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Bullivant Secures Jury Verdict, Court Awards Judgment Under Counterclaim for First-Party Insurance Fraud

08.31.11 | INSIGHTS

By John A. Bennett and Stuart D. Jones

Following a two-month trial, Safeco Insurance Company of Oregon was awarded $9.977 million on its counterclaim for insurance fraud against a former insured, Sohail Masood.

An August 2008 fire destroyed Mr. Masood’s West Linn, Oregon house. Shortly after the fire, Safeco made a number of payments to the insured under the various coverages of the homeowners’ insurance policy. In part, Safeco paid the limit of liability, $3.8 million, for personal property lost in the fire; it paid the limit of liability for the dwelling, $4.9 million; and, it agreed to pay a single lump sum in settlement under the Loss of Use coverage, $1.35 million.

Mr. Masood filed two lawsuits in Oregon (Clackamas County) Circuit Court against Safeco on his homeowner’s insurance policy. The first lawsuit alleged that approximately one week after the fire, Safeco entered into an agreement with Mr. Masood to pay the insurance policy’s Extended Dwelling Coverage–without requiring Mr. Masood to replace the damaged property. The Extended Dwelling Coverage provided up to 50% of the dwelling limit, if needed, to replace the home, and Mr. Masood demanded the full 50% (approximately $2.45 million). Safeco disputed that it had agreed to relieve Mr. Masood of this condition of the insurance policy. The second lawsuit alleged that approximately $3 million in personal property was stolen from an outbuilding on the property in a separate incident. The lawsuits were consolidated into a single proceeding.

During Safeco’s investigation and adjustment of the fire loss, Mr. Masood represented that he had spent millions remodeling the house and that he had furnished the house with antiques and artwork. Prior to trial, Safeco discovered evidence that Mr. Masood exaggerated the value of claimed dwelling components lost in the fire, including chandeliers, a built-in stereo/AV system, and kitchen cabinetry. Safeco amended its pleadings to assert that the policy was void and added a counterclaim for return of amounts already paid.

At trial, a forensic document expert testified that certain documents Mr. Masood presented to support his claim were forgeries. The builder of the home, the cabinetmaker and several subcontractors who were involved in original construction identified their own work from photographs taken shortly before the fire of rooms that Masood claimed had been remodeled. Experts contradicted Mr. Masood’s representations regarding the quality and value of the light fixtures and the stereo system in the house at the time of the fire.

After three days of deliberations, the jury returned a verdict finding that Mr. Masood intentionally misrepresented the value and quality of the dwelling components at issue. The jury also found that Mr. Masood failed to prove that a theft of property from an outbuilding occurred after the fire. Mr. Masood’s attorneys argued that the finding of misrepresentations in the adjustment process would not affect either the amounts claimed under the Extended Dwelling Coverage, pursuant to the agreement reached one week after the fire, or the amounts Safeco had paid prior to the earliest date the jury determined Safeco had relied upon misrepresentations.

On August 22, 2011, the trial judge ruled that, based on the jury’s finding that the insured intentionally misrepresented his property loss and exaggerated the values, the insurance policy was void, and Mr. Masood was required to repay Safeco. The court wrote: “[i]t is clear from state statute, case law, and simple logic that a financial sanction to the insured is the intended penalty for misrepresentation before or after a claim of loss. Since the only way a financial penalty can come about under the language of the insurance policy is if the contract is deemed void. . .It follows that all payments made by Safeco on the fire loss claim, except those made under the Loss of Use settlement agreement must be restored to Safeco as damages.”

After weighing the competing public policies of encouraging settlement of disputes and that of discouraging insurance fraud, Circuit Judge Norby concluded that enforcement of the Extended Dwelling Coverage agreement was contrary to the public interest expressed in ORS 742.208 to “discourage insurance fraud ‘before or after a loss.'”

Safeco was represented by Bullivant Houser Bailey’s John BennettStuart JonesMatt Hedberg and Drew Passmore.

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