Remember being told to always tell the truth? There are many reasons to follow this advice. One that might not spring to mind is that your insurance company can use a “material misrepresentation” against you.

Allstate Insurance recently sued a policyholder rather than pay a fire insurance claim. The Washington Court of Appeals ultimately held that Allstate owed nothing on the claim, even though a jury found that the policyholder did not commit arson.

The issue boiled down to the policy language. It did not require payment where “any insured person has concealed or misrepresented any material fact or circumstance.”

Insurance policies are supposed to be understandable. The rule in Washington is that unclear language will be resolved in favor of a policyholder.

Because of this rule, some courts have allowed the denial of claims for misrepresentations before a loss, but not at other times.

Allowing denial for mis-representations before a loss makes sense.

For example, if you applied for coverage on two cars and said you primarily drove a Subaru but actually normally drive a Ferrari, your insurance could rightfully refuse to pay a claim. This is fair because driving in a Ferrari probably is riskier than in a Subaru.

In the Allstate case, however, the court found that the policy clearly denied coverage for misrepresentations both before and after a loss.

The record did not show any misrepresentations before the loss. My opinion from reviewing the case is that Allstate created “misrepresentations” after the loss so it could deny the claim.

Allstate insurance investigators took multiple statements from Edwin and Ruth, its policyholders, and ultimately obtained inconsistent responses.

For instance, one “misrepresentation” was that “Edwin initially denied that he and Ruth were having marital problems before the fire. He later admitted the contrary and Ruth was seeking a divorce at the time of the trial…”

This might not have seemed like Allstate’s business to Edwin. Yet it was a misrepresentation.

Was it material? The court said that “a misrepresentation is ‘material’ if, when made, it could have affected the insurer’s investigation.”

In other words, Allstate didn’t need to show that the inconsistent statements actually affected Allstate, they only had to be “relevant and germane” to the investigation. As Edwin’s denial of marital problems shows, almost any misrepresentation could be used to deny a claim.

What’s the moral of this story? It’s not a simple as telling the truth. When you make a statement to an insurance company it can and most definitely will use that statement against you if at all possible.

Before making a formal statement to an insurance company, it may be a good idea to consult with an attorney to avoid making a “material misrepresentation.”



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