FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

Aug. 12, 2009

THOMAS K. KAHN

CLERK

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

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No. 08-17088

Non-Argument Calendar

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D.C. Docket No. 07-01329-CV-T-30-MAP

SCOTTSDALE INSURANCE COMPANY,

a foreign corporation,

Plaintiff-Counter-

 Defendant-Appellee,

versus

WAVE TECHNOLOGIES COMMUNICATIONS, INC.,

a Florida corporation,

RITA A. TODD,

Defendants,

RUTH COCHRAN, individually and as the personal

representative of the Estate of Donald F. Cochran, deceased,

Defendant-CounterClaimant-Appellant,

VIASY’S NETWORK SERVICES, INC.,

a foreign corporation,

Defendant-CounterClaimant-Appellant.
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Appeals from the United States District Court

for the Middle District of Florida

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(August 12, 2009)

Before BLACK, BARKETT and COX, Circuit Judges.

PER CURIAM:

I. BACKGROUND

Scottsdale Insurance Company (“Scottsdale”) filed a complaintfor declaratory

relief against Wave Technologies Communications, Inc. (“Wave”), Ruth Cochran,

individually and as the personal representative of the estate of her husband Donald

Cochran (“Cochran”), Rita A. Todd (“Todd”), and Viasys Network Services, Inc.

(“Viasys”). The lawsuit was initiated after claims were filed with Scottsdale by

Viasys for liability coverage covering damages caused by a Wave subcontractor’s

operation of heavy equipment in a manner that allegedly caused a motor vehicle

accident on April 21, 2007 (“the accident”). Todd was injured in the accident and

Donald Cochran was killed. Viasys was the prime contractor with which Wave had

contracted to perform work being done at the time of the accident.

Scottsdale’s lawsuitsought a declaration that it could rescind a general liability

insurance policy it had issued to Wave on the basis that Wave made material

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misrepresentations in its application for the policy. Scottsdale alleged that Wave had

misrepresented its business operations as involving no digging or use of heavy

equipment and that Wave failed to disclose that it had a prior loss under another

insurance policy. Scottsdale also alleged that, had Scottsdale known ofWave’s actual

business, it would not have issued the insurance policy or would have charged a

substantially higher premium for the coverage.

Neither Wave nor Todd answered the complaint, and default judgments were

entered against them. Cochran and Viasys (collectively, “Defendants”) answered and

pleaded, among other defenses, that Scottsdale had waived its right to rescind the

policy by failing to rescind it when it knew, or should have known, of

misrepresentations in the application. Defendants also counter-claimed, seeking

liability coverage for their damages caused by the accident.

Scottsdale moved for summary judgment. Defendants opposed the motion, in

part based upon an argument that, in late December 2006, around the time Scottsdale

wrote the general liability insurance policy at issue in this case, Scottsdale’s agent 

hired a contractor to conduct a liability survey and that survey uncovered facts that

should have caused Scottsdale to investigate the representations on Wave’s

application. (R.1-54 at 7-9.) In its opposition papers, Viasys identified the facts

discovered by the survey that were at odds with Wave’s application and should have

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caused Scottsdale to conduct further inquiry as: (1) use of subcontractors for

$100,000 of work per year (not identified on the application); (2) a two-year business

history (as opposed to the “new venture” described on the application); and (3)

performance of some “minor construction work . . . using a shovel to dig and locate

utilities.” (as opposed to application statement that Wave did “no digging.”) (Id. at

7, 9, 10, 18.) And, Viasys presented evidence that Scottsdale’s general agent

Southern Cross received this information from the survey contractor and considered

the first of these issues significant enough that Southern Cross attempted to conduct

some follow-up investigation of that issue. (Id. at 9, 10, 18.) But, when Southern

Crossreceived no response to its clarifying inquiries, it failed to relay the information

to Scottsdale and took no further action. (Id. at 9.)

Defendants argued that, had Scottsdale properly conducted a further inquiry

into the discrepancies discovered by the survey, it would have discovered that: (1)

Scottsdale previously had written a general liability policy for Wave’s business

operations; (2) in the application for the earlier policy, Wave had been described

properly as a cable conduit contractor engaged in excavation, tunneling, underground

work, and earth moving who relied on significant work by sub-contractors; and (3)

Scottsdale had received a claim under that earlier policy. (R.1-54 at 11-14.) 

Defendants further argued that Scottsdale’s failure to conduct an investigation in a

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manner that discovered these facts resulted in Scottsdale’s waiver of its right to

rescind the policy.

