was a material misrepresentation considering the insured first stated that no water damage occurred and then attested under oath that no damage existed at the property.  It was not simply a question of whether the estimate was overinflated.  Ultimately, the jury awarded some minor damages but also found that the insured intentionally and materially misrepresented pertinent facts.  When the appellate court received the case, it was to determine whether a jury verdict in favor the insureds should be invalidated based on the jury's finding of misrepresentation.  For that reason, the takeaway from Alvarez is really more procedural in nature given that it deals with an inconsistent verdict. 

In making a determination that the verdict in favor of the plaintiff should be nullified, the Alvarez court held that, “[a]s a matter of law, the finding of material misrepresentation voids coverage for the claim.” [3]  This is by no means a groundbreaking holding.  The Third DCA in Alvarez supported this single sentence by citing to four (4) prior Third DCA cases, two of which were written in 1997 and two of which were written in 2000.  To further illustrate how solid this tenet of law is and has been, Shepardizing this aspect of the Alvarez opinion will take you on a journey back to Claflin v. Commonwealth Ins. Co., [4] an opinion written by the Supreme Court of the United States… in 1884!  Allow me to give you some context about how long this maxim of law has been in place:

  • North Dakota, South Dakota, Montana, Washington, Idaho, Wyoming, Utah, Oklahoma, New Mexico, Arizona, Alaska, and Hawaii were not yet States (there were only 38 stars on the Flag);
  • Seven months after the Claflin opinion, the cornerstone for the Statue of Liberty was placed on Liberty Island (still called Bedloe's Island); and
  • 11 months after the Claflin opinion, the construction of the Washington Monument was completed.

Despite my attempt to inject some levity into the situation, I think the sudden reliance on Alvarez presents a large and widespread problem.  To deny claims and assert intentional fraud as a defense solely due to an estimate being deemed too high illustrates a lack of knowledge of well-established case law and is indicative of an incomplete reading of the Alvarez opinion. 

In Florida, there are four elements that must be satisfied in order to establish intentional misrepresentation in insurance claims: 1) a false statement concerning a material fact; 2) the knowledge by the party asserting the statement that it is false; and 3) the intent that the receiving party rely on the false statement and act on it. [5],[6]  Based on these elements, there exists precedent where Florida courts have dismissed actions (or upheld the dismissal of such) where it is found that a party has provided false testimony or intentional misrepresentations; [7] however, the fact remains that this requires the application of an extremely stringent standard and, as in Alvarez, intent is almost always a question reserved for the jury. [8]

The jury instructions and verdict form used in Alvarez were consistent with this longstanding law.  The jury was specifically instructed that “[o]verestimating the value, a mistake, or inadvertence is not sufficient to void the policy.  The jury must decide whether plaintiffs made material misrepresentations of fact sufficient to void the policy.” [9]  Similarly, the verdict form read: “Did the Defendant prove, by the greater weight of the evidence, that Plaintiffs intentionally and materially misrepresented the extent of the loss such that no other conclusion can be drawn than that a purposeful misrepresentation was intended?” [10]  Even though the Third DCA included this in their opinion, too many people seem to have overlooked it and, instead, misapply the Alvarez opinion to stand for the proposition that, if an estimate is too high, the estimate is fraudulent.

To gain additional insight into the requirements for a court to dismiss an action for fraud, we can look to a more recent case which, similar to Alvarez, relies on well-established case law.  On March 4, 2020, the Fourth District Court of Appeals released its opinion in Joan and Lucille Beseler v. Avatar Property & Casualty Insurance Company (“ Beseler”). [11]  While dismissal of a case for fraud upon the court is not the same as voiding coverage due to material misrepresentations, the Beseler opinion provides somewhat of a road map of the requirements for a court to take the issue out of the purview of the jury. 

