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Timestamp: 2019-04-22 16:28:27+00:00

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What happens to extra living expenses if the named insured wants to live separately after a fire?
After an insured loss, the insurance company pays for additional living expenses until the property is repaired to pre-loss condition.
Once settled into temporary residence, the couple decides to part ways. The Insurance Company is not obligated to pay for two temporary residences. Their responsibility is to provide a normal standard of living, which at the time of the loss was a joint home.
Insureds can choose to split existing payment between two homes. The insurance company has no obligation to pay on two residences.
Posted on February 16, 2018 Categories Adjuster Information, extra living expenses, Insurance Information, insurance lossTags insurance claim, Insured, residenceLeave a comment on What happens to extra living expenses if the named insured wants to live separately after a fire?
The tenant, who was insured under a 1989 Businessowners policy, suffered damage to business personal property due to a roof leak from wear, tear, and deterioration. The form states that we do not owe for this loss and would owe only for the ensuing damage if is a specified peril, but water from a roof leak is not a specified peril.
This means our insured, through no fault of his own, is penalized from coverage under his own policy. He can certainly file a liability claim against the landlord’s policy, but that can cause animosity.
Just wondered if you saw any other way to help our customer, other than pick a landlord who is accountable and maintains his building.
There is nothing on the policy that would help the insured. The lease should indicate who is responsible for maintaining the roof, but whether it is the landlord or the tenant, there is no way to insure against wear and tear or poor maintenance. If the landlord is responsible, it becomes a liability claim or legal issue.
This reprint of publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the services of a competent professional person should be sought.
Summary: An insured’s misrepresentation in obtaining coverage or fraud involving the policy can void coverage. Property and liability policies almost universally contain provisions stating that truthful and correct statements are the basis upon which the insurers decision to issue the contract is made and that fraud or misrepresentation voids the policy. Due to the phrasing of many misrepresentation and fraud clauses, the acts of any insured, and not just the named insured, can have the effect of voiding insurance coverage.
The courts generally uphold these provisions in insurance policies. Further, statutes in many states allow the insurer to deny recovery under a policy where the misrepresentation is fraudulent, material to the acceptance of the risk or to the hazard assumed by the insurer or where the insurer in good faith would not have issued the policy if the true facts regarding the risk had been made known to the insurer.
There are two reasons. The first is that the insurance contract is based on the premise of “utmost good faith and fair dealing” on the part of both parties to the contract. The insurer relies on the honesty of the insured making the representations, and the insured places his faith in the insurers promise to deal fairly in claims settlement. The second reason is that underwriting decisions are made using guidelines in which insurability and premium is determined by multifarious factors, such as: type of property; use made of the premises or automobiles; moral and physical risk exposures; age of insureds; territory; insureds’ past loss and claims history; and driving and other public records. This makes representations made by potential insureds in procuring insurance vital information for an insurer who must decide whether to accept or decline a risk and how much to charge.
This article reviews examples of misrepresentation and fraud clauses and state statutes regarding misrepresentation or fraud. What constitutes a “material misrepresentation” is also examined. Cases arising in the courts involving the misrepresentation and fraud provisions are discussed.
case, it is as if the policy never existed.
In addition to statements made in the procurement of insurance, insureds owe a high standard of good faith dealing to insurers investigating claims. This is due both to the nature of the insurance transaction and specific contract provisions. These provisions are generally found in the Duties After Loss section of the policy and require the providing of sworn proofs of loss, original bills, invoices and other vouchers, actual cash values of damaged and destroyed property, and other reasonable cooperation by the insured. Concealment and fraud clauses eliminate coverage or void the policy in the event of material misrepresentation by the insured in complying with any of these contract obligations.
The commercial general liability policy has a “representations” provision stating that, by accepting the policy, the insured agrees that the statements in the declarations are complete and accurate and that the policy is issued in reliance upon the insured’s representations. This is generally the case with errors and omissions and professional liability policies also; the policy is issued with specific reference that coverage is issued in reliance upon the statements of the insured. In some fashion or another, the application is incorporated into the policy.
