Public Adjuster’s Fraud Imputed to Insured

Most public insurance adjusters are honorable professionals and members of the National Association of Public Insurance Adjusters (NAPIA). Unfortunately, it is not unusual that a person pretends to be a competent public adjuster and causes severe damage to the insurer and the insured the dishonest public adjuster sought to represent.

In Reverse Now VII, LLC v. Oregon Mutual Insurance Company, Case No. C16-209-MJP, United States District Court Western District Of Washington At Seattle (September 20, 2018) the danger faced by an insured who retains an unlicensed and dishonest public adjuster became clear and expensive.

BACKGROUND

This case arises out of an insurance claim filed by Reverse Now VII, LLC (“Reverse Now”) with its insurer, Oregon Mutual Insurance Company (“Oregon Mutual”) regarding the extent of coverage provided under its insurance policy (the “Policy”).

Reverse Retains HMA and Mr. Moreland

In February 2014, an apartment complex owned by Reverse Now and insured by Oregon Mutual was damaged by fire. Oregon Mutual accepted coverage and retained independent adjuster John Colvard to investigate the scope of repairs and adjust the loss.

In March 2014, Reverse Now retained public adjusters HMA Loss Consultants, Inc. (“HMA”) and Paul Moreland to represent it in its insurance claim. Oregon Mutual and Mr. Colvard were instructed to direct all further correspondence regarding the claim to HMA. Over the following months, Mr. Colvard and Mr. Moreland communicated concerning repairs to the apartment, and in particular, whether the exterior siding could be repaired or whether it required complete replacement.

Mr. Moreland Selects Mr. Gower as an Impartial Appraiser

In December 2015, Mr. Moreland informed Mr. Colvard that Reverse Now intended to enter the appraisal process provided under the Policy.  Reverse Now selected Randy Gower as its impartial appraiser.  Oregon Mutual selected Gary Halpin as its impartial appraiser. The appraisal panel found that Oregon Mutual owed an additional $188,544.23 for repairs. Oregon Mutual paid the balance shortly thereafter.

While the appraisal was ongoing, Reverse Now sued Oregon Mutual asserting claims for breach of contract; bad faith; and violations of the Insurance Fair Conduct Act (“IFCA”) and the Washington Administrative Code.

Mr. Moreland’s Alleged Misrepresentation and Concealment

In April 2018, Oregon Mutual learned that Mr. Moreland was not licensed as a public adjuster in the State of Washington during his representation of Reverse Now.  Nevertheless, Mr. Moreland held himself out as a public adjuster and performed the responsibilities of a public adjuster on behalf of Reverse Now for more than two and a half years in violation of RCW 48.17.060.  A knowing violation of RCW 48.17.060 constitutes a Class B felony.

Oregon Mutual also learned that Mr. Gower was not impartial, but instead had been “best friends” with Mr. Moreland for decades, that Mr. Gower and Mr. Moreland were former business partners, and that they often “worked the same claims together.”

These facts were never disclosed but were instead discovered by Oregon Mutual in its review of deposition transcripts in several cases pending in state court.

In May 2018, the Court granted Oregon Mutual leave to amend its answer to include affirmative defenses of misrepresentation and concealment, which it contends voided the Policy who then moved for summary judgment.

DISCUSSION

Oregon Mutual’s Motion for Summary Judgment

In the interests of discouraging insurance fraud, courts in Washington state have long upheld policy provisions stating that misrepresentation, concealment, or fraud in the claims process will void coverage. Courts will enforce such provisions regardless of whether the misstatements prejudiced the insurance company, and an insured need only make one material misrepresentation to void all coverage under the entire policy.

A misrepresentation is material if it involves a fact that is relevant to the claim or the investigation of a claim. While materiality is generally a mixed question of law and fact, it may be decided as a matter of law if reasonable minds could not differ on the question.

Oregon Mutual contends that there is no dispute that Reverse Now misrepresented and concealed material facts concerning:

1. the extent of loss, and in particular, whether the exterior siding required partial or complete replacement;
2. Mr. Moreland’s lack of a valid public adjusters’ license; and
3. Mr. Gower’s lack of impartiality.

The Court concluded that summary judgment is appropriate as to claims where there can be no reasonable dispute that Mr. Moreland materially and knowingly misrepresented and concealed facts concerning his licensure and his pre-existing relationship with Mr. Gower, and that these misrepresentations can be imputed to Reverse Now.

Because the violation of RCW 48.17.060 constitutes a Class B felony indicates the legislature’s intent that public adjusters scrupulously comply with licensure requirements,  Mr. Moreland’s failure to maintain a license—and his failure to disclose that he was unlicensed—are far from “irrelevant.”

Further, Mr. Moreland failed to disclose his long-term relationship with Mr. Gower, another fact that is undoubtedly material. The Policy requires the appointment of an impartial appraiser and there can be no reasonable dispute that Mr. Gower was not impartial.

That Mr. Moreland’s misrepresentation and concealment is relevant to the claim or the investigation of a claim cannot reasonably be disputed. The Court concluded that the materiality requirement was satisfied.

Insured’s Knowledge of Misrepresentation and Concealment

The Court also concluded that Mr. Moreland and Reverse Now knowingly misrepresented material information.

It is undisputed that Vance Kemege, the principal of Reverse Now, had knowledge of Mr. Moreland’s failure to maintain a valid public adjusters’ license in October 2016, yet failed to disclose this information to Oregon Mutual. Reverse Now conceded that Mr. Moreland acted as its agent in the adjustment of the claim. There can be no dispute that Mr. Moreland’s communications—and lack thereof—with Oregon Mutual fell within the scope of that authority. Reverse Now retained Mr. Moreland and HMA to represent him in his claim, and HMA’s letter to Oregon Mutual specifically instructs that “[a]ll verbal and/or written communication should be directed to HMA.”

It is well-settled that an agent’s knowledge is imputed to his principal, and that a principal is liable for fraud or misrepresentations of his agent. If an agent has actual knowledge of a fact, the principal is charged with the legal consequences of having actual knowledge of the fact. If the agent has reason to know a fact, the principal is charged with the legal consequences of having reason to know the fact.

Although the issue of whether a misrepresentations by a public adjuster can be imputed to an insured appears to be a matter of first impression on the facts of this case, the Court concluded that they are. As a matter of public policy, an insured cannot be permitted to adopt a public adjuster’s acts when they benefit him, and disclaim them where they do not. By charging a principal with notice of material facts that an agent knows or has reason to know, imputation reduces incentives to deal through agents as a way to avoid the legal consequences of facts that a principal might prefer not to know.

The Court concluded that the knowledge requirement was satisfied, at least with regard to Mr. Moreland’s failure to appoint an impartial appraiser, and the court, therefore, granted Oregon Mutual’s Motion for Summary Judgment with respect to misrepresentation and concealment.

When an insured intentionally makes material misrepresentations regarding a claim for insurance coverage, any claim by the insured against the insurance company for bad faith  must fail since the purpose would not be served by providing a windfall to an insured guilty of fraud. Reverse Now’s misrepresentation and concealment were dispositive as to both of these claims.

ZALMA OPINION

The actions of the putative public adjuster and his close friend, pretending to be an impartial appraiser, deprived the insured of its right to the benefits of the policy. Adding expense and insult to the injury the court will require Reverse Now to repay Oregon Mutual the benefits it paid when it was unaware of the fraud. The insured, Reverse Now, made the mistake after receiving a favorable appraisal award to sue Oregon Mutual who then learned of the fraud. Not only did the fraud not pay it cost Reverse Now a great deal of money that it may only try to regain from its putative and dishonest public adjuster.