INSURANCE/MAIL FRAUD: Materiality lacking in claim under “white glove” mansion policy for living expenses based on ambiguous standard of living clause (not actual cost) even though payment was based on misrepresented condition/ownership of temporary housing during repair of wind/fire damaged mansion… case should not have gone to jury, motions for acquittal of insured and broker granted, convictions reversed… Molloy.
Christin Didier and Surayya Nasir were convicted of mail fraud and conspiracy to commit mail fraud 3/12/13 after a week long trial. The Court vacated the convictions in 7/13, and this rationale follows.
This criminal case was tried to a jury but it should have not been given to them for decision. It was submitted on a theory of mail fraud, but, upon reflection, that theory cannot be sustained when the proof of materiality is at odds with a contractual obligation to pay what was supposedly gained by fraud. Chubb, the alleged victim of mail fraud, was obligated to pay Didier a substantial sun, undefined except in ambiguous language in its policy, because she could not live in her lake mansion due to covered losses. It argued to state and federal regulatory and investigative agencies that it had been victimized when she misrepresented the nature of her temporary residence. But, because it was obligated to pay an amount sufficient to maintain her standard of living in a mansion with multiple bedrooms, multiple baths, and even a ballroom, whatever she said could not have been material to Chubb. Materiality cannot be proven when the entity supposedly victimized by mail fraud is obligated to pay what the US claims was a loss caused by fraudulent representations of the insured. Every day there are thousands if not hundreds of thousands of insurance claims, in many of which the carrier pays the policy value of the roof destroyed by wind, the collision damage from a wreck, or the estimated value of windshield damage. Every day adjusters engage in thousands of transactions and adjustments concerning liability payments, home owner claims, or replacement value disputes. If the US’ theory is correct about materiality being a separate issue from the contractual obligation to pay, each of these events could give rise to indictment for mail fraud. Is it mail fraud when the owner of a damaged car gets the 3 estimates, obtains payment by mail from the carrier, but then has someone else do the work, pocketing the difference or savings? Is it fraud if the owner never has the damage repaired? Is it mail fraud when the water heater leaks and destroys the beautiful wood floor in the kitchen and the adjuster issues a check in the mail for the replacement cost and the homeowner elects to install linoleum or not fix the floor but pockets the difference? Is it mail fraud when the adjuster compromises the PI claim with a 3rd party by erroneously telling them comparative fault applies when the injured person is an innocent passenger, using the underpayment to bolster corporate and personal profits? Is it mail fraud when an auto carrier tells an insured in Montana that policy limits cannot be stacked, contrary to established law? Is it mail fraud when Chubb issues a “white glove” policy that requires it to maintain a standard of living and its adjuster unilaterally uses the wires to declare the “cost is too much” even though the policy requires it to pay according to a subjective standard? Materiality cannot legally exist if the purported victim is contractually obligated to pay what it was allegedly deprived of by misrepresentation or lies. That is why a judgment of acquittal must be entered here.
Didier bought a large mansion in Somers in 7/05. It was built in 1903 and had 14 bedrooms, multiple fireplaces, 3 bathrooms, and a ballroom. It was on 5 acres and has extraordinary views of Flathead Lake. She also purchased a white glove policy on the home written by Pacific Indemnity, a division of Chubb Ins. The Masterpiece Policy premium was nearly $1,000/mo. The mansion was damaged by a tornado in 7/07. She filed a claim with Chubb, which begin adjusting so repairs could be made. Either due to damage to the boiler from the wind or lack of fuel, Didier began using diesel heaters and the fireplaces that winter. A fire in 1/08 caused extensive damage to the residence, rendering it uninhabitable. Chubb agreed that losses from the wind and fire were covered and that it was necessary for her to vacate for at least 6 months until repairs were completed. A major clause anticipated this event and provided assurance that her standard of living would not be altered. Chubb was obligated to pay whatever it took to make sure Didier maintained her standard of living, regardless of where she lived, even if her normal expenses went up.
If your house cannot be lived in because of a covered loss to your house or, if applicable, to your contents, we cover the reasonable increase in your normal living expenses that is necessary to maintain your household’s usual standard of living. We cover this increase for the reasonable amount of time required to repair, replace or rebuild your house or your contents, or if you permanently relocate, the shortest amount of time required for your household to settle elsewhere. This period of time is not limited by the expiration of this policy.
The policy required undefined payment, constrained only by her usual standard of living at the mansion.
