Earlier this month, the Eastern District of Pennsylvania ruled that adjusters and the lawyers who litigated fraudulent insurance claims could be on the hook for those false claims.
Church Mutual Insurance Company (“Church Mutual”) has long insured the African Episcopal Church of St. Thomas (“AEC”) – a church in West Philadelphia. In late 2011, AEC entered into a contract with the Alliance Adjustment Group (“Alliance”) to assist in the adjustment of insurance claims. The contract authorized Alliance to collect 25% of insurance proceeds from a loss pertaining to water damage allegedly caused by frozen pipes in church’s HVAC/chiller system. Church Mutual and the Alliance entered into a similar agreement again in 2012, based on a second claim that there was a “loss by storm” caused by Hurricane Irene.
After conducting its own investigation, Church Mutual denied both claims. It found that the alleged water damage was actually caused by missing or defective insulation – a defect not covered by the policy. With regard to the claims of Hurricane Irene damage, Church Mutual determined that the damage was the result of normal wear and tear that existed before the hurricane.
After the claims were denied, Alliance employed Claims Worldwide attorneys to pursue the claims in litigation. After these two suits were thrown out by the court, Church Mutual initiated its own claims against the Alliance, AEC’s attorneys, and an HVAC contractor. In Church Mutual Insurance Co. v Alliance Adjustment, the insurer asserted claims of negligent misrepresentation and civil conspiracy against the defendants based on their alleged agreement to file fraudulent insurance claims on a contingent fee basis and to share any profits gained.
While the attorneys attempted to claim that they were shielded by attorney-client privilege, the Court found that their conduct was outside the bounds of the attorney-client relationship because the attorneys did not conspire with AEC (their client) but rather with Alliance.
With regard to Alliance, the Court ruled that although insurers often conduct their own investigations in assessing a claim, the insurer may rely on information provided by the insured. The insured, therefore, is not permitted to invent, inflate or otherwise misrepresent the damages alleged in a claim.
Consequently, the Church Mutual claims live another day. We will continue to monitor this case as it unfolds.
Thanks to Erica Woebse for her contribution.