Mere oversights or honest mistakes do not to rise to the level of misrepresentations. See Longobardi vs. Chubb, 582 A.2d 1257 (New Jersey 1990), where the court stated “for insurer to avoid policy because of post-loss misrepresentation, misrepresentation must be knowing and material—lie must be willful; mere oversight or honest mistake will not cost insured his or her coverage.” See also Innocent Misrepresentations, later in this article.
Most litigation concerns the materiality of a misrepresentation; few cases involve a statement’s status as being or not being a misrepresentation. A Tennessee court has ruled in this area in Farmers Mutual Fire Ins. Co. of Tenn. v. Collins, 1990 WL 48986 (Tenn. Ct. App. April 24, 1990). Given the following facts, the court held that no misrepresentation had occurred. A man and woman began living together in 1980, residing in a house owned by the man. In 1983, the house was sold and the couple moved into an apartment rented by the woman and insured under a renters policy in the woman’s name. A grease fire caused damage to furniture, which was paid for under the renters policy. Thereafter, the couple moved into a home purchased by the man. In 1986, he was asked about prior fire losses in an application for homeowners insurance and replied that he had had none. Following a fire loss to the house, the insurer invoked the policy’s concealment and fraud clause and asked the court for a declaratory judgment that the policy was void due to misrepresentation. The trial court held, and the appeals court affirmed, that there was no misrepresentation made by the insured. There was no intent to deceive, the man had not suffered a loss of property in the prior fire, and the woman was not the applicant for coverage.
Once misrepresentation is established, the focus becomes determining whether that misrepresentation is material. Note that the concealment or fraud clause specifically references material misrepresentation and that most state insurance laws (see Statutory Provisions for Misrepresentation and Fraud Clauses, later in this article) do not allow for the denial of coverage unless the misrepresentation involved is material.
The New Jersey Supreme Court gave some insight into the issue of materiality in Longobardi v. Chubb, 582 A.2d 1257 (N.J. 1990). Here, the insured had made misrepresentations in post-loss statements to insurance company investigators regarding his relationship with two persons known to be involved in insurance fraud schemes and as to whether he had ever made application to other insurers regarding coverage for a fine arts collection. After a denial of a claim, the insured brought an action against the insurer and the insurer defended on the basis of the insured’s misrepresentations.
In the course of litigation, the appeals court ruled that a statement is material not if it is merely pertinent or germane, but only if it has “real importance or great consequences.” The appeals court held that inasmuch as the insurer had failed to prove a conspiracy between the insured and the two others, the inquiry into the relationship between them was immaterial.
Although it may appear that an insurer may easily defend or avoid coverage by alleging material misrepresentation, the courts generally enforce a standard of proof. Brooks v. Town & Country Mutual Ins. Co., 741 S.W.2d 264 (Ark. 1987) was a case in which the insured’s home was totally destroyed by fire. The insurer denied the claim, and the insured sued. The insurer pled that the fire was intentionally set and that the dwelling had been vacant for more than sixty days. The court found the proof did not support these defenses, but did find for the insurer based on a material misrepresentation—the insured failed to disclose an earlier fire when she applied for insurance. But on appeal, the supreme court found that the issue of “materiality” had not been addressed. Nothing in the record indicated that the earlier fire was suspicious, and under the law the insurer had the burden of showing that had it known of the earlier loss, it would not have issued the policy.
insured represented that no one over the age of fourteen resided in the household except for himself and his wife. Prior to renewal, the insured asked the agent to add his daughter, who had just turned sixteen and gotten a learners permit, to the policy. He provided license information and paid the increased premium. When the renewal was issued, the daughter was shown as an operator. But when she had an at-fault accident, the insurer denied coverage, claiming misrepresentation. Because the insurer was unable to present evidence that, had it known of the daughter’s existence, it would not have accepted the risk at the stated rate, the court disallowed the insurer’s denial.
