Strategies for Defeating the Material Misrepresentation Defense in Insurance Actions: A Plaintiff's Perspective
The material misrepresentation defense is a tactic that has long been used by insurance companies to defeat claims. Although carriers use the term “material misrepresentation defense,” lawyers for policyholders sometimes refer to it as “post-claims underwriting.” This defense involves a comprehensive attempt by insurance carriers to review every square inch of an application for insurance, hoping to identify an item in the application that was left out or completed incorrectly. If the carrier discovers even a minor error in the application, it may attempt to void all coverage based on that “misrepresentation,” and deny all claims submitted.
A typical factual scenario giving rise to a material misrepresentation defense might be as follows: Prior to the completion of the insurance application, the insured specifically tells her insurance representative that her 15-year-old son lives at home, but does not drive her car. In fact, the son does not even possess a driver’s license. The insurance representative fills out the entire application, and presents it to the insured, who signs it without reading it. Unbeknownst to the innocent policyholder, the insurance representative failed to list the son on the application under the section that stated, “Please list all drivers and residents of the household over 14 years of age.” When a claim is made on the insurance policy, the carrier may try to use the insured’s alleged misrepresentation regarding her 15-year-old son as a basis to deny coverage.
In this scenario, plaintiffs have several means available to defeat a material misrepresentation defense. As a threshold matter, the nature of the material misrepresentation at issue and its causal relationship to the loss must be carefully analyzed. Not all misrepresentations are sufficient to support a denial of coverage. Even where a material misrepresentation exists that is causally connected to the loss, a plaintiff may still be able to defeat a material misrepresentation defense in certain circumstances. The law of agency may dictate that errors or omissions in the completion of the insurance application are attributed to the insurance company, not the insured. Likewise, a misrepresentation defense may not be available where the insurance application itself was ambiguous or misleading.
Nature of Misrepresentation and Its Causal Relationship to the Loss
The first issue that a plaintiff must address when confronting a material misrepresentation defense is the nature of the insured’s alleged misrepresentation. F.S. §627.409(1) provides as follows:
A misrepresentation, omission, concealment of fact, or incorrect statement may prevent recovery under the contract or policy only if any of the following apply:
(a) The misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or to the hazard assumed by the insurer.
(b) If the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith would not have issued the policy or contract, would not have issued it at the same premium rate, would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss.
Thus, it is important to note that not all varieties of misrepresentations are necessarily sufficient to vitiate coverage.
The second issue a plaintiff must address when confronting a material misrepresentation defense is the causal relationship between the alleged misrepresentation and the particular loss at issue. Claims unrelated to the alleged material misrepresentation do not vitiate coverage. For example, in a claim where the denial of coverage is based on the insured’s failure to list an additional household resident or driver, the case law holds that the insured’s omission in that regard does not vitiate the policy from its inception for claims unrelated to the additional household resident or driver. In such a situation, the omission only precludes coverage for claims arising out of the unlisted person’s use of the insured vehicle.1 Using the example noted in the introductory section of this article, unless the claim arose out of the unlisted son’s use of the subject vehicle, the fact that the named policyholder failed to list the son as a resident of the household should not preclude coverage for an injury or loss to the actual insured—or to any other party, for that matter.
Agency as a Strategy
Assuming that a material misrepresentation exists that is causally connected to the loss, a plaintiff may still defeat a material misrepresentation defense if the alleged misrepresentation was due to an error made by the insurance representative, not the insured. In the vast majority of cases the insurance application is completed by the insurance representative, not the insured. The primary issue here is whether the insurance representative was, in fact, acting as an agent of the insurance company when he or she completed the application for insurance for the insured. If the insurance representative was acting as an agent of the underwriter, the insurance company is estopped from relying on the insured’s alleged misrepresentation in support of a material misrepresentation defense.
An insurer may be held accountable for the actions of those whom it cloaks with either actual authority or apparent authority.2 In general, Florida case law holds that an insurance broker is an agent of the insured, but may also act in the dual capacity of broker for the insured and agent for the insurance company.3 Thus, to defeat a material misrepresentation defense it is necessary for the insured’s counsel to show that the insurance representative was acting as the insurance company’s agent.
In the insurance context, evidence or indicia of agency may be demonstrated if the insurer furnishes an insurance representative or agency with “any blank forms, applications, stationery, or other supplies to be used in soliciting, negotiating, or effecting contracts of insurance.”4 Accordingly, F.S. §626.342(2) states:
Any insurer, general agent, or agent who furnishes any of the supplies specified in subsection (1) [any blank forms, applications, stationery, or other supplies to be used in soliciting, negotiating, or effecting contracts of insurance on its behalf] to any agent or prospective agent not appointed to represent the insurer and who accepts from or writes any insurance business for such agent or agency shall be subject to civil liability to any insured of such insurer to the same extent and in the same manner as if such agent or prospective agent had been appointed or authorized by the insurer or such agent to act in its or his or her behalf.
