When Insured Commits Fraud or False Swearing It Should Not be Confused with Appraisal

Appraisal Required If Dispute Over Amount of Loss Exists

A proof of loss is a sworn document. It establishes the claim made by the insured to the insurer. If falsely sworn the policy may be declared void and all claims denied. When an insurer concludes that an insured has presented a false and unsubstantiated proof of loss it should assert the “Misrepresentation, Concealment and Fraud” provision of the policy. In Condominiums of Shenandoah Place v. SECURA Insurance, Slip Copy, United States District Court, D. Minnesota,  2016 WL 614381 (02/16/2016) the issue raised touched on the false swearing but revolved only on the issue of appraisal and deferring the false swearing defense to after the appraisal.


Shenandoah is a condominium association located in Shakopee, Minnesota with 14 multi-unit buildings. Defendant SECURA Insurance (“Secura”), a property and casualty company, issued Shenandoah a property insurance policy (the “Policy”) covering the one year period of April 15, 2012 to April 15, 2013. Shenandoah alleges that Secura failed to pay for roof damages sustained on June 10, 2012 during a wind and hail storm.

The Policy

The Policy covers physical loss to buildings in the complex caused by Covered Causes of Loss, including both wind and hail damage. Coverage under the Policy does not include normal wear and tear, hidden or latent defects, or construction defects. A $5,000 deductible for each of the 14 condominium buildings applies under the Policy. The Policy additionally includes an appraisal clause if the parties are unable to agree on the amount of the loss.

The Claim and Appraisal Attempt

On May 16, 2013, the property manager for Shenandoah emailed Secura and stated that Shenandoah needed to “file a claim for hail damage to the roofs, chimneys, etc., … that occurred during storms over the last two years.” Shenandoah later submitted a Property Loss Notice, which identified June 10, 2012 as the date of loss. In July and August of 2013, Secura conducted an inspection of the Shenandoah property. The inspection revealed minor damage on the roofs—38 missing shingle tabs.  Because the repair cost was estimated to be less than the $5,000 deductible on the policy, the claim was denied on August 13, 2013.

On December 26, 2013, Shenandoah’s attorney sent a letter to Secura that referenced a July 30, 2013 date of loss and requested all documents pertaining to the previously denied claim. In response, Secura noted that the July 2013 date referenced was after the time period covered under the policy and that Shenandoah should contact its subsequent insurer.

On May 27, 2014, Shenandoah initiated this lawsuit in Scott County District Court. The Complaint asserted a claim related to hail and wind damage occurring on June 10, 2012. Two months later, in order to complete an appraisal, the parties stipulated to stay the Scott County action. In the appraisal process, Shenandoah’s Association President Tom Scott completed a Sworn Proof of Loss which states a total claim of $1,601,705.43. $1.6 million more than Secura determined by its inspection.

Secura again inspected the property on October 28, 2014—more than a year after Secura’s first inspection and two years after the stated date of loss. The second inspection revealed extensive damage including many areas of missing shingles and loose and missing siding, that did not exist at the time of the first inspection. According to the Secura inspectors, the Shenandoah buildings were poorly constructed from the outset, with both the shingles and siding improperly installed.

During the course of the appraisal, Secura discovered that Shenandoah had submitted a similar claim to its subsequent insurer, American Family, claiming wind and hail damage occurring on June 14, 2014. On December 4, 2014, Secura rejected Shenandoah’s Sworn Proof of Loss after determining that the claimed loss included additional damage from the June 14, 2014 loss Shenandoah was simultaneously pursuing with American Family.

Secura contends that no single witness can attest to a storm event on June 10, 2012. Specifically, Secura cites the testimony of Chris Blonigen, Shenandoah’s property manager, who stated that she submitted the claim to Secura on instructions from the Association Board and that she has no personal knowledge of a June 10, 2012 storm. Association President Tom Scott denies that the Board instructed Blonigen to submit the claim. The property’s previous manager from 2004 until early 2013, Paul Bozonie, testified that he did not receive any report of storm damage or request for a claim during June 2012. The discovery further revealed continuous repairs to the shingles over the years due to construction defects and improper installation.

Both parties retained experts to evaluate the claimed loss. The experts, as is to be expected, disagreed.


Covered Occurrence

The gravamen of the parties’ disagreement centers on whether the appraisal clause is triggered when it is disputed whether a loss or “occurrence” under the Policy actually took place. The Policy allows for appraisal when the parties “disagree on the amount of loss.”

In support of its position, Shenandoah cites to Quade v. Secura Insurance, 814 N.W.2d 708 (Minn. 2012), a case where Secura was again the insurer and the policy at issue included the same appraisal language.

In essence, in this case Secura takes the opposite position from its Quade argument and argues that appraisal is inappropriate here because it is an open question whether or not an occurrence took place. Secura has attempted to distinguish Quade by labeling it as a simple case that did not present the same complicated causation questions at issue here.

Amount of Loss

Secura next argues that appraisal should not be ordered because Shenandoah has failed to properly dispute the amount of loss. Secura emphasizes that the Sworn Proof of Loss completed by Association President Tom Scott claims $1.6 million in damage for the June 10, 2012 storm event, while the claim submitted to American Family for the June 14, 2014 event seeks the same amount of coverage. According to Secura, the $1.6 million number is unsubstantiated as Scott testified that he is unaware where the Proof of Loss estimate came from and none of the Shenandoah representatives can state what portions of its damage relate to the June 10, 2012 event.

This argument is without merit. Again, Secura is contesting causation. Shenandoah has submitted the $1.6 million Proof of Loss Statement to Secura—Secura clearly disagrees with this amount. Whether those repair amounts cited were sustained in the June 10, 2012 storm event is an issue of causation that can properly be investigated during appraisal.

Post-Loss Duties

The Court concluded that determining causation here has been complicated by Shenandoah’s delayed reporting and multiple proofs of loss.  However, Secura provides no case law in support of its contention that a year long delay rises to such a prejudicial level as to render appraisal inappropriate and has pointed to no policy language specifying a specific time period within which an insured must report a claim.

Specifically, Secura highlights that Shenandoah has withheld certain documents during the previously attempted appraisal and submitted the same repair estimate to both Secura and American Family. Secura also points to Association President Tom Scott’s admission that he is unaware of how the $1.6 million Proof of Loss Statement amount was derived.

Fact questions abound surrounding the amount of loss and, necessarily, the cause of the loss. The appraisal panel will make the initial judgment call on these factual determinations. Should Secura conclude that coverage issues remain after the factual determinations occur (i.e., if the damage is even covered under the policy), it may later raise those issues with this Court.


Although there exists logical arguments for conducting the appraisal the court and parties missed the key issue. When an insured testifies that he is unaware where the Proof of Loss estimate came from and none of the Shenandoah representatives can state what portions of its damage relate to the June 10, 2012 loss that is the subject of the claim, establishes that the proof of loss submitted to Secura and an identical proof of loss was submitted to the subsequent insurer, misrepresentation, concealment, fraud and false swearing was established.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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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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