United States Court of Appeals decision (February 7, 2020).

The case involved a dispute between a condominium owners association (Association) and its property insurance carrier (Carrier) over coverage for property damage resulting from a hailstorm. Misrepresentations to insurance cost association over $700,000.

In 2013, Association purchased an insurance policy from Carrier that covered the term from November 12, 2013 through November 12, 2014. Prior to issuing the policy, Carrier inspected the Association Property to determine its condition and verify that it was appropriate to insure.

On September 29, 2014, a severe wind and hailstorm damaged portions of Associations common area roofs, gutters, screens and garages. Associations property manager was not aware of the storm and was not initially contacted by anyone from Association regarding the issue of property damage from the hailstorm.

In April 2015, the property manager hired a roofing contractor to provide a proposal for repairs to a roof on one of the condominium structures. The contractor who inspected the property observed what he believed to be hail damage on the roof and mentioned that in his written proposal, stating There is evidence of hail impacts on both the flat and steep roofs and it is recommended that your insurance company be contacted immediately. You may have a claim. The manager forwarded copies of the contractors proposal to Associations board members, who approved the proposal.

In September 2015, the property manager observed damage to some downspouts and window trims while inspecting the property. She thereafter reported the damage to an adjuster and requested that the property be inspected to determine the extent and cause of the damage she observed. The property was inspected the following month and the inspector concluded that there was significant hail damage that needed to be repaired. The manager then met with Associations board to advise them of the findings by the adjuster. The board then authorized the retention of the adjuster and the submittal of a claim for the hail damage to Carrier. The property manager then retained the original roofing contractor who had initially advised of the hail damage to assist the adjuster in establishing the scope of the damage and the amount of the claim to be submitted to Carrier. The adjuster and the roofing contractor then provided an estimate of approximately $1.8 million dollars for the cost of repairing the hail damage. The claim was then submitted to Associations insurance agent in December 2015.

After learning of the claim, Carrier retained an independent adjuster to evaluate the loss. That adjuster, in concert with Associations adjuster then agreed on the scope of damage that was caused to Associations property. Thereafter, in May 2016, Associations adjuster sent Carrier a Sworn Statement In Proof of Loss which was signed by Associations president. The statement included the estimate that had been prepared by the two adjusters and stated that the loss occurred about the 29th day of September 2014 due to Wind and Hail.

After receiving the sworn statement, Carrier hired an engineer and building consultant to review the statement. The engineer was unable to determine from her inspections of the property exactly when the hail damage occurred. Specifically, the engineer could not state whether the hail damage resulted from the September 2014 storm or from prior hailstorms that occurred in 2009 and 2012. Based on input from an independent adjuster, Carrier made a determination that the replacement cost value of the damage was $857,233.89, and the actual cash value was $590,458.91. Based on those figures, Carrier paid Association the actual cash value minus the $75,000.00 deductible.

In September 2016, Association filed suit against Carrier alleging that it breached the insurance coverage contract with Association and further that it engaged in bad faith by failing to fully cover damage Association alleged to have suffered from the hailstorm. In response, carrier filed a counterclaim against Association alleging that it violated the terms of the insurance policy by failing to timely report the hail damage, and further, by submitting a claim and proof of loss that grossly overstated the true cost of repairing the damage caused by the hail. In defense of Associations claims, Carrier alleged that Association had committed fraud by misrepresenting the date when it first learned of the hail damage and also by misrepresenting the amount needed to repair the damage.

The district court granted summary judgment in favor of Carrier on the claims alleged by Association and Association appealed the decision and proceeded to trial on Carriers claims that were alleged in the counterclaims against Association. The jury found that Association had violated fraud clauses that were contained in the policy and that the fraud by Association effectively voided the insurance policy. As a result, Carrier could not have either breached the contract or engaged in bad faith and the jury awarded judgment to Carrier for $713,762.14 for the money that was paid to Association plus post-judgment interest. Association then appealed the judgment.

Association attempted to raise several grounds in support of a reversal of the district courts judgment in the appellate court but was precluded from doing so because it had not raised those arguments in its opening appellate brief. Accordingly, the appellate court found that the Association waived those grounds for the appeal and affirmed the judgment of the district court.

See case decision: Sunflower_Condo._Ass’n_v._Owners_Ins._Co.