Claiming Total Loss When Evidence Does Not Support Claim Can Be a Fraudulent Act

Appraisal Inappropriate When Coverage Issues Must Be Resolved

Plaintiff Kathy Cox sued Defendant State Farm Fire and Casualty Company (“State Farm”) for breach of contract, appraisal, and statutory interest. Plaintiff alleges Defendant failed to pay her the full value of an insurance claim for a fire that damaged her residence.

In Kathy Cox v. State Farm Fire and Casualty Company v.  Andrew Harms, Case No. 19-12235, United States District Court For The Eastern District Of Michigan Southern Division (April 16, 2020) the court dealt with a third-party complaint against Plaintiff’s son, Andrew Harms. Defendant alleged Harms was negligent in overloading an electrical circuit while running an illegal marijuana grow operation, causing the fire in Plaintiff’s residence.

Plaintiff moved for summary judgment, asking the court to order appraisal of the property’s damage. Harms also moved for summary judgment on Defendant’s negligence claim. State Farm opposed both motions.


Plaintiff owned property in Willis, Michigan. On June 30, 2017, Plaintiff obtained a fire insurance policy from Defendant. While the property was covered, on May 27, 2018, a fire occurred on Plaintiff’s property, resulting in extensive damage. Defendant initially provided payments to Plaintiff pursuant to the policy.

Plaintiff disputed the amounts received from Defendant. Most significantly, Plaintiff claimed that the house was a total loss and could not be rebuilt, requesting the policy limit of $285,248.00. After conducting its investigation Defendant informed Plaintiff the outside inspector and her own contractor had stated the house was repairable and that Plaintiff’s request to max out the policy limit was denied. Defendant also warned Plaintiff that “no tarping, or other temporary repairs, has been done to keep weather or other elements from further damaging your property.” Defendant notified Plaintiff that it was her duty to “protect [the] property from further damage after a loss,” and asked that Plaintiff “immediately hire someone to tarp the home,” mentioning that such costs would be covered by Defendant.

Plaintiff did not tarp or otherwise protect the property from further loss but responded by hiring a public insurance adjuster, Mark Plaskov. Plaskov issued a repair estimate of $369,283.59, which became the subject of controversy since it calculated water damage, fire damage to walls and mold remediation.

Investigation established that Harms “overloaded the electrical circuit by plugging seven LED lights, as well as a portable air conditioner and an oscillating fan … into a single [fifteen] ampere circuit breaker, overloading the circuit.”


Plaintiff’s Motion for Summary Judgment

Plaintiff asserts no coverage issues regarding her fire insurance policy remain and that the court must mandate appraisal. If issues regarding the extent of coverage remain, a court must determine coverage before an appraisal of damage to the property.

Defendant has already compensated Plaintiff for Plaintiff’s fire loss and has admitted coverage, at least to an extent. However, Defendant argues coverage issues remain due to Defendant’s assertions of fraud on the part of Plaintiff, Plaintiff’s failure to protect the property from the elements, and the existence of mold.

Fraud Exclusion

The fraud provision in the policy is statutorily mandated. Defendant argues that if Plaintiff violated the fraud condition Defendant is not required to pay Plaintiff additional funds, even if technically owed. In fact, if the condition applied, the whole policy would be void and Plaintiff would be owed nothing.

An insurer may void a policy under a fraud exclusion where (1) the misrepresentation was material, (2) that it was false, (3) that the insured knew that it was false at the time it was made or that it was made recklessly, without knowledge of truth, and (4) that the insured made the material misrepresentation with the intention that the insurer would act upon it. A statement is material if it is reasonably relevant to the insurer’s investigation of a claim.

With facts taken in light most favorable to the non-moving party, there is a viable claim of insurance fraud. Further, evidence could demonstrate that at least one of Plaintiff’s own contractors concluded that the home was repairable. In addition to materiality, there is evidence supporting the argument that Plaintiff’s claim was false. Plaintiff has presented no admissible evidence that any qualified inspector ever found the home to be a total loss. With these facts, a reasonable juror could find that Plaintiff either knew her statements were false at the time they were made or that she. made them recklessly, without knowledge of truth.

The question of Plaintiff’s intent is best left for a jury to decide. Defendant is asserting a fraud defense based in contract, not a claim of common-law tortious fraud. Instead, Defendant points to evidence that would void Plaintiff’s contractual insurance rights. With genuine disputes of fact remaining, the court denied Plaintiff’s motion for summary judgment as to appraisal and will allow the issue of fraud to proceed to trial.

Neglect and Failure to Protect Exclusion

The record indicates that Plaintiff failed to protect the damaged home after the fire, despite being asked by Defendant and being told Defendant would pay any expenses incurred in doing so.

Plaintiff cannot receive compensation for post-fire damages, including those caused by wind, rain, snow, or other natural elements. These costs are not related to the fire Defendant admits is covered but rather results from Plaintiff’s failure to adequately safeguard the property. Nonetheless, because Defendant presents a valid fraud defense, the court refused to order appraisal.


The harm caused by Harm’s actions was foreseeable and apparent. Powering a marijuana growing operation through a residential home’s electrical circuit and a single circuit breaker would have quite obviously risked harm to Plaintiff’s property and thus Plaintiff’s insurer. It is no more than common sense, supported by the knowledge conferred through having to re-set a tripped circuit breaker over and over, that wiring seven LED lights, an air conditioner, and a fan constitutes a dangerous overload that risks sparking a fire.

The burden of liability on Harms is not outweighed by the risk of substantial property loss due to fire. The utility of engaging in criminal behavior (e.g. producing marijuana) is little to nothing, while the value of protecting one’s home, whatever its monetary value—here in the hundreds of thousands of dollars—is substantial.

Harms cannot escape his general duty to refrain from dangerous behavior and the court concluded that Harms is not entitled to judgment as a matter of law.

Plaintiff and Defendant agree upon coverage with regard to fire damage, post-fire damage caused by Plaintiff’s neglect, and mold damage. Appraisal would be appropriate to determine the extent of covered loss. Nonetheless, Defendant has a valid fraud defense and a jury must decide it’s remaining factual issues before the court can conclude there is a need for appraisal.

Harms had a duty to Plaintiff and Defendant to refrain from negligent conduct.


With such terrible facts – the criminal conduct of the insured’s son that caused the fire – complicated by the insured’s attempt to profit from the fire by insisting the loss was total when all the experts, including those retained by the insured, established the house was repairable, the court made a reasonable decision to let a jury decide if fraud occurred before ordering an appraisal to determine the amount of loss. If the trial establishes that the insured’s conduct was fraudulent State Farm owed nothing and is entitled to a refund and the insured will be limited to obtaining a judgment against her son who caused the fire. If not, appraisal will determine the amount of loss.

© 2020 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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