However, one court has viewed as ambiguous a concealment or fraud provision that is similar to the standard phrasing. In Tempelis v. Aetna Casualty and Surety Co., 485 N.W.2d 217 (Wis. 1992), the insurance company denied a fire loss due to misrepresentation and fraud and the insured sued. The trial court dismissed the insured’s claim against the insurance company after a jury trial. The insured appealed based upon the trial court’s refusal to allow an instruction to the jury requiring that the insurance company prove that it relied on the insured’s material misrepresentation. The appeals court held that reliance was not a necessary element, but reversed the trial court’s dismissal of the action and allowed the case to go forward due to an ambiguity in the concealment and fraud clause. (The court did this on the court’s own motion, without the issue being raised by either party).
The policy’s concealment or fraud clause stated that the insurer did not provide coverage for “any insured who has: (A) intentionally concealed or misrepresented any material fact or circumstance; (B) made false statements or engaged in fraudulent conduct relating to this insurance” (phrasing similar to that contained in the ISO 1991 homeowners policy).
The court ruled that the clause did not apply to post loss material misrepresentations, saying that the “… language is ambiguous in that it could be read by a reasonable person to apply to statements made prior to the signing of the policy, as in the application for insurance, or to apply more expansively, including statements made later in a proof of loss. The policy language, phrased in the past tense, refers to conduct that has already taken place at the time the contract is signed… It does not clearly reference behavior in the future.” The court indicated that the standard fire policy’s fraud clause, which references both pre- and post- loss representations, would have more clearly put the insured on notice as to the effect of misrepresentations. It is significant that this ruling only affects the dismissal of the insured’s action and is not a final decision regarding the claim. However, it does make an appropriate point for policy drafters.
void the policy. The courts generally hold that any inducement to the insurer to enter into a contract it would not have otherwise entered into, even if innocently made, is grounds for voiding the contract.
Where the insured has made material misrepresentations in procuring insurance, such as lying about knowledge of circumstances that may give rise to a claim (a common question on professional liability insurance applications), the result is a mistake in contract formation, so that no contract is formed. This is due to the fact that representations of the insured are made specifically a basis of the contract. A material misrepresentation at this point is not viewed as a violation of a term of the agreement, as no agreement was formed. In such circumstances, premium for the policy is returned and there is no coverage for any claim under the policy (because, again, there is no policy).
Where an insured makes a material misrepresentation in required post-loss documents (invoices, sworn proofs of loss, inflated actual cash values) it appears that there is some authority for either of two actions by the insurer. The insurer may (1) declare the policy void and return unearned premium, or (2) deny recovery under the policy for the loss involving the material misrepresentation based on the concealment or fraud provision, allow the policy to expire by its terms, and nonrenew the policy without a return of premium.
This was a holding of Massachusetts Bay Ins. Co. v. Hall, 395 S.E.2d 851 (Ga. App. 1990). In this case, the insured’s dwelling, insured for $500,000, was destroyed by fire. The insurance company denied the claim as being insured-arson based on its investigation. The insured sued the insurance company and won a jury verdict in excess of $1 million, including bad faith and attorney fee awards. The insurance company appealed, basing its appeal on the fact that the trial court had dismissed the insurance company’s defense of misrepresentation without letting the jury consider the issue. The trial court held that the insurance company had waived its right to claim material misrepresentation when, after the loss and denial of claim, the insurer did not immediately void (rescind) the policy and return the insured’s premium, but instead, retained the premium and notified the insured as to nonrenewal, and allowed the policy to expire.
The appeals court reversed the decision and ordered a new trial. The appeals court said that the failure to return the premium did not constitute a waiver of the insurer’s right to deny a claim based on material misrepresentations. Relying on earlier decisions, the court held that the premium was earned at the beginning of the policy period, when the risk attached. The court noted that the policy had not been canceled, which would have required a refund of the unearned portion of the premium, nor had it been rescinded (never existed), which would have required the return of the parties to their original position (return of entire premium).
