Court holds that insurers don't bear normal obligation to prove fraud by "clear and convincing evidence."
Because fraud is such a damning accusation, it normally must be proved not merely by a preponderance of the evidence, but rather by "clear and convincing evidence." As a result, historically, if someone sets out to prove fraud, they take on a heightened burden of proof and must meet a higher standard of evidence. When Ginger Stein's home burned and she sued her insurer, Home-Owners Insurance Company, the insurer argued that she had fraudulently misrepresented both the cause of the fire and the extent of her damages.
Stein secured a verdict of just under $200,000.00, and the insurer appealed. It argued that the trial judge had committed error by instructing the jury that the insurer must prove its Affirmative Defenses with "clear and convincing evidence."
The Court of Appeals overturned the trial judge's holding, pointing out that not all of the alleged Affirmative Defenses were founded upon claims of fraud, and therefore the judge erred by instructing on a higher burden of proof. The panel then went beyond this holding and issued an opinion asserting that the insurer need not prove fraud by "clear and convincing evidence" because it was merely seeking to enforce contractual obligations in its insurance contract. In essence, the judges held that by incorporating anti-fraud language in its poloicy, the insurer reduced the standard of proof normally required to establish fraud.
The decision is a sad commentary on current special interest influences in the law: there is no logical reason why the standard for alleging and proving "fraud" should be higher for other victims of fraud than it is for insurers allegedly victimized by fraud.