Filed Under:Carrier Innovations, Regulation/Legislation

Just the Facts

It’s expensive to lie to your insurer

When facts essential to a decision to insure or not insure a particular risk are misrepresented or concealed there is no basis for a contract of insurance and it can be, and should be, rescinded. In Mountain City Ford LLC v. Owners Insurance Co. and Auto-Owners Insurance Co. No. 2009-CA-002233-MR (Ky.App. 09/02/2011), the Kentucky Court of Appeals agreed.

Insurance agents and brokers who place insurance for businesses in which they hold financial interest will find that they are held to the duties of an agent for the insured rather than an agent for the insurer, even if the agent has an effective agency agreement with the insurer allowing it to bind insurance.

The Auto-Owners Application

Mark Grim was the only person who completed the Auto-Owners application for the Mountain City dealerships. He admitted that he only had one phone call with Wellman about the dealerships’ inventory but otherwise had no contact with the dealerships about the application. Grim testified that he never saw Lafferty’s revised page 12A of the final CarPac application that listed all 27 employees of the dealerships, their jobs, their driver’s license numbers, and whether they were furnished dealership vehicles. As a result, the list of 16 drivers Grim submitted to Auto-Owners was inaccurate, compared to the information the Mountain City dealerships had supplied to Lafferty for the CarPac application.

Those facts, coupled with the extraordinarily close relationship between Mountain City Ford, and the Elite Agency, persuaded the Court of Appeal that Elite was acting either as the agent for Mountain City or at the very least, was acting in the capacity as a dual agent, for both Mountain City Ford and Auto-Owners in preparing and submitting the application for insurance, and then issuing a binder.

Under Kentucky law, whether an insurance agency is an agent for the insured or the insurer when preparing and submitting an application, given alleged material misrepresentations in an application, no one factor is determinative. Agency must be decided on a case by case basis.

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