It may be the general rule that insurers will want to void or rescind coverage in the event of post-loss material misrepresentations, due to the desire to get off the risk, but this is not necessary, nor can the insured claim the insurer has waived its right to deny coverage for material misrepresentations by not returning the entire or unearned premium. Further, even in the event a renewal is erroneously sent, it has been held that the insurer did not waive a misrepresentation defense when the insured committed arson (Sales v. State Farm Fire and Casualty Co., 849 F.2d 1383 [11 Cir. 1988]).
Various issues regarding materiality are raised frequently. For example, in property insurance cases questions arise regarding misrepresentations in prior loss or claims history; automobile insurance cases involve misrepresentations in driving records. Many cases pertain to questions of whether the insured has misrepresented the scope of the exposure. Another line of cases involves insureds who make misrepresentations in proofs of loss.
It is crucial to observe that fraud and concealment clauses provide for the voiding of the entire policy where material misrepresentations are made in post-loss documents; therefore, for example, if an insured overstates the value or number of items destroyed or damaged in a loss, coverage is not simply suspended as to the overvalued items, but the entire loss denied (and probably the policy voided entirely). See Passero v. Allstate under Misrepresentations in Proofs of Loss.
Meeker v. Shelter Mutual Ins. Co., 766 S.W.2d 733 (Mo. App. 1989). Insurer would not have issued policy if previous fire losses had been disclosed. (Premium was returned to insured post-loss—see Massachusetts Bay Ins. Co. discussion earlier.) Statutory cancellation requirements do not apply where there are misrepresentations or concealment of material facts in an application. Policy is void ab initio (never existed), not canceled.
Doggett v. Allstate Ins. Co., 1992 WL 43286 (Tenn. Ct. App. March 10, 1992) . Insured with numerous previous fire losses was bound by his material misrepresentation in the coverage application even though the insured could not read the application and could not sign his name.
Farmers Mutual Fire Ins. Co. of Tenn. v. Collins, 1990 WL 48986 (Tenn. Ct. App. April 24, 1990) . Insured made no misrepresentation in coverage application where prior loss occurred where insured was residing but did not involve his property nor was he an insured on the policy covering that loss (see What Constitutes a “Misrepresentation”, earlier).
Pinette v. Assurance Co. of America, 52 F.3d 407 (2nd Cir. 1995). Insurance agent filled in application with “none” listed in the previous losses category, and insured signed application without reviewing or correcting. Court held coverage void due to material misrepresentation.
Benton v. Shelter Mutual Ins. Co., 550 So.2d 832 (La.App.2 Cir. 1989). Insured misrepresented that she had no traffic violations in the prior three year period. After an accident, her record was checked and disclosed two speeding tickets in that period. Coverage was denied. State statute regarding voiding insurance required that misrepresentation be material and made with intent to deceive. Insured claimed she had “forgotten” about the two tickets, and therefore had no intent to deceive. Court held it unlikely that insured would forget both instances. Decision for insurer.
Haugseth v. Cotton States Mutual Ins. Co., 386 S.E.2d 725 (Ga.App. 1989). Insured represented that she had no tickets in five years prior to applying for auto policy. Thereafter, insurer received notice that insured had two violations in that period. Subsequently, insured suffered loss of her auto by theft. Court held that misrepresentation was material, but that insurer had not acted in timely fashion to rescind the policy after discovering true record and was not permitted to void policy.
York Mutual Insurance Co. v. Bowman, 746 A.2d 906 (Me. 2000). Insured held that she and her husband were the only drivers in the household, when in fact one son, age seventeen, had two speeding citations, and another son, age 20, had two moving violations (speed and failure to keep right) and a DUI, and the previous insurer had cancelled the auto policy. Husband had an at-fault accident, resulting in the insurer’s action to rescind. A lower court misread the materiality statutes as applying to the cause of the loss, and because the sons were not involved in the accident, found against the insurer. The Supreme Judicial Court of Maine disagreed, noting the insurer never would have issued the policy to the Bowmans had it been aware of the driving records and prior cancellation.