Resolving an ambiguous clause to favor Chubb is inconsistent with the general rules of interpretation and turns payment of a contractual obligation into a sword of conviction simply because the carrier paid what it owed, but did so based on mistaken reasons imparted by its insured. The focus of the obligation to pay is not on where the insured chooses to live when expelled from her mansion by a loss, but what is the cost of keeping her standard of living the same, even if it costs more than her actual expenses, based on the mansion she could no longer inhabit. The nature of the mansion and Didier’s use & enjoyment of it presented a challenge to Chubb in meeting its guarantee to provide replacement housing that would maintain her standard of living. The mansion and estate were exceptional properties in the Flathead Valley. The size of the mansion, its historic character, the surrounding estate, and panoramic views of Flathead Lake are rare, especially in a replacement rental. The loss was complicated by Didier’s living situation. She used the property in a way that was specialized and somewhat incompatible with many rentals. She had been living with her elderly mother who had Alzheimer’s. She also had several dogs with some estimates of 20-30 Pugs. When Chubb was handed this unique high-end loss it retained a temporary housing vendor, ALE Solutions, and authorized it to offer Didier and her household hotel accommodations as a stopgap to provide shelter during the winter. It was unworkable because she had concerns about her mother and dogs. While ALE was searching for housing that would match the standard of living in the mansion, Didier stayed at the mansion despite the fire damage. She offered to live in a mobile home, but that was not acted on by ALE and Chubb due to cost. ALE located a bed & breakfast in Whitefish willing to cancel its reservations to accommodate Didier. Chubb’s adjuster Peterson said “no” because the owner was not willing to sign a 6-month lease with option to renew. ALE found a fully furnished home with 8 bedrooms. Peterson rejected the corporate property due to the $40,000/mo cost. He told ALE to look for a place costing $10,000-$15,000/mo. In other words, Chubb acknowledged that it had to pay based on replacement cost, not the value of where Didier, her mother, and her dogs actually lived. ALE eventually reached an agreement with the bed & breakfast owner to rent the 6-bedroom, 3½ bath property for just over $10,000/mo for 6 months with an option to renew. Didier rejected it because it was too far from Somers. She informed ALE 1/28/08 that she had a lead on a property in Rollins. She put ALE in contact with Nasir, who represented herself as broker for Didier Family Trust and began communicating with ALE by fax and mail. ALE sent the “preap” to Didier. She completed it and faxed it back. Notably, these communications were not with Chubb. The preap represented that the Rollins property was 6,900 sq ft with 5 bedrooms and 2 baths. This was false. It proposed a base of $15,250/mo, a $7,000 security deposit, a $5,000 pet deposit, a $200 application fee, a $1,500 cleaning fee, and a 10% broker fee. Chubb did not question coverage for any of the claims. ALE transferred the preap to an electronic format and processed it for Chubb’s approval. ALE confirmed Nasir’s role as broker for the Didier Family Trust and that the broker fee was a 1-time fee. It needed confirmation that the property was not Didier’s own property and was actually held in trust by her extended family. Didier confirmed. Didier, her mother, and the dogs stayed in the Somers mansion surrounded by smoke and fire damage and without adequate heat until 1/27/08, then moved to the Rollins property before Peterson had given final approval to ALE to lease it. There was an email exchange 1/31 between Peterson and ALE. Didier had been very demanding about acceptable accommodation. Peterson expressed frustration and approved the Rollins proposal to just “shut this lady up.” Chubb eventually approved it as temporary housing on terms Didier proposed. On 2/4 ALE received a lease, payment letter of commitment, temporary housing agreement, and move-in form for Rollins. The payment letter was executed between ALE and the landlord detailing the nature of the transaction. The temporary housing agreement was also executed between ALE and Didier detailing the transaction as temporary replacement housing. The move-in form was completed by Didier detailing the condition of the property. All of these documents were based on information in the preap and flow from Peterson’s approval of it. ALE sent a $10,875 check for the broker and application fees, by mail or common carrier from an office in Illinois to Nasir in California, which she deposited. It also sent checks to the Didier Family Trust to Didier’s sister in Lewistown, who sent the check to Didier’s Somers address. Didier deposited the checks at Glacier Bank in the name of C.D. Didier Family Trust, Christin Didier. 7 checks totaling $122,791.50 were sent by DHL, FedEx, and USPS for 6 months rent, security deposit, pet deposit, and cleaning fee.
Didier had filed Ch. 11 in 7/07, prior to the wind and fire events. She represented that Rollins was owned in trust and was not an asset available for liquidation. (She is not charged with bankruptcy fraud). In 7/09 her case was converted by Ch. 7 by Judge Kirscher and her schedule of assets was amended and the trust designation removed. She objected to sale of the property because she claimed it was owned in trust. Kirscher ruled that she was the trustor, trustee, and sole beneficiary. Rollins was eventually sold by the bankruptcy trustee.
