Liar, Liar, Pants on Fire

False Claim on Proof of Loss Voids Coverage

As I have said until I was blue in the face the covenant of good faith and fair dealing applies equally to the insured as it does to the insurer. Failure to honestly present a claim to an insurer voids coverage if the facts misrepresented or concealed are material.

In Z George Management Corporation, Inc., v. Indian Harbor Insurance Company, No. 1-15-2438, 2018 IL App (1st) 152438-U, Appellate Court of Illinois First Judicial District Fourth Division (May 31, 2018) Z George Management Corporation, Inc. appealed the grant of summary judgment in favor of defendant Indian Harbor Insurance Company.


Z George Management Corporation, Inc. (Z George) owns and rents residential property in Chicago Heights (the Property). Zachariah George (Mr. George) is the sole shareholder and owner of Z George. Z George procured an insurance policy with Indian Harbor Insurance Company (Indian Harbor) to cover physical damage and lost rental income at the Property.

On December 20, 2007, the Chicago Heights fire department was called to the Property after a tenant reported smelling gas. The fire department traced the smell to a stove in a vacant unit that vagrants were using for heat. The responders also indicated that other units had been broken into, and that vagrants were using the vacant units as a “flophouse.” The next day, Don Garcia (Garcia), a building inspector for Chicago Heights, inspected the building. Based on the condition of the Property, Chicago Heights posted a notice that the Property was “uninhabitable,” and Garcia told Mr. George that he needed to post security guards. Due to the Property being “uninhabitable,” the remaining tenants were required to move out (though a handful did not).

On December 28, unknown individuals broke into and vandalized the Property. It is unknown how they entered the Property, but they did considerable damage, including spraying gang graffiti, putting holes in walls, and splashing paint on the carpet. There is some evidence in the record that indicates that vandals also ripped out the fire alarm system on that date, though Mr. George provided conflicting statements about when the fire system was damaged. This second incident caused Chicago Heights to post a notice that the Property was “condemned.” The remaining tenants were ordered to vacate, and the city boarded up the Property.

Approximately a week later—the parties generally fix on the date of January 3—unknown vandals climbed through air conditioning vents and stole copper piping installed throughout the Property. The cutting of the pipes caused significant water damage to the basement of the Property. At some point in February, Mr. George was told that he had to gut the entire Property and allow city inspectors to view all of the electrical and plumbing, if he wanted to repair the building and bring it up to code.

On January 7, 2008, Mr. George initiated a claim the Property Loss Notice does not indicate the probable amount of loss—and it made no mention of any incidents of vandalism on December 20 or in early January. On June 20, Z George and Mr. George’s attorney, David L. Yanoff, responded to the April letter and provided documents relevant to the claim, including a sworn Proof of Loss.

The sworn Proof of Loss stated that “a vandalism loss occurred about 12:01 o’clock a.m. on the 28th day of December 2007.” The proof of loss indicated that the “full cost of repair or replacement” was $603,065. This amount was marked as the “actual case value loss” and “replacement cost loss.” The Proof of Loss was signed by Mr. George, as president, and notarized by David L. Yanoff, on June 19th. The $603,065.00 includes: a $7,845 board-up fee charged by the city, the $500,000 repair estimate, and $95,220 in lost rent.

Indian Harbor conducted an investigation. Based on the results of its investigation, Indian Harbor exercised its right to an examination under oath and deposed Mr. George in December. During the examination under oath, Mr. George gave a number of statements that Indian Harbor contends are material misrepresentations.

On April 20, 2009, Indian Harbor denied Z George’s claim regarding the December 28 vandalism. Indian Harbor cited the “concealment, misrepresentation or fraud” and, alternatively, the “duties in the event of loss” provisions of the policy.

With regard to the misrepresentation provision, Indian Harbor determined that “the misrepresentations in your Proof, at your [examination under oath], and your attempted concealment of the code violations all constitute breaches of the above quoted policy provisions. Consequentially, Indian Harbor considers your policy void, and denies any and all liability to you for the claimed loss or any amounts whatsoever.”

The consistent theme running through Indian Harbor’s various arguments was that Z George lied to Indian Harbor about the amount of lost rent by inflating the number of people who resided there; lied to Indian Harbor about the number of vandalism incidents, to avoid multiple per-incident deductibles, to avoid the duty of mitigation that would have been triggered each time, and to thwart its investigative efforts; and allowed the property to be vandalized repeatedly so the property would fall into disrepair, all to the end of getting Indian Harbor to indemnify Z George for a rehab of the building that Z George had been planning to undertake, anyway, to correct numerous code violations.

The trial judge stated in open court: “This is not—I mean, this thing is—the facts aren’t going to change at trial. There’s so much in the record here. There’s no genuine issue of material fact, and I don’t do this very often, but this is—I’m granting defendant’s motion for summary judgment based on fraud, the false statements, the late notice, not protecting property, having the Village pay to protect his property, and for the whole laundry list of things that Mr. Shukis argued. I’m not going to take them in order, but any one of them I think the Court finds that there’s no genuine issue of material fact.”


Summary judgment is appropriate when the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there are no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Indian Harbor cited four independent reasons why summary judgment was proper. The trial court found all of them meritorious.

While the concept of an “intentional misrepresentation of material fact” suggests the doctrine of common-law fraud, that concept “is quite different in the realm of insurance law” and has been “broadly defined” in that context. The phrase does not incorporate the elements of common-law fraud and does not require a showing of such things as reliance or prejudice. Illinois courts cite a body of case law dating back to the U.S. Supreme Court’s decision in Claflin v. Commonwealth Insurance Co., 110 U.S. 81, 96-97 (1884), for the proposition that false sworn answers to an insurer are material if they might have affected the insurer’s action or attitude, or if they may be said to have been calculated to discourage, mislead, or deflect the insurer’s investigation in any area that might have seemed to it, at the time, a relevant area to investigate.

It is not necessary that an insurer rely on the misrepresentation. It makes no difference that the insurer discovered the misrepresentation in time, before paying out on the claim. If the misrepresentation was calculated to discourage, mislead or deflect the insurer’s investigation on a topic on which a reasonable insurer would undeniably attach importance, the misrepresentation is material.

Mr. George’s statements were material misrepresentations for the purposes of the policy exclusion. There are no disputed questions of fact here. The Notice of Claim and Proof of Loss indicated only one act of vandalism on December 28, 2007. Mr. George ultimately admitted, when confronted at his sworn examination, that in fact there were three separate incidents of vandalism.

Most importantly, it is undisputed that the bulk of the damages claimed by Z George—$500,000 of the roughly $600,000, or over 80 percent—was caused by water damage that occurred as a result of the January 3 incident. Any reasonable insurer would be keenly interested in the circumstances surrounding an incident that led to a half-million-dollar claim at a residential apartment building.

Indian Harbor could not conduct any investigation without knowing that there was an incident on January 3. By omitting any reference to an incident that was responsible for the vast bulk of the insurance coverage claimed, Z George prevented Indian Harbor from conducting any investigation whatsoever on an incident of critical importance to it.

As a matter of law, Z George’s statement attributing all of the damage to its property to a single incident of vandalism on December 28 was an intentional misrepresentation of material fact that voided its insurance coverage. Summary judgment in Indian Harbor’s favor was proper.


When an insured lies to the insurer about the date of loss, the number of losses, the causes of loss and the amount of loss – all of which facts are material to any insurance investigation and because Z George lied the insurer was not allowed to conduct its investigation. The multiple lies made the contract void.

© 2018 – 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 50 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.

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