Kelly v. State Farm Fire & Cas. Co.

312 Or.App. 361

494 P.3d 1009

Matthew KELLY, Plaintiff-Appellant,andShelly Kelly, Plaintiff,

v.STATE FARM FIRE AND CASUALTY COMPANY, an Illinois corporation, Defendant-Respondent.

A169464

Court of Appeals of Oregon.

Argued and submitted October 12, 2020.

June 16, 2021

William D. Brandt argued the cause and filed the briefs for appellant.

Anthony L. Reiner, Portland, argued the cause for respondent. Also on the brief was Maloney Lauersdorf Reiner PC.

Before Armstrong, Presiding Judge, and Aoyagi, Judge, and Brewer, Senior Judge.

AOYAGI, J.

This is a breach of contract action related to fire insurance. After a fire destroyed plaintiff's house, plaintiff made a claim on his homeowner's insurance policy with defendant insurer. Defendant investigated and ultimately denied the claim. Plaintiff brought an action for breach of contract. In response, among other things, defendant asserted that the insurance contract was void due to plaintiff making misrepresentations during defendant's claim investigation. The trial court granted summary judgment for defendant, based on the contract being void. Plaintiff appeals, assigning error to the grant of summary judgment. For the following reasons, we affirm.

STANDARD OF REVIEW

Summary judgment is appropriate when the pleadings, depositions, affidavits, declarations, and admissions on file show that there is no genuine dispute of material fact and that the moving party is entitled to judgment as a matter of law. ORCP 47 C. "A material fact is one that, under applicable law, might affect the outcome of a case." Zygar v. Johnson , 169 Or. App. 638, 646, 10 P.3d 326 (2000), rev. den. , 331 Or. 584, 19 P.3d 356 (2001). "No genuine issue of material fact exists if no objectively reasonable juror could return a verdict for the nonmoving party." Wirth v. Sierra Cascade, LLC , 234 Or. App. 740, 745, 230 P.3d 29, rev. den. , 348 Or. 669, 237 P.3d 825 (2010). In reviewing a trial court's grant of summary judgment, we view the record and all reasonable inferences that may be drawn from it in the light most favorable to the nonmoving party to determine whether the legal standard is met. Id. We state the facts accordingly.

FACTS

Plaintiff owns real property in Aumsville. In 2017, there was a large house on the property, which was insured under a homeowner's policy issued by defendant to plaintiff and his then-wife. A fire completely destroyed the house on May 16, 2017. The fire originated in the garage. Inside the garage was a metal grinder that sat atop a piece of carpet on top of a freezer. The fire marshal was unable to determine the cause of the fire but could not rule out that it originated at the grinder. According to the fire marshal's report, plaintiff told the fire marshal that he had used the grinder that morning, then left to run errands, and found the house engulfed in flames when he returned around 1:00 p.m. A tenant living in the guesthouse on the property reported hearing a crackling noise and seeing smoke when she came home at lunchtime.

Plaintiff filed an insurance claim. Defendant made an advance payment of $10,000 to plaintiff for loss of personal property. An adjuster interviewed plaintiff on May 22, taking an initial recorded statement. During the interview, plaintiff represented that he made $150,000 annually as a general contractor with his business, Kelly and Sons Construction, Inc. He also represented that, in the five months before the fire, he had been staying in the Aumsville property's guesthouse or with his girlfriend.¹

After the interview, defendant set loss reserves on plaintiff's claim. It also began paying "Additional Living Expense" (ALE) benefits to cover the cost of alternative housing. The ALE provision of the policy states:

"Additional Living Expense . When a Loss Insured causes the residence premises to become uninhabitable, we will cover the necessary increase in cost you incur to maintain your standard of living for up to 24 months. Our payment is limited to incurred costs for the shortest of: (a) the time required to repair or replace the premises; (b) the time required for your household to settle elsewhere; or (c) 24 months. This coverage is not reduced by the expiration of this policy."

In connection with the ALE benefits, plaintiff represented to defendant that he had moved into the "Boxwood property" on June 19, lived there until August 31, and incurred $1,500 per month in rental charges to live there. Defendant paid plaintiff $3,600 in ALE benefits based on that information.