In 2/08 Chubb’s Special Investigation Unit began work to validate her claim and evaluate her replacement housing, including hiring PI Markey to visit it. The SIU discovered her control over and benefit from the Didier Family Trust and revealed Rollins to be a cabin of 860 sq ft, 2 bedrooms, no bathrooms, no indoor plumbing. Representations as to other amenities & furnishings on the move-in form were also at odds with the actual condition. Instead of an in-ground pool, there was only an above-ground pool. Didier had fudged and lied about Rollins. In examinations by Markey, she explained the description of Rollins on the preap as consistent with her definition of bedrooms, bathrooms, and methods of calculating square fee, and admitted that she was in control of the Didier Family Trust and thus was the real owner of Rollins. In a surprise examination under oath with Nasir at a San Diego restaurant, Nasir confirmed her role as broker for the Didier Family Trust and offered to send her file to Markey but never did. Chubb complained to the Montana CSI in 1/09. (Had it denied Didier’s claim it surely would have been subjected to a bad faith claim; going to CSI insulated it from potential civil liability.) In an interview while represented by counsel, she justified her temporary housing claim by stating that the rent was based on a conversation with an ALE rep, who stated that she was due whatever it cost for hotel fees regardless of where she ended up and likened her decision to live at Rollins to a decision to replace kitchen linoleum with dollar store linoleum at her option regardless of the cost associated with maintaining her standard of living. She claimed she was completely transparent about ownership of Rollins and that ALE expressed no issue with the ownership. Nasir was interviewed by phone. She refused to answer many questions without reviewing her file, and agreed to retrieve it and contact CSI but did not.
Didier was charged with 7 counts of mail fraud and 1 count of conspiracy to commit mail fraud. Nasir was charged with 1 count of mail fraud and 1 count of conspiracy to commit mail fraud. At the close of the US’ case, Didier moved for judgment of acquittal due to insufficient evidence that she had the capacity to form specific intent to defraud or conspire with Nasir and failure to prove that her statements and representations were material to any act by Chubb. Nasir also asked for judgment of acquittal for lack of evidence of unlawful agreement to which she was a party and that Didier’s mental disease or defect made such an agreement impossible. The motions were taken under advisement pending the verdict, and then renewed following the verdict, along with a motion by Nasir for a new trial.
Didier’s and Nasir’s statements and representations were not material to Chubb’s acts under the policy. While Neder (US 1999) expressly incorporates materiality as an element of mail fraud, it did not define it. One meaning, as articulated in Gaudin (US 1995) and embraced by the Peterson (9th Cir. 2008), is that a statement is material if it “has a natural tendency to influence, or is capable of influencing, the addressee’s decision.” Materiality is distinct from other elements of common law fraud. “The common-law requirements of `justifiable reliance’ and `damages,’ for example, plainly have no place in the federal fraud statutes.” Neder.This is because 18 USC 1341 prohibits a “scheme to defraud,” not the completed fraud. While the language of the mail fraud statute is consistent with a requirement to prove materiality, it, by its own terms, does not impose a requirement of proof of actual reliance and damages. Id. The jury was instructed to determine whether “the statements made or facts omitted as part of the scheme were material; that is, they had a natural tendency to influence, or were capable of influencing, a person to part with money.” It was also given a detailed instruction (Inst. 15) on materiality, above & beyond the general elements instruction. The relevant question was whether Didier and Nasir concocted a scheme to defraud that had a natural tendency to influence or was capable of influencing Chubb’s determination of what to pay Didier for her losses when that amount was contractually constrained to maintaining her standard of living in the Somers mansion. Were their misrepresentations material, “constituting an inducement or motive to the act or omission of the other party?” Id.; (Story, Commentaries on Equity Jurisprudence §195 (10th ed. 1870)). Inst. 15 was given because the additional living expenses clause of the policy is ambiguous as a matter of law. The heading of the paragraph reading “extra living expenses” could give rise to an interpretation that the insured is only due payment for additional expenses incurred as a consequence of the covered loss, as argued by the US. However, the text guarantees payment for “the reasonable increase in your normal living expenses that is necessary to maintain your household’s usual standard of living.” This obligated the carrier to pay based on the standard of living enjoyed at the Somers mansion, with all its accoutrements. The ambiguity raises reasonable doubt about the materiality element as a matter of law. The preambulatory statement “actual living expenses” suggests that the amount paid by Chubb was to be based on the actual cost of temporary housing. Under this interpretation, Defendants’ actions could have been material to Chubb’s determination of the amount. The text of the policy means the amount to be paid was driven by Didier’s normal, usual standard of living at the mansion. Chubb knew this was a high-end policy, generous in its obligation to the insured, and cannot now claim mail fraud because the insured was paid more than Rollins should have cost.
