This story is reprinted with permission from FC&S Legal, the industry's only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

A federal district court in Maine has ruled that an insurance company could rescind automobile insurance policies it issued to an insured who represented that he lived in Maine and would garage his vehicles there, when he actually lived in, and garaged his vehicles in, Massachusetts.

The Case

McArthur Sullivan submitted an application to Dairyland Insurance Company for a Maine automobile insurance policy in which he stated that he was a resident of Wales, Maine, and that he principally garaged the vehicles he sought to insure in Wales, Maine. In fact, however, Mr. Sullivan primarily resided and garaged the vehicles he sought to insure in the Commonwealth of Massachusetts, a fact he did not disclose in the application.

Dairyland issued multiple Maine automobile insurance policies to Mr. Sullivan.

Thereafter, the insurer sought to rescind the policies based on what it contended were Mr. Sullivan's fraudulent misrepresentations.

Toward that end, it filed a lawsuit, and moved for summary judgment.

The Dairyland policies

Mr. Sullivan's application contained the following statement:

It is a crime to knowingly provide false, incomplete or misleading information to an insurance company for the purpose of defrauding the company. Penalties may include imprisonment, fines, or a denial of insurance benefits. (Emphasis added.)

The policies issued by Dairyland stated that:

If you have made any false statement in your application, this policy may not provide any coverage.

The policies also stated that:

This policy is issued by us in reliance upon the statements which you made in your application for insurance…. We rely upon you to provide us with accurate information…. If you have made any misrepresentations in your application or when subsequently asked, this policy may not provide any coverage. (Emphasis omitted.)

Related: Personal auto policies: 5 questions agents should ask buyers

Additionally, amendments to the policies stated that:

If you misrepresent any fact or circumstance that affects the eligibility of a risk, contributes to a loss, we reserve the right to deny coverage. This also applies if the misrepresentation results in a premium lower than that which would have been charged if true and complete representations had been made. (Emphasis omitted.) 

Continue reading…

Maine law

Maine law provides:

Representations in applications

All statements and descriptions in any application for insurance or for an annuity contract, by or in behalf of the insured or annuitant, are deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements may not prevent a recovery under the policy or contract unless either: 

1. Fraudulent; or

2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer, such that the insurer in good faith would either not have issued the insurance or contract, or would not have issued it at the same premium rate, or would not have issued insurance in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.

24 M.R.S.A. § 2411. 

The District Court's Decision

The district court granted Dairyland's motion.

In its decision, the district court explained that, to establish a claim for fraudulent misrepresentation, Dairyland had to produce "clear and convincing evidence":

  • of a false representation by Mr. Sullivan;
  • of a material fact;
  • with knowledge or reckless disregard of its falsity;
  • for the purpose of inducing Dairyland to act in reliance; and
  • actual reliance by Dairlyand. 

The district court said that Mr. Sullivan had misrepresented where he lived and where he garaged his vehicles "with knowledge of their falsity and for the purpose of securing an automobile insurance policy at a lower premium rate than he would have been charged if he had disclosed that the vehicles were garaged in Massachusetts." Moreover, the district court continued, he knew that Dairyland was relying on the information he supplied to determine whether to accept the insurance risk and to set the premium rate of his insurance policy.

The district court also decided that the information requested by Dairyland and supplied by Mr. Sullivan was "material" to Dairyland's decision to accept the risk that it was insuring. The district court noted that Dairyland did "not issue personal automobile insurance policies to individuals primarily residing in or principally garaging their vehicles in Massachusetts," and classified as an "unacceptable risk" drivers who did not reside in the rating state at least 10 months per year.

According to the district court, the evidence supported the conclusion that, without Mr. Sullivan's misrepresentations regarding his primary residence and the principal location of his vehicles, Dairyland would not have issued him a personal automobile insurance policy.

The district court concluded, therefore, that Dairyland was entitled to rescind the policies it had issued to Mr. Sullivan and that it did not have to defend or indemnify him under the policies.

The case is Dairyland Ins. Co. v. Sullivan, No. 2:16-cv-00050-JDL (D. Maine March 3, 2017).

Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at smeyerowitz@meyerowitzcommunications.com.

NOT FOR REPRINT

© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.