Read Your Application

Owensby alleged that when applying for insurance with State Farm, she advised Miller of certain prior claims and losses and the status of the insurance with her previous carrier. Owensby then claimed that Miller negligently filled out the application by omitting information she had provided.

The defendants filed a motion for summary judgment because Owensby made four material misrepresentations when applying for the insurance, each of which had increased the risk of loss. According to the motion, the application signed by Owensby indicated that she had not had any losses, insured or otherwise, within the 3-year period prior to her applying for insurance. State Farm proved that this was false because Owensby shot someone in 1994 and, as a result, Owensby's homeowner's insurance carrier at that time, American Commerce Insurance Co. ("ACIC"), paid $35,000 to settle a lawsuit filed by the shooting victim. The second alleged misrepresentation involved a claim reported to ACIC in January 1997 that lightning had caused damage to Owensby's property, resulting in ACIC paying Owensby $515 for property damage. The third alleged misrepresentation involved a claim made to ACIC in March 1995 for home damage resulting from sewer backup. ACIC paid nothing because the damage amount was less than the deductible. The fourth alleged misrepresentation involved Owensby's representation on the application for insurance that within the past 3 years, no insurer had refused to renew similar insurance. Evidence established that Owensby had missed a payment on her insurance with ACIC and was advised in March 1997 that ACIC had opted not to renew her policy. The specific question on the application asked Owensby whether "any insurer or agency canceled or refused to issue or renew similar insurance to the named applicant… within the past 3 years," to which Owensby responded "no."

State Farm attached Owensby's sworn statement as an exhibit to its motion for summary judgment. As relevant to this appeal, Owensby stated that her house had burned down once before and was rebuilt and completed in 1988, which burned down in 1997. As to the application for insurance at issue in this appeal, Owensby acknowledged signing the application and stated: "I wasn't even there. I just went in and signed it that day, that morning. I called him and told him I needed some insurance and he filled it out, and I went in and signed it."

State Farm also filed as an exhibit to its motion for summary judgment the deposition of Robert C. Seese ("Seese"), a regional claims manager for ACIC. Seese testified that ACIC insured Owensby's home beginning in December 1991. Seese said Owensby had filed a claim in November 1994 with a date of loss of Oct. 23, 1994. This claim surrounded Owensby shooting Everett Woody. Pursuant to Owensby's homeowner's policy, ACIC retained an attorney to represent her in the civil action brought against her for the shooting. Seese also confirmed the March 1995 claim of sewer backup and the January 1997 lightning damage claim.

State Farm also filed the affidavit of Reginald Daniel Sharley, Jr. ("Sharley"), a State Farm employee who worked in the underwriting department when Owensby applied for insurance. According to Sharley:

Information about an applicant's prior loss history is one of the most important factors in assessing the insurability of the applicant. Information about an applicant's history with prior insurers is an essential part of determining an applicant's insurability.

In 1997, part of my job responsibilities included receiving applications for homeowner's insurance. In the course of my employment with State Farm as an underwriter, I reviewed the application for homeowner's insurance that was signed by [Owensby] on April 1, 1997. The application reflected that [Owensby] had not had any losses, insured or otherwise, within 3 years prior to the application. The application also reflected that no insurer or agency had canceled, refused to issue or renew similar insurance to her or a household member within the past 3 years. I ultimately approved the application.

Based upon my experience and training, the fact that [Owensby's] prior carrier had paid out $35,000 as a result of a shooting incident involving [Owensby] which occurred within three (3) years prior to April 1, 1997 would have been material to the decision making process for issuing a homeowner's policy to her. I believe this prior loss would have increased the risk of loss. Based upon my experience and training, the fact that [Owensby's] prior carrier paid out $515.00 for lightning damage pursuant to dwelling coverage for a loss which occurred within the three years prior to April 1, 1997 would have been material to the decision to issue a homeowner's policy to [Owensby]. I believe this prior loss would have increased the risk of loss….Upon reconsideration, the court held that the undisputed facts were that Cecilia Owensby was presented with the prepared application for insurance and that she signed it. In light of the court's prior ruling that, as a matter of law, the application for insurance contained a material misrepresentation, the court held that Cecilia Owensby was guilty of negligence for failing to accurately review the application prepared by Miller before she verified its accuracy by signing it. The court rule[s] that the negligence of Cecilia Owensby barred recovery against Darius Miller.

To permit a party, when sued on a written contract, to admit that he signed it but to deny that it expresses the agreement he made or to allow him to admit that he signed it but did not read it or know its stipulations, would absolutely destroy the value of all contracts. It will not do for a man to enter into a contract and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written. But such is not the law. The court concluded that the policy language at issue is neither vague nor ambiguous. Owensby shot a person, she was prosecuted criminally, a civil lawsuit for damages was filed against her, Owensby's homeowners insurance carrier retained an attorney to represent her, and the civil lawsuit was settled for $35,000, which was paid by Owensby's insurance company–action that indisputably constitutes a "loss" for purposes of the question on the application. The court concluded that Owensby's failure to state on the application that there was a prior loss within the past 3 years constituted a misrepresentation that increased State Farm's risk of loss. The court found no need to consider the other claimed misrepresentations or concealment of material fact since the shooting was sufficient to allow State Farm to void the policy.

This case teaches every insurance agent that presents a filled-out application to an insured who wants to avoid a similar lawsuit to do the following:

• Explain to the insured the need to read every statement of fact on the application before signing it
• If the insured cannot read, or does not understand English, read the application and answers to the questions in a language you are certain the insured understands and obtain the statement of the insured that the application statements are true
• Have the insured sign a receipt that he or she has read and understands each question on the application
• Place in your file the receipt, the signed application and your note that the insured read each question on the application and stated to the agent or broker that each answer to each question on the application was true.

Related: Read Barry Zalma's October column, "'Illegal rescission' is oxymoron"