Opinion ID: 1193856
Heading Depth: 2
Heading Rank: 2

Heading: Findlay's misrepresentation to GEICO as to his residence address may be grounds for denying coverage to Park if this misrepresentation is material.

Text: Park has proven that he and Findlay were relatives at the time of Park's accident. Therefore, Park is an insured under the terms of Findlay's policy. However, GEICO argues that Findlay's misrepresentation as to his residence address should bar Park's recovery. Although GEICO fails to correctly identify the legal theory under which Findlay's misrepresentation would bar Park's recovery, [4] it is apparent that, if the misrepresentation was material, it could form the basis for denial of coverage. The general rule is that [i]f a party's misrepresentation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. Restatement (Second) of Contracts § 164(1) (1979). Hawai`i Revised Statutes (HRS) § 431:10-209 (1993) provides that: All statements or descriptions in any application for an insurance policy or in negotiations therefor, by or on behalf of the insured, shall be deemed to be representations and not warranties. A misrepresentation shall not prevent a recovery on the policy unless made with actual intent to deceive or unless it materially affects either the acceptance of the risk or the hazard assumed by the insurer. The United States District Court for the District of Hawai`i, applying Hawai`i law, has held that: Before [insurer] is entitled to rescind the policy ... it must establish that the misrepresentations were materiali.e., that the information would have materially affected either the acceptance of the risk or the hazard assumed. In other words, if the misrepresentations relate to [insurer's] decision to insure the risk, or if disclosure would have influenced the rate of premiums, then they are material. Gasaway v. Northwestern Mut. Life Ins. Co., 820 F.Supp. 1241, 1246 (D.Haw.1993) (citations omitted). This court has not addressed the issue of whether a misrepresentation in an insurance policy application may render the policy voidable since our decision in Dye v. U.S. Fidelity & Guaranty Co., 31 Haw. 699 (1930). [5] Therein, we held that [t]he materiality and truth of the statements in the application is usually a question for the jury to determine, as is also the question whether a statement was made with intent to defraud. Id. at 699 (citation omitted). We adopted the position that [t]he test of materiality is whether the disclosure of the fact would have influenced the rate of premium. Id. (citing Hardman v. Firemen's Insurance Co., 20 F. 594 (C.C.E.D.La.1884)). We explicitly approve and adopt, as consistent with the requirements of the statute and our holding in Dye, the general rule regarding materiality as formulated in 7 Couch on Insurance 2d (rev. ed.) § 35:45 (1985). This formulation states that [g]enerally, a misrepresentation is material, either when the insurer would not, as a careful and intelligent man, have issued the policy had the truth been known, or would have issued it only at a higher rate of premium. (footnote omitted). While the formulation of the Gasaway court is functionally similar, the general rule as formulated in Couch is, we believe, clearer and more precise. It makes explicit, for example, that for a misrepresentation to be material it must result in a lower premium being paid than if the insurer had been given accurate information. Under the test of materiality that we have adopted herein, for GEICO to prevail in the instant action it must prove either that (1) as a reasonable and prudent insurer, it would not have issued the policy to Findlay had it known of his correct residence address or (2) knowledge of Findlay's actual residence address would have resulted in the issuance of the policy, but at a higher premium. There is insufficient evidence in the record for determination of these questions. Therefore, we remand this matter to the circuit court for further proceedings.