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Fake Supercar Wire Fraud: Is Carrier Right to Deny Claim? 

An insured wired $50,000 for a car that didn't exist. The carrier is denying false pretense coverage under his dealership insurance because the claim is for a car and the dealership is classified as a motorcycle dealership.
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An insured was presented with a fraudulent title and wired $50,000 to pay for a supercar that didn't exist.

They have false pretense coverage under their dealership insurance program, but the carrier is denying the claim based on the claim being for a four-wheel automobile and the insured’s dealership is classified as a motorcycle dealership.

The basis of the denial is the business description on the declarations page stating "Motorcycle Dealership" but the actual forms grant coverage for "auto," which is defined as any land use vehicle and trailers. The carrier is further basing their decision on the fact that this was never disclosed to me as the agent. 

Q: Is this within the carrier’s rights to deny a claim when the forms grant coverage?

Response 1: You have more than one valid point in resisting this claim denial. Also, exactly what was not disclosed to you as their agent?

They issued coverage under an auto form and endorsement, and then assert that the business classification negates coverage? I imagine that a court would make short work of this denial.

Response 2: Whether the denial is in the carrier’s rights is a legal one which can only be answered by a lawyer—ultimately by the courts. As a non-lawyer, I'd guess the answer is yes. They are the principal, you are their agent. In that relationship, rights are defined by your agency agreement, and I'd guess that the right to pay or deny claims is reserved to them.

Response 3: False pretense would not apply here. The insured never had legal title to the auto, and therefore no coverage.

Response 4: If the form says it’s covered, it’s covered. If the carrier thinks the application was fraudulent, misrepresentative or this information was concealed and they think they can prove it, then they can cite those applicable policy provisions as a basis for the denial. Otherwise, absent a classification exclusion endorsement, it doesn’t matter how the property was coded and rated.

Response 5: The carrier can rescind coverage and refund the entire premium to your client if they feel that his non-disclosure was material. If they continue the coverage, they must abide by the terms of the policy.

If the carrier does pay the claim, it can reprice the policy and, in many states, deduct the increase of premium from the loss payment. Taking this situation up the ladder at the carrier's claims department seems to be the right strategy.

This question was originally submitted by an agent through the Big “I” Virtual University’s (VU) Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.