Opinion ID: 507880
Heading Depth: 2
Heading Rank: 2

Heading: The Sales' Insurance Contract

Text: 8 The insurance contract between the Sales and State Farm contains two key provisions. The first provision states that the absence of fraud by any of the insureds is a condition to the agreement. 9 2. Concealment or Fraud. This entire policy shall be void if any insured has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance. (Plaintiff's Exhibit # 1 at page 15) (emphasis added). 10 The second provision terminates State Farm's liability for any loss caused by the neglect of the insured. 1 11 We believe that, in this case, the fraud provision unambiguously declares that Mr. and Mrs. Sales' rights and obligations are jointly rather than severally held. By stating that the entire policy is void when any insured intentionally conceals a material fact or circumstance, the contract clearly makes Mrs. Sales' recovery contingent upon Mr. Sales' conduct. Other courts have agreed that, unlike the phrase the insured, the phrase any insured unambiguously expresses a contractual intent to create joint obligations and to prohibit recovery by an innocent co-insured. See Spezialetti v. Pacific Employers Ins. Co., 759 F.2d 1139 (3rd Cir.1985); Bryant v. Allstate Ins. Co., 592 F.Supp. 39 (E.D.Ky.1984); Snowden v. State Farm Fire and Casualty Co., 1983 Fire and Casualty Cases 206 (Tenn.Ct. of App.) 12 The Sales argue, however, that the fraud provision does not apply in the case of arson. First, the Sales claim that Richards requires us to analyze only the neglect provision of the insurance contract and not the fraud provision to determine whether an innocent co-insured can recover. Second, the Sales emphasize the word has in the fraud provision to conclude that the provision only concerns fraud in the application for insurance and not fraud in the filing of a claim. Third, the Sales argue that the presence of the neglect provision, which creates the severable obligation to preserve property, causes an ambiguity over the severability of obligations under the fraud provision. For the following reasons, we reject all of the Sales' contentions.
13 We do not believe that Richards limits a court's analysis, in the case of arson, to the neglect provision of the contract at the expense of the fraud provision. In Richard, the insurance attorneys never brought the fraud provision to the attention of the supreme court. The insurance attorneys apparently believed that the fraud provision in Richards--which is distinguishable from the fraud provision in this case--would allow an innocent co-insured to recover and, therefore, decided not to mention the provision. 2 As a result, Richards' failure to mention the fraud provision does not exclude it from analysis. 14
15 We also find that the word has does not limit the fraud provision to fraud which occurred in the application for insurance. Georgia has held that similar fraud provisions containing the word has are applicable to concealment or misrepresentation in proofs of loss and other statements. See Goldberg v. Provident Washington Ins. Co., 144 Ga. 783, 87 S.E. 1077, 1079-80 (1916); State Farm Fire and Casualty Co. v. Jenkins, 167 Ga.App. 4, 305 S.E.2d 801, 802-03 (1983). If Mr. Sales committed arson, he unquestionably concealed his role in the fire when he filed his claim for proceeds. Since the sworn claim stated that he had not caused the damage, State Farm can accurately say that Mr. Sales has misrepresented material facts. Therefore, State Farm may rely on the fraud provision to void the policy. 3 16
17 Finally, although under Richards the phrase the insured in the neglect provision of the Sales' policy creates severable rights and obligations, there is no ambiguity as to the fraud provision before us. We should not create ambiguity by lifting a clause or provision of the contract out of context. Cherokee Credit Life Ins. Co. v. Baker, 119 Ga.App. 579, 168 S.E.2d 171, 174-75 (1969). We must reasonably construct the language of the contract and not extend it beyond what is fairly within its plain terms. Fidelity & Deposit Co. v. Sun Life Ins. Co., 174 Ga.App. 258, 329 S.E.2d 517, 519 (1985). The neglect provision addresses each insured's individual duty to preserve the property. The fraud provision, on the other hand, addresses their joint duty to deal fairly and honestly with the insurance company. The insurance policy simply deals with fraud differently than neglect, just as the policy deals differently with business property than with household goods. We do not believe that the neglect provision creates any ambiguity in the language of the fraud provision. 18 We conclude that the fraud provision is triggered if Mr. Sales intentionally burned his house and then tried to claim under the insurance policy. Since the fraud provision states that the entire policy is void if any insured conceals or misrepresents material facts, we conclude that Mrs. Sales' rights under the policy may be voided by Mr. Sales' fraudulent conduct. We believe that Georgia's decision to let the insurance contract determine the rights of the parties mandates this result.