Bird v. Auto Owners Ins. Co., 572 So.2d 394 (Ala. 1990). Couple arranged to purchase home from individual. Couple arranged insurance and represented themselves as the insureds. Couple reconveyed home to individual, who took up residence and made insurance payments to insurance agent without changing name on policy. Home burned and individual attempted to recover from insurer, claiming that the insurance company, through actions of its agent in accepting premium from individual waived right to rescind policy. Court held that right to rescind could not be waived by agent and that policy was void.
Reeves Trucking Inc. v. Farmers Mutual Hail Ins. Co. of Iowa, 926 F.2d 749 (8th Cir. 1991). Insured misrepresented acreage of farmland planted in wheat. Court ruled this material as to exposure insurer contemplated.
Sine v. Tennessee Farmers Mutual Insurance Co., 861 S.W.2d 838 (Ct. App. Tenn. 1993). Insured misrepresented titleholder to property, prior theft losses, and that property was mortgaged for $30,000 when in fact it was mortgaged for $43,250. The court noted that though there was a split of authority in other jurisdictions as to whether the size of a mortgage would defeat the policy, a misrepresentation of 50 percent more than indicated in the application was enough to materially increase the risk to the insurer.
Bennett v. Hedglin, 995 P.2d 668 (Alas. 2000). Insured stated he resided full time in the insured cabin, when in fact he resided elsewhere. The supreme court held this was a material misrepresentation allowing the insurer to rescind the insured’s binder ab initio, and so avoid payment when the cabin burned.
Passero v. Allstate Ins. Co., 554 N.E.2d 384 (Ill. App 1st Dist. 1990) Insured misrepresented value of items taken in burglary (burglary loss was $9000; insured provided receipts stating purchase price of $900 for stereo and $1500 for video equipment). Insurer proved actual cost of stereo was $400 and video equipment had not been purchased by the insured. Court permitted insurer to void coverage in its entirety.
Childers v. State Farm Fire & Casualty Co., 799 S.W.2d 138 (Mo. App. 1990). Insured could not claim “inadvertent error” in sworn proof of loss and offer to correct after insurer voided policy for material misrepresentations (insurer had located several items claimed destroyed in house fire; insured stated she made innocent errors in preparing inventory list for insurer).
Lilledahl v. Insurance Co. of North America, 558 N.Y.S.2d 709 (N. Y. Sup. Ct.. 1990). Insurer claimed insured’s proof of loss form was fraudulent because it failed to list an existing mortgage at the time of loss and inaccurately indicated that the insureds resided there at the time of loss. Court found no material misrepresentation, as mortgagee was a carpenter who had worked on the house and was not listed as a loss payee, and couple had moved from the residence shortly before the fire to accommodate a work schedule, the house was considered the primary residence, and the insureds returned each weekend.
Essman v. Fire Insurance Exchange, 753 S.W.2d 955 (Mo. 1988). This case illustrates that the insured’s exaggeration of loss amount can result in the voiding of the policy. The insured claimed a real estate loss of $20,700 with respect to property he had purchased five months prior to the loss for $10,000 and a personal property loss of $26,000. Evidence was presented at trial that the actual real estate loss was $8,000 and the personal property loss was $5,000. The court upheld the voidance of coverage based upon the insured’s willful misrepresentation.
the court ruled that the provision that voided the entire policy if, after a loss, the insured fraudulently concealed or misrepresented material facts, barred coverage for both personal property and the building.
McCullough v. State Farm Fire & Cas. Co., 80 F.3d 269 (8th Cir. 1996). This case is similar to Collins. Policy was voidable by the insurer where insured committed arson. Insured had agreed that fire loss was not covered due to the arson of another insured, however, an unrelated burglary loss should be covered. Court held that insurer could void policy when insured breached contract by misrepresenting that fire was caused by accident rather than arson, and thus policy was void when theft on the premises occurred subsequently.