To keep a long story short, the insurer in Beseler moved to dismiss the insureds' claim due to fraud arguing that “(1) after the insureds' initial statements, the insureds changed their account of the cause of loss during their depositions [in conjunction with testimony that the senior citizen insured was having trouble remembering things 17 months after the date of loss]; (2) the invoices regarding the garbage disposal repair predated the cause of loss by a month, and (3) the insureds made prior fraudulent claims” related to previous unrelated insurance claims where payment was issued and no repairs were completed. [12]  The trial court initially granted the insurer's motion.

On appeal, the Fourth DCA held that the only situations in which a court should render a finding of fact as to fraud warranting dismissal are those where “it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier [of fact] or unfairly hampering the presentation of the opposing party's claim or defense” [13]  In such situations, “the false testimony must be directly related to the central issue in the case.” [14]  With that said, even in circumstances where a conflict exists between deposition testimony, sworn to discovery responses, and documentary evidence, “[e]xcept in the most extreme cases, where it appears that the process of trial has itself been subverted, factual inconsistencies, even false statements are well managed through the use of impeachment and traditional discovery sanctions.” [15]  As shown in Beseler, a fact pattern in which the insured changed the cause of loss and presented documentation evidencing that the actual date of loss occurred a month prior to reporting was not considered an unconscionable scheme which permeated to the heart of the matter warranting dismissal. 

It is important to note that, when an insurer asserts affirmative defenses related to allegations of fraud, the defenses “must be pled with specificity, and all the essential elements of fraudulent conduct must be stated.  An affirmative defense of fraud or misrepresentation should specifically identify the misrepresentations or omissions of fact and how those acts or omissions were false or misleading.” [16]  If a carrier alleges fraud simply by citing to a provision of the insurance policy, their defense is, at a minimum, legally insufficient and may be struck from the pleadings as sham. [17]  With that said, the court must address false allegations of fraud with a heightened level of scrutiny beyond simply striking the defenses. 

A struck defense may be just the beginning.  In Florida, insurance fraud is a third degree felony [18] carrying the potential for imprisonment of up to five (5) years. [19]  “When a statement [falsely] charges a person with committing a crime, the statement is considered defamatory per se” [20] meaning harm to one's reputation is presumed and “is alone sufficient for the jury to consider punitive damages.” [21]  While statements asserted in litigation are afforded reprieve from an independent cause of action for defamation, a court “can and will protect the party aggrieved by expunging irrelevant defamatory matter from the pleadings, and by punishing for contempt of court the guilty party.” [22]  This means an attorney or insurer who falsely accuses an insured of committing the crime of insurance fraud may find themselves liable for a finding of contempt of court and subject to monetary sanctions.  So, a word to the wise: it is not the best idea to simply throw around an allegation of fraud unless there is substantial evidence to support it.  

At the end of the day, the costs of asserting fraud defenses may greatly outweigh the benefits.  If insurers argue that an overinflated estimate is tantamount to de facto fraud, so too may the insureds argue that an estimate which does not account for all of the damages is de facto bad faith.  The statutes governing bad faith contain specific provisions regarding insurers making material misrepresentations related to the coverages at issue for the purpose of effecting settlement on unfavorable terms. [23]  Furthermore, unsuccessful allegations of fraud may lead to issues beyond the damages owed to an insured, particularly as precedent exists for the courts to take such defenses into consideration when awarding attorney's fees and multipliers. [24]

So what does all of this mean as it relates to the practical applications of the long-existing case law utilized in both Alvarez and Beseler?  Well, anytime an estimate is written, more than anything, the scope must be justifiable.  Prices can change based on the availability of materials and labor and should always be supported in some way, but the scope of the estimate should reflect extent of work necessary to place a property back to its pre-loss condition.  An unsupportable scope is the quickest way to raise SIU red flags.  By means of a quick example, if you have damage to a kitchen and water may have seeped under a tile floor, you may be justified in including the tile floor in an estimate.  On the other hand, if there is damage to a kitchen and the bathroom across the house is completely unaffected, the inclusion of that bathroom simply as a means to bulk up the estimate may be considered a scheme to intentionally and materially misrepresent aspects of the claim.  In the latter example, there may be a viable argument to void coverage. 

