Failure to Tell the Truth on an Insurance Application Voids Entire Policy as if it Never Existed
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Post 4814
Ms. Stephens demanded that Defendant Great American Assurance Company (“Great American”) provide legal representation for her under an insurance policy (the “Policy”) it issued related to a professional disciplinary hearing and Great American refused and asserted that she lied on the application for insurance causing the policy to be void.
In Accent Consulting Group, Incorporated, Brenda Marie Stephens v. Great American Assurance Company – Great American Assurance Company v. Accent Consulting Group, Incorporated, Brenda Marie Stephens, No. 1:22-cv-01767-JMS-CSW, United States District Court, S.D. Indiana, Indianapolis Division (May 20, 2024) resolved the dispute.
CROSS-MOTIONS FOR SUMMARY JUDGMENT
Ms. Stephens purchased a claims-made and reported Real Estate Professional Errors and Omissions Insurance Policy (the “Policy“). To receive coverage, the Policy required Ms. Stephens to report in writing any claims or disciplinary actions against her during the policy period or extended reporting period. Although the Policy provided for reimbursement of “reasonable attorneys’ fees, costs and expenses incurred in responding to a Disciplinary Action,” the Policy specifically stated that Great American “shall not be obligated to defend any Disciplinary Action.” The Policy ran from April 2020 to April 2021.
The Consumer Complaint
During the first Policy period, in October 2020, Ms. Stephens agreed to and did perform a “desktop appraisal” of an Indiana single-family home (the “Property“). A “desktop appraisal” is one that is virtual, not requiring a “physical inspection of the property by the appraiser.”
The next month, in November 2020, the Property’s owners filed a complaint (the “Consumer Complaint“) against Ms. Stephens with the Office of the Indiana Attorney General (“Indiana OAG“). The Consumer Complaint alleged that Ms. Stephens’ appraisal was “20% below contracted sales price and thus the sale was lost.”
The Insurance Renewal Application
Less than six months after the Complaint and Indiana OAG correspondence, on March 16, 2021, Ms. Stephens applied to renew Accent’s insurance Policy with Great American. The Renewal Application asked whether Ms. Stephens was “aware of any of the following in the past 12 months: . . . [c]omplaint, disciplinary action, investigation or license suspension/revocation by any regulatory authority.” She responded in the negative.
The Complaint Before the Real Estate Appraiser Licensure and Certification Board
Later that autumn, on November 1, 2021, the Indiana OAG filed a complaint against Ms. Stephens before the Real Estate Appraiser Licensure and Certification Board (“REAB“). The Indiana OAG eventually demanded “disciplinary sanctions.”
The Request for Insurance Coverage
After the filing of the REAB Complaint, Ms. Stephens requested legal representation from Great American. Great American denied the application because Ms. Stephens received the Consumer Complaint in November 2020, during the first Policy period, but did not report it until November 2021, the following year during the renewed Policy period.
This Litigation
Because she was denied insurance coverage, she sued Great American for breach of contract and bad faith. Great American sought to add a claim for rescission of the Policy.
Great American noted Ms. Stephens’s admission that “as of November 23, 2020, [she] had knowledge of, and was aware of, the allegations of the” Consumer Complaint. The Court granted the motion to amend, noting that Ms. Stephens “fail[ed] to address or even allege diligence or delay on the part of Great American,” and “[n]owhere in [her] twenty-two paged response [was] there any analysis under the rules applicable” to the motion.
DISCUSSION
Great American argued that Ms. Stephens answered on her Renewal Application that she was not aware of any “[c]omplaint, disciplinary action, investigation or license suspension/revocation by any regulatory authority.” Great American argued that Ms. Stephens’s answer was “false” and “material,” entitling it to rescind the Policy.
Great American argued that “(1) [Ms.] Stephens’ answer [on] the Renewal Application was false because, prior to executing the application . . . [Ms.] Stephens knew about the Consumer Complaint and the Indiana OAG’s resulting investigation; and (2) this false statement was material to the risk insured by the Policy.” It also contended that Ms. Stephens’s false statement and nondisclosure was material and it is entitled to judgment as a matter of law.
In this case, the Consumer Complaint led directly to the Indiana OAG investigation, the Indiana OAG investigation led directly to the REAB Complaint. Regardless of Ms. Stephens’ intent, which Indiana law disregards, she made a material misrepresentation. Her misrepresentation entitled Great American to rescind the policy.
Great American Assurance’s Cross-Motion for Summary Judgment was granted. Conversely, Ms. Stephens’s Motion for Summary Judgment was denied. The court ordered Great American to return the premium paid and rescinded the policy from its inception.
ZALMA OPINION
When a person misrepresents a material fact on an application for insurance an insurer may rescind the policy from its inception, return the premium and deal with the policy as if it never existed. Ms. Stephens lied on the application and that fact was the basis for the defense of rescission. Rescission is an equitable remedy that concludes it is not fair to require an insurer to defend or indemnify an insured who obtained the insurance by false statements on an application.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Happy Law Day
ZIFL – Volume 30, Issue 9 – May 1, 2026
Read the full article at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2026-barry-zalma-esq-cfe-2tywc, see the video at at and at https://zalma.com/blog plus more than 5300 posts.
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
ZIFL – Volume 30, Issue 9 – May 1, 2026
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year and is written by Barry Zalma.
DOJ Creates National Fraud Enforcement Division
Will the Feds Take on Insurance Fraud? Possibly as Part of a National Anti-Fraud Effort
On April 7, 2026, the Acting Attorney General, Todd Blanche, issued a memorandum establishing the Department of Justice National Fraud Enforcement Division (NFED). The memo describes an ambitious, but perhaps redundant, vision for this ...
When Abalone Died As a Result of Multiple Causes The Efficient Proximate Cause Requires Payment
Post number 5345
Read the full article at https://www.linkedin.com/pulse/efficient-proximate-cause-doctrine-saves-claim-barry-zalma-esq-cfe-yndlc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
In American Abalone Farms, LLC v. Star Insurance Company et al., H052643, California Court of Appeals, Sixth District (April 27, 2026) the Court of Appeals dealt with an insurance coverage issue that required application of the efficient proximate cause doctrine.
FACTS
American Abalone Farms, LLC ("American Abalone" ) operates an aquaculture farm in Santa Cruz County, California, raising abalone in tanks. In August 2020, the CZU Lightning Complex Fires led to a prolonged power outage and road closures near the farm. As a result, the farm’s water pumps failed, causing the death of most of the ...
Breach of a Specific Condition Precedent Is a Complete Defense
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In United Services Automobile Association and State Farm Mutual Automobile Insurance Company v. Anthony Wenzell, 2026 CO 25 (Colo. Apr. 27, 2026) Anthony Wenzell was rear-ended in a car accident. He had a significant prior 2014 accident that required back surgery.
Wenzell claimed underinsured-motorist (UIM) benefits under three policies: (1) the tortfeasor’s liability policy, (2) his own primary UIM policy with State Farm, and (3) an excess UIM policy issued by USAA (under his brother’s policy, which contained an “other insurance” clause making USAA’s coverage excess over any collectible insurance).
After receiving the claims, both USAA and State Farm repeatedly requested that Wenzell execute comprehensive medical-release authorizations so they could obtain his full medical records and ...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
What Must be Done after Notice of a Claim is Received by the Insurer
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A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...
