Homeowners insurer's right to void policy is limited because language requires proof of "prejudice."
IDS Property and Casualty Insurance Company refused to pay Luis Villarreal and Julie Villarreal any benefits under their homeowners' policy after they suffered a fire in the home. The Villarreals had refused to give sworn statements to the insurer because they were being investigated for arson at the time and wanted to preserve their right against self-incrimination. When they got around to cooperating with the insurer, after Julie Villarreal pleaded no contest to an amended charge of attempted insurance fraud, IDS argued that it was too late and that the Villarreal's insurance was invalidated by their failure to give sworn statements when demanded.
The Villarreals appealed the trial judge's dismissal of their case. The Court of Appeals recognized that the Constitution's Fifth Amendment right to avoid self-incrimination applies only to criminal cases and not to pending civil actions. Nevertheless, it reversed the trial judge's decision because unlike prior pro-insurance rulings on this topic, the IDS policy allowed IDS to void its coverage only if the insureds' non-cooperation prejudiced IDS's rights. Since IDS provided no evidence of prejudice resulting from the delay in interviewing the Villarreal's, they should not have been granted summary disposition of the fire loss claim.
It should be noted that Julie Villarreal's "no contest" plea to the amended "attempted" charge is not an admission of guilt that establishes her culpability. That plea allows her to be punished criminally, and is often utilized by prosecutors and criminal defendants to extract themselves from a case (perhaps expensive and risky) that neither feels comfortable about winning.