It is also important to discuss the scope of your estimates with your clients, especially when the estimates support sworn proofs of loss.  A sworn proof of loss is just that - sworn.  Pursuant to Florida Law, every proof of loss form must contain the following caveat: “Any person who knowingly and with intent to injure, defraud, or deceive any insurer files a statement of claim or an application containing any false, incomplete, or misleading information is guilty of a felony of the third degree.” [25]  Florida law does not allow anyone “to remain willfully ignorant of a thing readily ascertainable” when signing a document. [26]  To that end, insureds have an affirmative duty to read and understand a proof of loss that is to be submitted in support of a claim. [27]  Of course, and I cannot stress this enough, overestimating the value of the claim, mistake, or inadvertence are not enough to warrant a finding of fraud or material misrepresentation.  The long history of established precedent and current Florida law all require a showing of intent, and that, my friends, is no small burden to meet.

​ ​As always, should you have any questions about how this analysis may relate to your own claim,  please do not hesitate to contact us for a free consultation.

[1] Jose Alvarez and Hilda Alvarez v. State Farm Florida Insurance Company, No. 3D17-2261, 2019 WL 1646421 (3d DCA 2019).

[2] See, generally, Homeowners Choice Property & Casualty, etc., v. Miguel Maspons, et al., 211 So.3d 1067 (3rd DCA 2017).

[3] Id. at *2 (Fla. 3d DCA Apr. 17, 2019) citing to Schneer v. Allstate Indem. Co., 767 So.2d 485, 489 (Fla. 3d DCA 2000) (holding that an insureds' fraudulent misrepresentations as to their contents claim voided their homeowner's policy in its entirety and thus voided the dwelling coverage); Valdez v. Consolidated Prop. & Cas., 762 So.2d 1034 (Fla. 3d DCA 2000) (affirming final judgment voiding insured's insurance policy where insurance policy contained a valid provision voiding the policy upon intentional concealment or misrepresentation by the insured); Am. Reliance Ins. Co. v. Kiet Invs., Inc., 703 So.2d 1190 (Fla. 3d DCA 1997) (holding that clauses voiding coverage for intentional misrepresentations and fraud in claims process are valid and enforceable); Wong Ken v. State Farm Fire & Cas. Co., 685 So.2d 1002, 1003 (Fla. 3d DCA 1997) (“[T]he clause which voids coverage if the insured makes an intentional misrepresentation ‘after a loss'-that is, as here, in making a claim-is valid and enforceable.”) (citation omitted).

[4] Claflin v. Commonwealth Ins. Co., 110 U.S. 81 (1884).

[5] Specialty Marine & Indus. Supplies v. Venus, 66 So. 3d 306, 310 (Fla. 1st DCA 2011).  See also Lance v. Wade, 457 So.2d 1008, 1011 (Fla. 1984). 

[6] There is another element requiring consequent injury; however, that does not apply with regards to insurance claims. See Chaachou v. American Cent. Ins. Co., 241 F.2d 889 (5th Cir. 1957) applying Florida law (On October 1, 1981, the Fifth Circuit Court of Appeals split and formed the 11th Circuit Court of Appeals and, as such, all Fifth Circuit decisions before October 1981 are binding precedent in the 11th Circuit.  See also Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981)).

