Reservation of Rights Letter Received after Home’s Second Fire Was Timely, Court Rules

A federal district court in Ohio has ruled that a reservation of rights letter that a homeowner’s insurance carrier sent to its insureds after a second fire at their home was timely.  

The Case 

State Farm Fire & Casualty Company issued a homeowner’s insurance policy to Mark and Brenda Gibney that contained a “Concealment or Fraud” condition that stated that the policy would be void if any insured “intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss.” 

After a fire damaged their home, the insureds filed a claim and State Farm opened an investigation. While it was investigating, the insureds reported that a second fire had occurred at the home. 

An “origin and cause” expert retained by State Farm who investigated the origin and cause of both fires concluded that the first fire was caused by “a human act” and that the cause of the second fire was “undetermined” but “suspicious.” State Farm advised the insureds that it was denying their claim for the first fire due to breach of the Concealment or Fraud Condition. State Farm also stated that, based on the breach of that condition, it was retroactively voiding the policy as of 12:01 a.m. of the date of the first fire, and that the insureds would have “no coverage with State Farm” for any claims for loss after that date. 

The insureds sued and State Farm moved for summary judgment. After the court denied its motion with respect to the insured’s waiver and estoppel claims, State Farm moved for reconsideration. In response, the insureds contended that State Farm’s failure to reserve its rights in advance of the second fire made the letter of reservation it sent after the second fire per se untimely. 

The Court’s Decision 

The court rejected the insureds’ contention, ruling that the insureds’ second loss did not render the “reasonably short time period” it took for the insurer to send a reservation of rights letter (about five weeks after the first fire) sufficiently prejudicial to justify extending the policy through waiver or estoppel if the Concealment and Fraud Condition had in fact been violated. 

The court then concluded that State Farm had shown that there was no genuine dispute as to any material fact related to the insureds’ waiver and estoppel claims, and that it thus was entitled to summary judgment. 

The case is Gibney v. State Farm Fire & Casualty Co., No. 2:10-CV-00708 (E.D. Ohio Dec. 3, 2012).