The indictment charged Didier and Nasir with defrauding Chubb — not ALE and not Bankruptcy Court. Thus Chubb and its agents are the only possible source of evidence of materiality of Defendants’ acts. The trial record is threadbare on this question. Markey’s testimony confirmed the incongruities between the Rollins property as described and as it existed; he did not testify about decisions related to what Didier was due. Peterson testified to the high-end, liberal nature of the policy; his testimony did not establish that Chubb would have paid less under the policy had Defendants accurately described Rollins. The only thing it establishes is that Chubb’s decision as to what to pay tracked with the ambiguous policy terms. He cited the need to compensate the insured to maintain the standard of living enjoyed at the covered property, and also claimed the payment was for extra expenses. Neither alternative proved that Chubb was not obligated to pay under policy terms or that it would have paid less but for Defendants’ misrepresentations. Without this evidence, materiality of their acts cannot be proven. Indeed, Chubb may have paid just to get “that woman” out of its hair.
The US’ argument that Defendants’ representations & statements about the condition of Rollins to ALE were ultimately material to Chubb because Chubb contracted with ALE holds no water because Chubb was ultimately obligated to pay what was due under the policy. There was no testimony by Chubb that the representations were material to its calculation of what was due to maintain Didier’s usual standard of living, and testimony of ALE employees indicated that ALE did not calculate the amount owed under the policy. Chubb simply approved or denied the housing found by ALE. It set a range for what it owed at $10,000-$15,000/mo, no different in essence from what it paid. The proof as to Chubb’s determination of Didier’s normal standard of living is related to its denial of the $40,000/mo corporate property and its charge to ALE to find something more comparable to the mansion. Both Peterson and ALE’s rep testified that after the corporate property was rejected, Chubb limited ALE’s search criteria to properties renting $10,000-$15,000/mo. Thus the condition, ownership, or actual value of Rollins was not and could not have been material to Chubb’s obligation to compensate Didier that amount for her usual standard of living.
Another way to look at the problem is to invert it. Substituting Chubb as the defendant charged with wire fraud illustrates the untenable nature of the US’ case. ALE found the corporate property and presented it to Chubb. Peterson balked at the $40,000/mo price even though the policy could be read to require it. Chubb took a position that ALE should only consider replacement properties with similar “useable space” to the Somers mansion, although nothing in the policy allowed Chubb to redefine the standard of living clause. Was this mail fraud? Chubb devised a plan to deprive its insured of a benefit which it was due under one interpretation of the policy, leading Didier to believe she was entitled to replacement property based only on usable space of the covered property, and used the mails by sending checks to her for a property with a smaller size and price than the $40,000 corporate property originally proposed.
The US insists that the linchpin of its wire fraud charge was Defendants’ representations & statements to ALE about ownership of Rollins and that these lies were material to Chubb’s payment. However, for the representations about ownership of Rollins to be material to Chubb, there would have to be proof that it would have acted differently had it known that the Didier Family Trust was solely controlled by Didier. The US could have called witnesses to establish this but did not. The notes and history compiled by ALE indicate that Peterson’s supervisor authorized Didier to move to Rollins. Peterson did not and could not testify that ownership of Rollins was material to his supervisor.
In Bryant (8th Cir. 2010), with analogous facts, the policy stated: “We will pay the actual charges incurred for a provider of Home Health Care up to the Home Health Care Daily benefits as shown in the Policy Schedule.” The Chubb policy is at best ambiguous, stating that it is obligated to pay “Extra living expenses” and simultaneously pay what “is necessary to maintain your household’s usual standard of living.” The ambiguity of this crucial term raises doubts at to materiality of Defendants’ representations and actions. Chubb wrote the policy, charged significant premiums for the coverage, and deemed it a liberally construed white glove policy. The US seeks to rewrite the “standard of living” language to mean “actual charges incurred” to satisfy proof of materiality. It cannot do so based on the policy language. Given ambiguity of the policy and absence of proof as to Chubb’s decision to authorize Rollins, no reasonable finder of fact could find Defendants guilty beyond a reasonable doubt. Chubb could have written its policy with more precise language reflecting its obligation to pay only actual cost of replacement housing. It instead based its obligation on an ambiguous term generously providing coverage for living expenses based on a standard of living in a 14-bedroom mansion. The US cannot invoke this ambiguity by attempting to establish mail fraud, effectively making the grand jury and this criminal Court an enforcement mechanism for a policy dispute between a carrier and its insured.
Defendants’ arguments as to mens rea, Didier’s interpretation of the policy, questions sent out by the jury, Nasir’s analysis of documentary evidence, and spoliation are insufficient to set aside the verdict.
Judgment of acquittal is granted and the case is closed. (The US has appealed.)
US v. Didier and Nasir, 41 MFR 72, 10/4/13.
Colin Stephens (Smith & Stephens), Missoula, for Didier; Federal Defender Michael Donahoe for Nasir; AUSA Timothy Racicot.
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