I have often written about how the specific words matter in insurance policies during coverage evaluations. Well this simple motto also carries over to the application, which is often the first document submitted by a policyholder to an insurance carrier to obtain a policy. If the language of the application and policy is drafted by the insurance carrier and it is not clear, it will be construed in favor of the policyholder and coverage. A recent Eleventh Circuit Court of Appeals decision based on Florida law demonstrates this as it relates to an application and alleged misrepresentations in the application by a policyholder.1
A customer of Ocean’s 11 sued the business claiming he was allegedly injured during a fight at the bar/grill in Florida. The insurance carrier informed its policyholder it was rescinding the policy for what it contended were material misrepresentations in the application related to questions of square footage, security personnel, annual gross receipts and years of experience by the Ocean’s 11 representative filling out the application.
Ocean’s 11 sued its insurer requesting the court to declare that the insurance carrier improperly rescinded the policy and that it was entitled to coverage for the claim and a count for breach of contract. The district court entered judgment for Ocean’s 11 on both counts of the complaint and the insurance carrier appealed to the Eleventh Circuit.
The appellate court affirmed and noted that the words in the application "best of knowledge and belief" modifies the standard under Florida law and requires the insurance carrier to prove any misrepresentation was done by the policyholder knowing that the answers were inaccurate.
The appellate court also noted that many of the questions in the application were ambiguous and a reasonable person could have interpreted them as the representative of Ocean’s 11 did.
This case demonstrates how important the language in the application is for a coverage determination and that the language chosen may impact the insurance carrier’s burden of proof. It also demonstrates that ambiguities in the application questions will be construed in favor of the policyholder and coverage.