A recent case out of the 8th Circuit Court of Appeals dealt with material misrepresentations.1 In 2006, an insured’s home was destroyed by fire. He submitted a claim and it was paid, so he rebuilt. State Farm subsequently cancelled his policy. He then went to an independent insurance agency to obtain a new policy. He answered questions posed by an employee and the employee entered the responses into the computer system. He was asked about prior losses and he told the agent about the fire. The agent printed the application and the insured signed it without reading it.
The application asked:
Any losses, whether or not paid by insurance, during the last –––– years, at this or at any other locations?
The ‘No’ box next to the question was marked with an “x.” No other blanks were completed, including one that called for the insured’s initials. Metropolitan issued a homeowner’s policy.
Four years later, the insured’s home was again destroyed by fire while he was on vacation. The cause of the fire could not be determined. The insured filed a claim for the loss. Metropolitan denied the claim and filed a declaratory judgment action. It claimed the policy was void due to the material misrepresentation regarding the prior fire. The trial court granted summary judgment to Metropolitan, finding the policy was void because the insured failed to disclose the prior loss. An appeal ensued. “[A]n insurance company may retroactively rescind a policy because of fraud or misrepresentation of the insured.”2 When you sign a document, you are bound under law to know the contents of the document.3 However, where an insured “signs an application which was prepared by an insurance company’s agent, and a conflict in the evidence arises as to whether an error on an insurance application was caused by the fraud, negligence or mistake of the agent, a question of material fact is presented which precludes entry of summary judgment.”4
Metropolitan argued that the insured also made misrepresentations during the investigation of the claim, such as ownership of the property, value of contents, the insureds financial situation, criminal history, birth date, etc. The insured argued there is a factual dispute whether he made any misrepresentations and if he did they are not material. A fact is material if it is relevant to the insurer’s right to protect itself against false claims.5
The court reversed the grant of summary judgment regarding the claim of material misrepresentation. This was a factual issue. The court also found there was no bad faith by Metropolitan. It aggressively investigated the claim but did nothing dishonest or malicious. The denial of coverage represented a good-faith dispute. There were other discovery rulings also appealed. The case was remanded to the trial court.
We often advise you to read your policy, but this case serves as a reminder to also review your application. Here, an insurance agent asked the right questions but entered the wrong information. This is potentially fatal to a claim.
1 Metropolitan Property and Casualty Ins. Co. v. Calvin, No. 14-1606 (8th Cir. Sept. 18, 2015).
2 Neill v. Nationwide Mut. Fire Ins. Co., 355 Ark. 474, 139 S.W.3d 484, 487 (Ark. 2003).
4 Id. at 485
5 Willis v. State Farm Fire & Cas. Co., 219 F.3d 715, 718 (8th Cir. 2000).