Tempelis v. Aetna Casualty and Surety Co., 485 N.W.2d 217 (Wis. 1992). A somewhat contrary point of view is that of the Wisconsin Supreme Court. The insured’s home was destroyed by fire while they were out of town. They filed a proof of loss claim for the home, and for additional living expenses of over $6,000. Aetna denied the entire claim on grounds of arson, intentional concealment, and misrepresentation of material facts. A jury found there was no basis for the arson charge, but agreed that the additional living expenses receipts were fraudulent. The case wound its way to the supreme court, which concluded that the policy language was ambiguous as to what extent a material misrepresentation voided coverage. Therefore, the clause was construed to void coverage only for the claim for additional living expense.
Lopes v. Allstate Indem. Co., 873 So.2d 344 (Fla. App. 2004). In this case involving false statements made about how an accident occurred, the court upheld Florida law stating that if there is a willful false statement of a material fact, there is no requirement that an insurer show prejudicial reliance in order to enforce the contract provision. The insured had driven his car in a parade on a speedway and crashed it against a wall. His girlfriend reported the claim and stated that she was driving the car at the time of the accident and was on a public street. After investigating the accident, Allstate found that parts of the girlfriend’s story could not be true, and the insured finally admitted how the car was actually damaged.
Mutual of Enumclaw v. Cox, 757 P.2d 499 (Wash., 1988). Fraud will vitiate coverage even where the fact misrepresented or omitted cannot be said to be material. The insured suffered a loss of personal property ($300,000) that exceeded the policy’s personal property limits ($180,000). The insured inflated the amount of loss by $40,000 with items that were later proved not to have been in the house at the time of the fire. The insurer voided the homeowners policy and sued to recover funds advanced to the insured as payment for loss.
The insured, conceding the inflated values, argued that the loss would be covered, as the misrepresentation was not material (i.e., as the loss exceeded the coverage limit, the insurer would not be prejudiced by the insured’s act as it bore no risk of additional loss). Secondly, the insured alleged that the dwellings coverage and the personal property coverage under the homeowners policy are several, and therefore the insured’s act that would void personal property coverage could not be held to void the dwelling coverage.
Most of the issues in the professional liability and errors and omissions insurance area arise from answers to questions (representations) regarding circumstances that might give rise to a claim against the potential insured. Some of the questions posed are whether an insured has a duty to disclose information to an insurer absent a specific inquiry, and whether the standard by which a representation is to be judged is from the individual subjective standpoint of the insured or an objective “reasonable person” standard. That is, whether the potential insured who suspects circumstances that may give rise to a claim, but is without solid knowledge, is nonetheless required to inform the insurer. Another issue of interest involves whether an insurer can claim misrepresented statements on an insurance application material, and thereby void the policy, where other equally important questions are allowed by the insurer to go unanswered.
The issue regarding the insured’s obligation to disclose, without specific inquiry, conditions that materially affect the risk was considered in New Castle County v. Hartford Accident and Indemnity Co., 685 F.Supp. 1321 (D. Del. 1988). The insurer issued a liability policy without requiring a written application, but with assurances from either the insured or its insurance agent that “there have been no major losses on the County’s account.” Thereafter, pollution claims involving a county landfill were made, and the insurer sought summary judgment allowing it to void the policy for failure to disclose material facts involving the risk (the county had received a demand letter regarding the site from the state department of natural resources prior to obtaining coverage). The insured also sought summary judgment on the liability issue, contending that the insurer had waived its right to assert misrepresentation by failing to properly investigate the county.
1052 (Ill. App. 1st Dist. 1990). Here, the insured claimed that the person filling out the application for insurance was unaware that a construction project dispute might give rise to a claim against the trustees of a trust, and that therefore no misrepresentation could be held to have occurred. The insured contended that although an objective “reasonableness” standard applies in determining whether a misrepresentation is material, a subjective standard should be applied as to whether a misrepresentation occurred at all.
