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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Chutzpah: After Criminal Prosecution Defendant Sues USA
Post 5164
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Dr. Segun Patrick Adeoye, a medical doctor, filed a lawsuit against the United States of America, seeking damages for alleged violations during his criminal prosecution. He was acquitted by a jury but claims to have suffered significant harm, including financial losses, damage to his professional reputation, and personal distress.
In Dr. Segun Patrick Adeoye v. The United States Of America, Civil Action No. 4:25-cv-83, United States District Court, E.D. Texas, Sherman Division (July 23, 2025) the USDC dismissed Adeoye’s suit.
FACTUAL BACKGROUND
Dr. Adeoye was indicted on charges of conspiracy to commit wire fraud and money laundering. The indictment alleged that he and his co-conspirators obtained at least seventeen million dollars through various fraudulent schemes. Despite being acquitted, Dr. Adeoye claims that his ...
Payment of Appraisal Award Defeats Claim of Bad Faith
Post 5163
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Hurricane Damage to Dwelling Established by Appraisal Award
In Homeowners Of America Insurance Company v. Emilio Menchaca, No. 01-23-00633-CV, Court of Appeals of Texas, First District (July 31, 2025) after a hurricane Homeowners of America Insurance Company (“HAIC”) estimated that the cost of covered repair to Menchaca’s house was $3,688.54, which was less than his deductible, and therefore no payment would be made.
FACTS
After Menchaca retained counsel HAIC advised that, under the terms of the policy, Menchaca was required to first invoke the appraisal process prior to filing suit, and that HAIC reserved the right to request that Menchaca and any adjuster hired on his behalf submit to an Examination Under Oath (“EUO”).
On August 23, 2018, Menchaca’s counsel ...
Payment of Appraisal Award Defeats Claim of Bad Faith
Post 5163
Read the full article at https://lnkd.in/dNpKKcYx, see the full video at https://lnkd.in/dNgwRP8q and at https://lnkd.in/dA9dvd-D, and at https://zalma.com/blog plus more than 5150 posts.
Hurricane Damage to Dwelling Established by Appraisal Award
In Homeowners Of America Insurance Company v. Emilio Menchaca, No. 01-23-00633-CV, Court of Appeals of Texas, First District (July 31, 2025) after a hurricane Homeowners of America Insurance Company (“HAIC”) estimated that the cost of covered repair to Menchaca’s house was $3,688.54, which was less than his deductible, and therefore no payment would be made.
FACTS
After Menchaca retained counsel HAIC advised that, under the terms of the policy, Menchaca was required to first invoke the appraisal process prior to filing suit, and that HAIC reserved the right to request that Menchaca and any adjuster hired on his behalf submit to an Examination Under Oath (“EUO”).
On August 23, 2018, Menchaca’s counsel ...
Rulings on Motions Reduced the Issues to be Presented at Trial
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CASE OVERVIEW
In Richard Bernier v. State Farm Mutual Automobile Insurance Company, No. 4:24-cv-00002-GMS, USDC, D. Alaska (May 28, 2025) Richard Bernier made claim under the underinsured motorist (UIM) coverage provided in his State Farm policy, was not satisfied with State Farm's offer and sued. Both parties tried to win by filing motions for summary judgment.
FACTS
Bernier was involved in an auto accident on November 18, 2020, and sought the maximum available UIM coverage under his policy, which was $50,000. State Farm initially offered him $31,342.36, which did not include prejudgment interest or attorney fees.
Prior to trial Bernier had three remaining claims against State Farm:
1. negligent and reckless claims handling;
2. violation of covenant of good faith and fair dealing; and
3. award of punitive damages.
Both Bernier and State Farm dispositive motions before ...
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 ...