Meanwhile, on June 22, defendant's special investigations unit began investigating concerns of potential fraud in connection with the insurance claim and, in November 2017, interviewed plaintiff. Defendant's investigation revealed that plaintiff owned the Boxwood property, that he had not moved into or lived at that property after the fire, and that he had sold the property on August 29, 2017. Further, defendant learned during its investigation—and plaintiff admitted in his November interview—that plaintiff had been in jail from December 29, 2016, until May 10, 2017, not living in the Aumsville guesthouse or with his girlfriend. Defendant also learned—and plaintiff then admitted—that plaintiff's construction company had last been active in 2014, that plaintiff had made about $51,000 doing construction work for other companies in 2016, and that plaintiff had not received any 2017 income as of May 2017.

In March 2018, plaintiff filed a breach-of-contract action against defendant. The operative complaint contained two claims, the first based on defendant's failure to pay plaintiff's insurance claim and the second based on defendant's failure to make mortgage payments. Plaintiff sought $1,099,925 in damages, among other relief.

In May 2018, defendant denied coverage on plaintiff's insurance claim. Shortly thereafter, defendant answered plaintiff's complaint. In its answer, defendant raised four affirmative defenses, only one of which is relevant on appeal. As its second affirmative defense, defendant invoked the "Concealment, Misrepresentation or Fraud" provision of plaintiff's home insurance policy, which defendant asserted applied because plaintiff had willfully concealed facts and made misrepresentations regarding his income and work history, his incarceration and residency, and the ALE claims.²

That provision of plaintiff's home insurance policy—which is required by statute, ORS 742.208 —provides, in relevant part, as follows:

"b. In order to use any representation made by you or on your behalf in defense of a claim under the policy, we must show that the representations are material and that we relied on them.

"c. Subject to items a. and b. above, this entire policy will be void:

"(1) If, whether before or after a loss, you have willfully concealed or misrepresented any material fact or circumstance concerning

"(a) this insurance or the subject of it; or

"(b) your interest in it; or

"(2) in the case of any false swearing by you related to this insurance."

Relying on that provision, defendant took the position that plaintiff's misrepresentations voided the entire insurance policy.

Plaintiff and defendant cross-moved for summary judgment on defendant's second affirmative defense. Defendant put in evidence that plaintiff had misrepresented his income, his pre-fire residence, and his post-fire rental of the Boxwood property. Defendant asserted that it had relied on the misrepresentation about the Boxwood property in paying $3,600 in ALE benefits and that it had relied on the misrepresentations about plaintiff's income and pre-fire residence when it initially accepted that plaintiff had "no motive to cause the loss," paid a $10,000 advance, paid $37,666 in ALE benefits, delayed its fraud investigation, and set loss reserves.

Plaintiff did not put in any evidence that his representations about his income, residency, or rental of the Boxwood property were true. Instead, he argued that defendant had failed to show that the misrepresentations were material or that defendant relied on them, as required under the policy to use them against him. Plaintiff pointed out that defendant paid the $10,000 advance before plaintiff's initial interview, so defendant could not have relied on any misrepresentation in paying it. Plaintiff argued that his income was immaterial to the ALE payments. He argued that the asserted 30-day delay in starting a fraud investigation was insufficient to prove materiality. Finally, he argued that his misrepresentation about the Boxwood property was immaterial, because he lost the ability to rent the Aumsville guesthouse after the fire, which loss of fair rental value was covered by the policy and exceeded the Boxwood amount. That is, plaintiff suggested that, if he had not improperly received $3,600 in ALE benefits related to the Boxwood property, he would have made a proper claim for more than $3,600 in lost rental value for the Aumsville guesthouse, such that his misrepresentation about the Boxwood property essentially resulted in a net benefit to defendant.

The trial court granted summary judgment to defendant. It concluded that, under the terms of the policy and ORS 742.208, plaintiff's misrepresentation about the Boxwood property voided the entire policy, because it was material and defendant relied on it in paying $3,600 in ALE benefits to plaintiff. It further concluded that plaintiff's misrepresentation about his annual income was material and that defendant relied on it in paying $37,666 in ALE benefits, delaying its fraud investigation, and setting loss reserves, which was an additional reason that the policy was void. Finally, the court concluded that plaintiff's misrepresentation about where he was living during the five months before the fire was material and that defendant relied on it in paying $37,666 in ALE benefits and setting loss reserves, which was yet another reason that the policy was void. Having determined that the insurance policy was void, the...