A legal dispute is heating up between Michael’s Fabrics, LLC and Donegal Mutual Insurance Company over a water damage insurance claim. The case, officially known as Michael’s Fabrics, LLC v. Donegal Mutual Insurance Company, is currently in the hands of Judge Julie R. Rubin at the United States District Court for the District of Maryland.
Michael’s Fabrics, a high-end fabric retailer based in Baltimore, purchased a business owners’ insurance policy from Donegal Mutual that covered the period from December 16, 2022, to December 16, 2023. The policy cost $4,765, with $3,364 allocated for property coverage. However, on January 21, 2023, the company reported significant water damage to its inventory after an employee accidentally left a faucet running. This incident resulted in the loss of 210 bolts of fabric, totaling nearly 6,700 yards.
Despite the claim being filed, Donegal Mutual denied it on January 19, 2024, citing policy violations and potential fraud. The insurer claimed that Michael’s Fabrics did not provide unredacted documents requested during the investigation and that it submitted invoices that appeared to have been altered after the incident.
A key point of contention is the policy’s fraud and misrepresentation clause, which states that the policy becomes void in cases of fraud or intentional misrepresentation. Donegal Mutual argues that Michael’s Fabrics violated this clause by submitting altered invoices and failing to cooperate fully with the investigation.
In response, Michael’s Fabrics insists that it complied with all requests and that any redactions were necessary to protect sensitive information. The company argues that Donegal’s denial amounts to a breach of contract and bad faith practices.
To investigate the claim, Donegal Mutual hired Kenneth Rizer from Nardone & Company. Rizer’s findings indicated discrepancies in the invoices, including dates and amounts that did not align with Michael’s Fabrics’ historical purchasing patterns. The invoices in question were reportedly dated after the water damage but were later revised to suggest they were issued beforehand.
Michael’s Fabrics challenged the admissibility of Rizer’s report, claiming it should be excluded as improper expert testimony. However, the court ruled that Rizer was part of the internal investigation, and the challenge was deemed premature.
Both parties have filed motions for summary judgment. Michael’s Fabrics seeks a ruling in its favor for breach of contract, while Donegal Mutual aims to dismiss the bad faith claim, arguing its denial was justified due to alleged fraud. However, Judge Rubin denied both motions, stating that there are still material factual disputes that need to be resolved at trial.
As the case moves forward, the jury will have to determine several key issues: whether Michael’s Fabrics misrepresented facts in its claim, whether Donegal Mutual wrongfully denied coverage, and whether the insurer acted in bad faith.
This case underscores the importance of transparency in insurance claims and the serious implications of fraud allegations. If Donegal Mutual successfully proves fraud, Michael’s Fabrics could lose all coverage under the policy. Conversely, if the jury finds that Donegal wrongfully denied the claim, the insurer may face significant penalties under Maryland’s bad faith insurance laws. The outcome of this trial could have lasting effects on both companies and the broader insurance landscape.