The court disagreed, stating that the application question calls for no subjective evaluation, “but in traditional objective language requires the disclosure of any facts indicating the probability of a covered claim.” Additionally, the court made the point that a material misrepresentation will avoid the contract even though made through mistake or good faith (see Campbell v. Prudential Ins. Co., 155 N.E.2d 9 [Ill., 1958]).
In the same vein, where the applicant for insurance did not take seriously a claim against his company, believing the claim letters to be “nothing more than a negotiating ploy,” the insurer was allowed to void the policy. “The application calls for no judgmental or subjective evaluation. Rather, it requires in traditional objective language the disclosure of any facts indicating the probability of a covered claim. Consequently, what [the insured] understood about the letters is not relevant.” See International Insurance Co. v. Peabody International Corp., 747 F.Supp. 477 (N.D. Ill. 1990).
The fact that the insured believed that a claim that had been made against him had “dissipated” by the time an insurance application was completed did not relieve the insured from disclosing that, in fact, the claim had been made, so that the insurer was entitled to void the policy in Utica Mutual Ins. Co. v. Klein, 460 N.W.2d 763 (Wis. App. 1990).
Under this inquiry, the court first asks the subjective question of whether the insured knew of certain facts and then asks the objective question of whether such facts could reasonably have been expected to give rise to a claim. The reasoning behind the application of this standard is based upon the plain language of the insurance policy—the use of both subjective and objective elements in the critical language of the policy is deemed to clearly express the parties’ intent to incorporate both components.
Peoples Bank applied for an E&O endorsement to a D&O policy. Shortly after the policy was issued, the bank filed a claim for coverage and defense in a negligence and conversion action against it. A bank employee opened a business under the name American Special Risk Management, presented improperly endorsed checks that were honored by the bank, and deposited the real American Special Risk Management Corporation’s funds into the account that he then transferred to his personal account. When the scheme was discovered by American and was reported to Robert Chenoweth, a senior operations officer with the bank, Chenoweth put a hold on the most recent checks deposited to the account. He did not believe that American believed the bank was liable.
1. Has there been any actual, threatened or pending litigation against the Applicant or any subsidiary during the past 3 years?
2. Are there any facts, circumstances or situations involving the Applicant, any subsidiary or any past or present director, trustee, officer or employee which could reasonably be expected to give rise to a claim?
Thus, the court held that the bank had knowledge of facts and circumstances that could result in a claim and stated that there was no coverage.
And in Booker v. Blackburn, 942 F.Supp. 1005 (Dist. N. J. 1996), the insured engineer failed to list a third party’s claim against him. The insured claimed to believe that the complaint had simply been a formality. Nonetheless, the court found for the insurer and allowed rescission of the policy.
the unanswered questions were insufficient for this purpose.
A dissenting justice’s opinion, though, is “I am loath to join a result that could be perceived as tolerating fraudulent procurement of insurance.. . . Allowing coverage for even one of the three attorneys comprising the law firm that misrepresented on the application for insurance ignores the critical fact that the insurer never would have issued a policy covering the firm and its partners but for the deceit of one partner (who stole money from clients), the complicity of a second partner, and the indifference of a third partner.” See First American Title Ins. Co. v. Lawson et al., 827 A.2d. 230 (N.J. 2003).
As seen in cases discussed earlier (for example, New Castle County v. Hartford Accident and Indemnity Co.), the question often arises as to how much an insurer is required to make an independent investigation of the truthfulness of an insured’s representations.
Couch on Insurance (Third Edition) states, “Generally, an insurer has no duty to investigate a representation the veracity of which it has no reason to doubt, although there is limited authority to the effect that there is a duty owed to the insured and the public to make a reasonable investigation within a reasonable time for insurability information, at least, to the extent that it is within public records, particularly with regard to the issuance of automobile insurance.” (6 Couch on Ins. § 82:17) See United Services Automobile Association v. Pegos, 107 Cal. App. 4th 392 (3d Dist. 2003), where the court stated that unless it had conducted a reasonable investigation into the insurability of its insured, the insurer could not rescind a policy based on material misrepresentation after the insured injured a third party.
