A Nebraska court recently ruled that an insured was entitled to bad faith damages after the court found that an insurance application was ambiguous in its language.

In the case at hand, Eric Hayes (“Hayes”), the plaintiff and insured, owned a home in Nebraska. He used the detached garage of the home for his plumbing business, and he rented out the second and third stories of his home to a tenant. The home suffered a fire loss, and Hayes filed a claim with his homeowner’s insurer, Metropolitan Property and Casualty Insurance Company (“Metropolitan”). Metropolitan subsequently learned that Hayes was doing business out of his garage and was leasing out part of his home. However, Hayes had previously indicated on his insurance application that his residence was not used to conduct business and was not used as a rental property.

After its investigation, Metropolitan determined that Hayes had made material misrepresentations on his insurance application. As a result, Metropolitan denied Hayes’ claim and cancelled his policy. Metropolitan sent Hayes correspondence enclosing a check for all premiums Hayes had paid. Metropolitan also sent a check to Hayes’ bank to satisfy the mortgage on the home. The bank accepted the check.

Hayes’ brought suit against Metropolitan for breach of contract and bad faith practices. The U.S. District Court for the District of Nebraska ruled in favor of Hayes.

The Eighth Circuit affirmed the district court’s decision, finding that the application contained unclear language. Hayes also testified that he did not operate his business out of the garage, even though some business activities were conducted there. Additionally, the insurance form asked whether the residence was held exclusively for rental, which it was not. The case is Hayes v. Metropolitan Prop. and Cas. Ins. Co., Nos. 17-3005, 17-3064 (8th Cir. Nov. 9, 2018).