The district court granted Scottsdale’s motion for summary judgment. In doing

so, the court relied on the rule that “an insurer is entitled to rely on the representations

of the insured even without checking its own files unless some circumstance arises

that would call attention to the false statements.” (R.1-60 at 7 (citing Schrader v.

Prudential Ins. Co. of Am., 280 F.2d 355, 362 (5th Cir. 1960).) However, the court

did not address Defendants’ argument that the facts raised in the liability survey

should have spurred Scottsdale to investigate further. The court entered judgment for

Scottsdale.

Defendants brought timely motionsto alter or amend the judgment pursuant to

Federal Rule of Civil Procedure 59(e), arguing that the court had erred so as to

commit a manifest injustice. In these motions, Defendants again presented the

argument that a jury question existed as to whether, when Scottsdale’s contractor

discovered that Wave had been in business for two years, performed construction

work, and used sub-contractors to performsignificant work, Scottsdale was on notice

that Wave may have made misrepresentations in its application and that further

investigation was due. (R.1-62 at 3 ¶5, and 6 ¶¶15 and 17.) Defendants argued that

summary judgment for Scottsdale wasinappropriate because these facts raised a jury

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question as to whether “circumstances . . . which called attention to the false

statements” existed. (Id. at 6 ¶17.) The court denied the motion, addressing only the

discrepancy in the amount ofsubcontractor work and finding that discrepancy did not

call Scottsdale’s attention to the fact that Wave may have made misrepresentations

on its application. (R.1-66 at 6.)

Defendants appeal the judgment, making the arguments (as they did in their

summary judgment opposition and Rule 59 papers) that the facts discovered by

Scottsdale’s survey contractor raise jury questions as to whether Scottsdale was on

notice that it should further investigate whether Wave made misrepresentations and

as to whether the investigation that was done by Scottsdale’s general agent Southern

Cross was reasonable.

II. STANDARD OF REVIEW

This court reviews a grant of summary judgment by applying the same legal

standards used by the district court. See, e.g., Hilburn v. Murata Elecs. N. Am., Inc.,

181 F.3d 1220, 1225 (11th Cir. 1999) (citation omitted). Summary judgment is

appropriate where “‘there is no genuine issue as to any material fact and the moving

party is entitled to a judgment as a matter of law.’” Wooden v. Bd. of Regents of the

Univ. Sys. of Ga., 247 F.3d 1262, 1271 (11th Cir. 2001) (quoting Fed. R. Civ. P.

56(c)).

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III. DISCUSSION

The parties do not disagree over the applicable law. There is no dispute that

an intentional misrepresentation by an applicant of a material fact, relied on by the

insurer, allows the insurer to void a policy. See New York Life Ins. Co. v. Strudel, 243

F.2d 90, 93 (5th Cir. 1957). However, if the insurer either did not rely on the

misrepresentation or should not have relied on the misrepresentation, then it cannot

void the policy. Id. Thus, if the insurer “has sufficient indications that would have

put a prudent man on notice and would have caused him to start an inquiry which, if

carried out with reasonable thoroughness, would reveal the truth, he cannot blind

himself to the true facts and choose to ‘rely’ on the misrepresentation.” Id. (citation

omitted.) And, “if the insurer chooses to make an independent inquiry and the subject

matter and the circumstances are such that he is in a position to ascertain the facts by

a reasonable search, then he cannot plead reliance even if his investigation is as a

matter of fact cursory and did not reveal the true facts . . . .” Id.

Applying this law, we conclude that summary judgment was inappropriate. 

Defendants’ briefs and the evidence submitted at the summary judgment stage

demonstrate that there is a question of fact as to whether the three discrepancies

discovered during the liability survey should have causedScottsdale to inquire further

into the true facts of Wave’s business. While a reasonable jury could conclude that

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these discrepancies were not significant enough to warrant further investigation by

Scottsdale and thus cause Scottsdale to realize that it had, in its possession,

documents that demonstrated the misrepresentations on Wave’s second application

for insurance, a reasonable jury also could find otherwise. And, a reasonable jury

could conclude that the investigation Scottsdale undertook (through its general agent

Southern Cross) was performed in such a manner as to waive reliance on the

misrepresentations that Scottsdale would have discovered if it had performed the

investigation in a more diligent manner.

IV. CONCLUSION

For the foregoing reasons, the summary judgment for Scottsdale is vacated and

the case is remanded for further proceedings.

JUDGMENT VACATED AND CASE REMANDED.

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