Most states have enacted laws regarding the basis upon which an insurer can avoid payment under a policy if the insured has misrepresented or concealed facts. Most of these are phrased in such a way as to prevent the insurer from voiding a policy for misrepresentation unless the misrepresentation was fraudulent or material to the risk.
Florida’s statute (Fla. Stats. Ann. §627.409) states: (1) Any statement or description made by or on behalf of an insured or annuitant in an application for an insurance policy or annuity contract, or in negotiations for a policy or contract, is a representation and is not a warranty. A misrepresentation, omission, concealment of fact, or incorrect statement may prevent recovery under the contract or policy only if any of the following apply: (a) The misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or to the hazard assumed by the insurer. (b) If the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith would not have issued the policy or contract, would not have issued it at the same premium rate, would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss.
Under such statutes, therefore, not all omissions or misrepresentations of facts must be made with specific intent to deceive the insurer in order to void coverage. An omitted fact might be one innocently overlooked by the insured; but if the fact is material to the insurer’s acceptance of the risk, recovery may be denied. Massachusetts’s statute says, “No oral or written misrepresentation or warranty made in the negotiation of a policy of insurance by the insured or in his behalf shall be deemed material or defeat or avoid the policy or prevent its attaching unless such misrepresentation or warranty is made with actual intent to deceive, or unless the matter misrepresented or made a warranty increased the risk of loss (M.G.L.A. 175 §186). See Barnstable County Insurance Co. v. Gale, 680 N.E.2d 42 (Mass. App. 1997), in which the insured failed to disclose ownership of a second auto in an umbrella application. Even though the second auto would have increased the premium by only $30, the court held the misrepresentation was “material” and allowed the policy to be voided. On the other hand, the court in Quincy Mut. Fire. Ins. Co. v. Quisset Properties, Inc., 866 N.E.2d 966 (Mass. App. 2007) stated that “the insured’s failure to notify insurer of change in not misrepresentation unless the policy or renewal application requires the insured to notify the agent of particular changes.” If no duty exists, the insured’s failure to disclose changes—even if they increase the risk of loss— is not a misrepresentation within the meaning of the statute.
However, a different (and higher) standard might be held to be imposed by the wording of the insurance contract itself. For example, the homeowners forms representations condition requires an intentional concealment of a material fact, even if a state statute will allow an insurer to avoid a policy where an insured misrepresents a material fact, albeit innocently.
This was the result in State Farm Fire and Casualty v. Oliver, 854 F.2d 416 (11th Cir. 1988). In this case, a semi-literate insured, being read an insurance application by the agent, answered negatively when asked whether he had had any losses, insured or not, in the past three years. In fact, he had suffered an uninsured loss of a mobile home within that period, but at trial testified that the agent had told him the question involved only losses insured under a homeowners policy. The trial court found this to be an unintentional misrepresentation.
The insurance company argued that the provisions of the states insurance law become part of each policy and cannot be overridden contractually. Therefore, under the state law, a material misrepresentation, whether or not made with intent to deceive, could void coverage.
The court ruled against the insurer, stating that in essence the insurer had by contract set its own standard for judging misrepresentations and cannot therefore rely on a statute imposing more stringent requirements.
Georgia statutes (O.C.G.A. §33-24-7(b)) make materiality of the misrepresentation a matter of fact to be determined by the court or jury trying the case. In this state, any provision in an insurance contract that provides that statements and descriptions made in the application for insurance, if untrue or false, shall void coverage are of no effect unless it can be shown at trial that the matter misrepresented is material to the risk or actually contributed to the event on which the policy became payable. Further, whether it is material and so contributed is specifically made a question of fact for a court or jury. See Thompson v. Permanent General Assurance Corporation, discussed earlier.
Although the wide variance in state statutes calls for close attention to the applicable statute, the conclusion to be drawn is that material misrepresentation on the part of an insured will not be viewed favorably by any court.

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