[7] See Cox v. Burke, 706 So.2d 43, 47 (Fla.5th DCA 1998)(“[W]here a party lies about matters pertinent to his own claim... and perpetrates a fraud that permeates the entire proceeding, dismissal of the whole case is proper.”); Mendez v. Blanco, 665 So.2d 1149 (Fla.3d DCA 1996)(Affirming the dismissal of the claim where plaintiff repeatedly lied under oath at a deposition); O'Vahey v. Miller, 644 So.2d 550 (Fla.3d DCA 1994)(Affirming the dismissal of the claim based upon the established perjury of plaintiff that represented serious misconduct and “an obvious affront to the administration of justice”), review denied, 654 So.2d 919 (Fla. 1995); Kornblum v. Schneider, 609 So.2d 138 (Fla.4th DCA 1992)(The trial court has the inherent authority to dismiss the entire action for a fraud which permeates the proceedings); Horjales v. Loeb, 291 So.2d 92, 93 (Fla.3d DCA 1974)(“One who engages in a fraudulent scheme forfeits all right to the prosecution of a lawsuit.”).

[8] See, generally, Alvarez at 1.

[9] Alvarez at fn. 1.

[10] Alvarez at 2.

[11] Beseler v. Avatar Prop. & Cas. Ins. Co., 4D18-3148, 2020 WL 1038760 (Fla. 4th DCA Mar. 4, 2020)

[12] Id. At 2.

[13] Gilbert v. Eckerd Corp. of Florida, Inc., 34 So. 3d 773, 775 (Fla. 4th DCA 2010) quoting Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1118 (1st Cir.1989).

[14] Beseler at 3 quoting Morgan v. Campbell, 816 So. 2d 251, 253 (Fla. 2d DCA 2002).

[15] Ruiz v. City of Orlando, 859 So. 2d 574, 576 (Fla. 5th DCA 2003).

[16] Cocoves v. Campbell, 819 So. 2d 910, 912–13 (Fla. 4th DCA 2002).

[17] 1.140(f) Fla. R. Civ. P. (2019).

[18] Fla. Stat. § 817.234 (2019).

[19] Fla. Stat. § 775.082(3)(e) (2019).

[20] Shafran v. Parrish, 787 So. 2d 177, 179 (Fla. 2d DCA 2001).

[21] Lawnwood Med. Ctr., Inc. v. Sadow, 43 So. 3d 710, 729 (Fla. 4th DCA 2010).

[22] DelMonico v. Traynor, 116 So. 3d 1205, 1217 (Fla. 2013) citing Myers v. Hodges, 44 So. 357, 361 (Fla. 1907).

[23] Fla. Stat. §§ 626.9541(1)(i)(2)&(3)(b) (2019).

[24] Citizens Prop. Ins. Corp. v. Pulloquinga, 183 So. 3d 1134 (Fla. 3d DCA 2015).

[25] Fla. Stat. § 817.234(2)(b) (2019).

[26] Citizens Prop. Ins. Corp. v. European Woodcraft & Mica Design, Inc., 49 So. 3d 774 (Fla. 4th DCA 2010).

[27] Id. at 14488.  See also Nationwide Mut. Fire Ins. v. Kramer, 725 So. 2d 1141, 1143 (Fla. 2d DCA 1998).

About the Author

Michael A. Cassel

Michael A. Cassel, LL.M., is the managing partner and co-founder of Cassel & Cassel, P.A., where he represents policyholders throughout the state of Florida in first party property insurance claims.  Michael is licensed by the Florida Bar as well as in the Southern, Middle, and Northern Federal Districts of Florida, the U.S. Court of Appeals for the 11th Circuit, and has argued before the Judicial Panel for Multidistrict Litigation.  He has earned an AV Preeminent rating from Martindale Hubbell.  He has also been named a Rising Star by Florida Super Lawyers Magazine for the last six consecutive years, was named as one of South Florida Business Journal's 40 Under 40 for 2020, and one of the Cystic Fibrosis Foundation 40 Under 40 Outstanding Young Professionals of South Florida for 2022.  Michael regularly publishes blogs on newly released case law pertaining to first party property insurance claims and has become a regular on the lecture circuit presenting on topics such as building code compliance, ordinance and law coverage, bad faith litigation, technology in claims adjustment, and providing updates on case law and legislative changes.  He obtained his Masters of Insurance Law from the University of Connecticut in 2023.

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