• Larry Arnold of Cummins & White, LLP, an expert in insurance law, successfully represented an insurance company when it sued an insured and buyers who concealed the sale of a dry cleaning business and fraudulently collected payments following a fire that took place the morning the transaction was scheduled to close.
  • At trial, Mr. Arnold proved that the defendants had lied about the sales contract and loss of business income, as well as inflated the costs of damaged equipment.
  • The court ruled that the insured and new owners must repay approximately $165,000, plus interest and costs.

Case Study

Larry Arnold of Cummins & White, LLP, successfully represented an insurance company in a suit against an insured who concealed the sale of his business following a fire in an adjacent video store. Initially, the claims proceeded without incident, but an anonymous tip led the insurance company to reopen the file.

An investigation found that the insured had agreed to sell the business, and that coincidentally the transaction had been scheduled to close the morning of the fire. The insurance company rescinded the policy and sued the insured seeking reimbursement of all monies paid. Following a trial, the judge ordered the insured and buyers to repay approximately $165,000, plus interest and costs.


An insurer issued a fire insurance policy to the owner of a dry cleaning business located in Southern California. In October 2008, the insured agreed to sell the business. On the morning that the sale was to be finalized, a fire broke out in an adjacent video store, and the dry cleaners suffered significant damage. The insured submitted claims for smoke damage to the building and equipment, and for loss of business income, with no mention of the sale and new ownership. The insurance company paid the insured $167,904 and closed the file.

More than a year later, the insurance company received an anonymous tip disclosing details about the sale of the business and accusing the insured of inappropriately receiving insurance benefits. Based on the tip, the insurance company reopened the claim, and retained attorney Larry Arnold from Cummins & White, LLC, to investigate the allegations and pursue recovery, if necessary.

Results showed that the owner had, in fact, sold the business and did not disclose the information when he submitted claims in connection with the fire. The insurance company proceeded to rescind the policy and requested the return of all payments. When the request was ignored, the insurance company sued the insured for submitting fraudulent claims and the buyers for unjust enrichment.

Legal Strategy

During a bench trial in Los Angeles Superior Court, Mr. Arnold:

  • Presented evidence showing that a pre-existing sales contract was in place the morning that the fire erupted, and that the insured did not disclose this key fact when he submitted claims.
  • Proved that claims for damaged equipment were inflated. He argued that since the sale of the business had not officially closed when the fire occurred, the insured still had a legitimate claim for the equipment. However, because he then sold the equipment and did not replace it, he was entitled only to the “actual cash value” versus the “replacement cost” claim that had been paid by the insurance company.
  • Successfully argued that claims for lost business income were invalid since the dry cleaners had been sold on the day of the fire. Since the insured no longer owned the business, he could not suffer a loss of income. However, lost income claims were submitted by the buyers acting as employees and were paid by the insurance company.
  • Established that the buyers were unjustly enriched. All of the benefits were paid to the insured, who cashed the checks and paid most of the money to new owners.


The judge ruled in favor of the insurance company and its rescission of the fire insurance policy. The owner and buyers were ordered to repay $165,697.11, which represented all payments, less monies paid for the policy premium. Interest and costs also were awarded to the insurance company.

Mr. Arnold said the ruling underscored the obligation an insured has to follow the terms of his or her insurance policy. “This was an interesting situation in that the fire occurred on the day the sale was to close,” he said. “However, by withholding facts as important as the sale of the business, the policy was voided and the insured was ineligible to receive benefits. Once fraud is uncovered, insurance companies should not hesitate to consult with an attorney and seek reimbursement of claims payment. In the end, both insurance companies and policyholders will benefit by reducing the high cost of fraud.”