Uncovering Misrepresentations in Insurance Applications

It is well known among special investigations unit (SIU) insurance professionals that a named insured’s misrepresentation or fraud in obtaining an automobile policy precludes any recovery by the named insured on a first-party claim. Examples of such that can lead to a denial include named insureds who misrepresent their residences, the principal place in which the vehicle is garaged, the true ownership of the vehicle, and the true identity of the principal operator of the vehicle. However, those conducting investigations would be well served to examine the claims of other occupants in an insured vehicle before making a coverage decision. Why? The occupant may be a knowing participant in the insured’s fraud scheme, which may warrant a denial of the occupant’s claims. 

Examination under oath is by far the most useful fraud fighting tool used by SIU insurance professionals and attorneys. When all occupants of the insured vehicle (including the insured) are subjected to such an examination, it often reveals that the occupants were involved or knowingly participated in perpetrating the misrepresentation or fraud in obtaining the automobile insurance policy. Here’s an example that demonstrates the classic scenario of a fraudulent procurement investigation. 

On Aug. 24, 2015, a Maryland-insured vehicle was involved in a one-car collision while it was being operated in New York. The insured vehicle reportedly hit a guardrail and went down an embankment. Occupying the insured vehicle at the time of the loss was a male driver, a female front-seat passenger (who was the driver’s girlfriend), and a second female who was a passenger in the back seat and was the sister of the girlfriend. All occupants presented first-party claims in addition to the insured’s collision claim for damages to the vehicle.

At the driver’s examination under oath, it was determined that, although he was the titled owner of the vehicle, he was neither the registrant nor was the vehicle insured in his name. In June 2015, the vehicle was insured in his girlfriend’s name, likely due to the fact that he had a driving while intoxicated conviction and, thus, his license had been suspended. In addition, he testified that his girlfriend was the primary operator of the vehicle and that he would drive the vehicle only with the permission of his girlfriend.

At the examination of the girlfriend, she testified that she insured the vehicle at the request of her boyfriend. Further, she contended that, since July 2010, she resided in Maryland Monday through Thursday and in New York Friday through Sunday nights. In support of her testimony, she produced a Maryland driver’s license, which was issued June 13, 2010.

The girlfriend further testified that she lives in an apartment in Maryland that is rented by her cousin. She never signed a lease for the alleged apartment. While in New York, she stays in an apartment with her three school-aged children and her mother. She and her mother executed the lease for the New York apartment. The examination under oath testimony further revealed that all of the insured’s financial paperwork, such as her tax returns, bank statements, and credit card statements identify her residence as the New York address. She was registered to vote in New York; her most recent employment (albeit two years prior) was in New York; and her children attend school in New York.

Finally, the difference in premium for insuring the vehicle in Maryland as opposed to Brooklyn was $1,800 per year. However, the girlfriend denied that she was aware of this premium difference and adamantly denied that she intentionally misrepresented her residence so that she could obtain reduced rate premiums.

At the examination of the girlfriend’s sister, it was determined that she worked in the insurance broker’s office in which the automobile insurance was obtained. However, she denied that she coached either the titled owner or her sister to intentionally misrepresent her residence so that she could obtain a lower insurance premium.

At the conclusion of the investigation, the carrier determined that the titled owner was the primary driver of the vehicle. Thereafter, the carrier’s underwriting department opined that had it known of this fact, it would not have issued the specific auto policy. In addition, the underwriting department determined that, notwithstanding the girlfriend’s testimony that she maintained a “dual residence,” it would not have issued the Maryland automobile insurance policy had it known that the vehicle would be kept overnight in New York for at least three days per week. 

Based upon the results of the investigation, the carrier denied coverage to all three claimants on the grounds that the named insured/girlfriend made material misrepresentations and false statements in the application of insurance, and that all three claimants participated in a fraudulent scheme to obtain the insurance policy at a reduced rate. 

The lesson is that, in claims where it is suspected that a material misrepresentation was made in the application for insurance, the carrier should investigate all of the vehicle’s occupants to determine if they were knowing participants in perpetrating the fraudulent scheme to obtain an insurance policy. If so, the carrier will have viable grounds to deny all claims.