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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Post 5219
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Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
