Insurers asserting fraud as a defense to liability under a homeowner’s insurance policy must prove fraud by a preponderance of the evidence, not “clear and convincing” evidence.


In Stein v Home-Owners Insurance Company(October 17, 2013), the Michigan Court of Appeals held that, when an insurance policy contains a clause voiding coverage in the event of fraud by the insured, the insurer need only meet the “preponderance of the evidence” standard rather than “clear and convincing evidence.”

The plaintiff in Stein owned a modular home that was covered for fire loss under an insurance policy issued by the defendant. On the day of the fire, while the insured was not at home, a neighbor saw a car pull into the insured’s driveway and leave ten minutes later. Soon, the neighbor noticed that the home was on fire. A fire investigator later determined that the fire was intentionally set by an amateur. Home-Owners denied coverage, explaining that the fire was the result of arson with the plaintiff’s knowledge.

When the insured filed a breach of contract action, Home-Owners raised several affirmative defenses: (a) that Stein had committed acts of fraud and material misrepresentation, (b) that the loss was the result of arson committed by or at the direction of Stein, and (c) that Stein had misrepresented material facts and concealed information. Any one of these would have voided the policy or excluded coverage for the loss.

At trial, the trial court required the defendant to prove all of its affirmative defenses by clear and convincing evidence. The Court of Appeals found that this ruling was erroneous. Because the alleged fraud concerned an express contract provision rather than an allegation about fraud in obtaining the policy, the Court of Appeals saw no reason to place a higher burden of proof on the defense than that which applies to any other affirmative defense. The applicable standard of proof for the insurer’s fraud defense was “preponderance of the evidence,” not “clear and convincing evidence.”

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