Lying on an Application about Primary Residence Is Grounds for Rescission
Barry Zalma | October 18, 2024
Plaintiff Homesite Insurance Company sought a judicial declaration that it was entitled to rescission of defendant Zhen Jiang's homeowners insurance policy and summary judgment entered in its favor on Mr. Jiang's bad faith counterclaims. In the case, Homesite Ins. Co. v. Jiang, No. CV-21-00554-TUC-JGZ, 2024 U.S. Dist. LEXIS 167053 (D. Ariz. Sep. 16, 2024), the US District Court of Arizona explained an insurer's right to rescission.
Facts of the Case
Homesite claimed that Mr. Jiang misrepresented that the house located at 7617 East Snyder Road, Tucson, Arizona (the "Property"), was his primary residence. Homesite relied on Mr. Jiang's representation in issuing the homeowners insurance policy (the "Policy"). This misrepresentation was material because Homesite would not insure a vacant home.
Mr. Jiang owned properties in Arizona and Texas. In early 2018, Mr. Jiang bought the Property, a five-bedroom single-family residence located on four acres. The Property had been vacant since the previous owners lost the Property to foreclosure in 2014.
Mr. Jiang's Insurance Application and Policy
In November 2019, Mr. Jiang applied for homeowners insurance for the Property. In his application, Mr. Jiang represented that the Property was his primary residence and that the information provided in the application was truthful and accurate.
Homesite warned Mr. Jiang, after accepting him as an insured, to review the Declarations page and check the description of the dwelling and occupancy, and if any of this information needed to be corrected, Mr. Jiang must advise Homesite within 30 days of receipt.
The Pima County Sheriff's March 21, 2020, Report
On March 21, 2020, the Pima County Sheriff's Department responded to a call of vandalism at the Property. Vandals had set off fireworks inside the Property, put graffiti and holes in the walls, started fires, and broke numerous windows.
The March 21, 2020, call to police was made by Mr. Jiang's neighbor, Morgan Hay, who stated that the damage to the Property possibly occurred over the New Year's holiday. Mr. Hay informed officers that Mr. Jiang "would show up from time to time and ask Mr. Hay to check on the house periodically; however, nobody had occupied that residence since it was foreclosed upon in 2014." Similar responses were testified to by multiple neighbors.
Mr. Jiang's Statements Regarding Occupancy
Mr. Jiang provided numerous inconsistent statements as to when, if ever, he lived at the Property. He stated that he lived in the home from late 2019 until early 2020 and that the home was not vacant for more than 60 days prior to the March 21, 2020, fire.
Analysis of the Case
Fraudulent misstatements, omissions, or concealment of facts can be established by proving either legal fraud or actual fraud. Legal fraud exists if the question asked in an insurance application (1) is one where the facts are within the personal knowledge of the insured, (2) is such that the insurer would naturally have contemplated that the answers represented the actual facts, and (3) is falsely answered. Legal fraud does not require an intent to deceive.
Homesite established that the Property was not Mr. Jiang's primary residence. No reasonable juror could conclude otherwise based on the evidence that he lived elsewhere, the condition of the Property, the reports of his neighbors, and the fact that he was apparently unaware of the vandalism occurring on the Property until late October 2020.
Mr. Jiang was not credible for the additional reason that he concealed his lease at the Seventh Street Apartment during discovery.
The court concluded that Homesite did not act in bad faith in investigating and processing Mr. Jiang's claim. Summary judgment was entered in favor of Homesite on Mr. Jiang's bad faith counterclaims. The court concluded that Homesite was entitled to rescission of the Policy and entry of judgment on Mr. Jiang's counterclaims.
Conclusion
Insurance is a business of utmost good faith where neither party to the contract will do anything to deprive the other of the benefits of the contract. Mr. Jiang lied on his application and continued to lie as he pursed his claim. The lies were material since the insurer would never issue a homeowners policy to a vacant property, especially one that had been vacant and vandalized before he purchased the property. This liar should not prosper from his fraud, and the court should refer Mr. Jiang to the office of the US Attorney for prosecution for fraud.
© 2024 Barry Zalma, Esq., CFE
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