Material Misrepresentation on Application Defense to Claim
Post 5058
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Lies on Application for Insurance Eliminates Coverage for a Claim
Magna Tyres USA, LLC appealed the summary judgment in favor of Coface North America Insurance Company and against its complaint of breach of contract and request for a declaratory judgment. In Magna Tyres USA, LLC v. Coface North America Insurance Company, No. 24-13036, the United States Court of Appeals, Eleventh Circuit (April 10, 2025) determined the effect of a material misrepresentation on an application for insurance.
FACTS
Magna Tyres USA, an affiliate of Magna Tyres Group, obtained coverage under Coface’s international credit insurance policy to cover the credit it extended to its customers.
Coface’s agent completed and submitted the insurance application to underwriting before returning it to Magna Tyres USA for signature. He wrote that “if there is a section that isn’t completed, then that means it doesn’t have to be completed” and to sign if Magna Tyres USA did not want to make any changes.
Michael de Ruijter, chief executive officer of both Magna Tyres Group and Magna Tyres USA, signed the application. Magna Tyres USA answered that it lacked any information detrimental to the creditworthiness of any customer and left blank how much of its outstanding customer debts were over 60 days past due.
The policy contained a provision excluding coverage based on misrepresentation.
Magna Tyres USA obtained coverage for multiple companies, including three for which it eventually submitted claims: Tires Direct, Inc., Narsi, Inc., and Tire Super Center of Orlando, LLC. Before the application was signed Magna Tyres USA knew Sanjeet Singh Veen owned three companies whose debts exceeded $11.6 million. Magna Tyres USA’s former employee, who oversaw accounting, testified that Singh was regularly 90 days past due on his accounts. And in a January 2020 meeting, Magna representatives stated that Singh’s debts created “too much risk” and decided to stop shipping products until he paid.
Alexandre Lacreu, chief underwriting officer for Coface, stated that Coface would not have insured the debts of any Singh company had Magna Tyres USA disclosed that there was one person responsible for the customers’ orders, that the customers were heavily indebted and had debt that was 60 days past due, and that Magna Tyres USA had stopped delivering products based on that debt.
Magna Tyres USA submitted insurance claims to Coface seeking coverage for the unpaid debts of the covered companies, some of which Coface held in abeyance and some of which it denied. Magna Tyres USA sued.
Coface answered that Magna Tyres USA made material misrepresentations on its application. The district court granted summary judgment in favor of Coface.
DECISION
The district court did not err in ruling Magna Tyres USA made a material misrepresentation. Magna Tyres USA misrepresented in its application that it lacked any information detrimental to the creditworthiness of any customer and, in fact, Magna Tyres knew information detrimental to the creditworthiness of the covered companies when it signed the application in February 2020.
A party to a contract has a duty to know the contents of the contract before he signs it, and to know the content of an application for insurance, regardless of whether an insurance agent completes the application.
Michael de Ruijter signed the application and knew all information regarding Singh’s payment history with both Magna Tyres USA and Magna Tyres Group.
The misrepresentation was material. Florida courts have held that the determination of materiality to the acceptance of risk is a question of law based on an objective view of materiality, and the determination of how the insurer would have acted is one of fact requiring testimony from the insurer’s representatives. The failures to disclose that Singh was the common owner of the companies and had amassed debts sufficient for Magna to stop shipping based on the risk of nonpayment were objectively material.
Lacreu was designated to testify as a corporate representative regarding the procedures for evaluating the buyers’ credit risk.
An insurance company has the right to rely on an applicant’s representation and is under no duty to inquire further unless it has actual or constructive knowledge that such representations are incorrect or untrue. Coface lacked knowledge about Singh’s companies having such high debt that Magna Tyres stopped shipping to them before obtaining coverage. Coface was entitled to rely on the truthfulness of the application that Magna Tyres USA had no information relevant to the customers’ creditworthiness.
ZALMA OPINION
This is not a rescission case, although Coface could have rescinded the policy, it did not. It denied the claim based on misrepresentation and left the policy in effect. Magna Tyres lied on its application, knew it had a customer with a major bad debt and only after the policy was issued attempted to collect the debt from the insurer instead of the customer it let get deep in debt. Insurers are entitled to rely on the good faith of an insured and when lied to the insurer can refuse to pay. Technically, the major lies from Magna, could be evidence of fraud.
(c) 2025 Barry Zalma & ClaimSchool, Inc.
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Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