(Emphasis added.)
Thus, once the statutory requirements are met, F.S. §626.342 provides that the insurance carrier shall be subjected to civil liability to any insured to the same extent, and in the same manner, as if such agent or prospective agent had been appointed or authorized by the insurer or such agent to act on its behalf.
F.S. §626.342(2) was interpreted in Straw v. Associated Doctors Health & Life, 728 So. 2d 354 (Fla. 5th DCA 1999). There, the court held that the insurance company’s furnishing of materials to an individual insurance representative, and the subsequent acceptance of business from that representative, established civil liability by an insurer to an insured in the same manner as if the insurer had specifically designated the broker as its agent. Id. at 357. Furthermore, Straw held that an insurer will be bound by the insurance representative’s actions unless the insured knew or was put on notice of inquiry as to limitations on the representative’s actual authority. Id.
The factual basis for the agency determination normally can be obtained through requests to produce from the carrier as well as a deposition of the insurance representative. In discovery it is helpful to establish that the insurance applications were provided by the carrier; that the applications contain the carrier’s name and address; and that the carrier provides the insurance representative with manuals or other guidelines specifying the methods for filling out the applications, necessary information, and binding procedures. Additionally, it is important to show that the insurance representative obtains commissions from the sale of such policies, and that they are authorized to sell that company’s policies and insure the policyholder prior to the insured’s leaving the representative’s office.
In Florida, it is well established that where the applicant fully states the facts to the agent at the time of the application but the agent writes the answers incorrectly or contrary to the facts stated by the applicant, the insurance company is estopped from making a defense in an action on the policy by reason of the incorrect application.5 Likewise, it is also settled law that an insured is not responsible for false or incomplete answers inserted by the insurer’s agent in an application for insurance even if the insured signs an application filled out by the agent without reading it or correcting the answers.6
In the example discussed in the introductory section of this article, once the plaintiff is able to prove that the insurance representative is the agent of the carrier, and that the completion of the insurance application was within the scope of the agent’s authority, those acts of the insurance agent will be found to be binding upon the principal, the insurance company. Furthermore, as the court explained in Stix v. Continental Assur. Co., 3 So. 2d 703, 707 (Fla. 1941), when the agent of an insurance company fills in an application for insurance, his act in doing so is the act of the company. If the applicant fully states the facts to the agent and the agent writes the answers incorrectly or contrary to the facts stated by the applicant, the company is estopped from denying the claim based on the false answer.7
Ambiguity of the Insurance Application as a Strategy
An insured is not subject to a material misrepresentation defense if the application giving rise to the alleged misrepresentation was ambiguous. The law is clear in Florida that an insurance company may not rely upon an alleged material misrepresentation when the language in its own application created an ambiguity in the information sought.8
Thus, in trying to defeat a material misrepresentation defense, the insured’s attorney should carefully analyze whether the application question giving rise to the alleged misrepresentation is ambiguous in any way. For instance, in the example used previously, does the application seeking “residents and drivers,” mean persons that are both residents and also drive the insured vehicle, or does the question seek to know the complete listing of all residents in the house? Any ambiguity in the application must be construed against the insurance company.9
In Great Oaks Casualty Insurance Company v. State Farm Mutual, 530 So. 2d 1053 (Fla. 4th DCA 1988), the Fourth District Court of Appeal was presented with a case in which the application used the term “drivers,” and the policyholders failed to list the son as a resident and permissive driver. The court found, without hesitation, that the application question asking for “drivers” was ambiguous, in that “it allowed for a number of different interpretations and thus (the insured’s) failure to name (the son) as a driver was not a misrepresentation and the policy must be construed against the insurer.”10 The Fourth District held that this was an issue of interpretation for the court to make, and added, “Because any ambiguity in the insurance application must be resolved against the insurer,” the trial court’s ruling finding coverage was without error.11
In sum, when confronted with a material misrepresentation defense, the attorney for the policyholder should begin by evaluating the nature of the alleged misrepresentation in terms of the factors set out in F.S. §627.409(1) as well as the causal relationship between the alleged misrepresentation and the loss. If a material misrepresentation exists that is causally connected to the loss, a plaintiff may still defeat a material misrepresentation defense if the alleged misrepresentation was due to an error made by the insurance company’s agent or the insurance application was ambiguous.
1 Martinez v. General Insurance Co. , 483 So. 2d 892 (Fla. 3d D.C.A. 1986).
2 Almerico v. RLI Insurance Co. , 716 So. 2d 774, 777 (Fla. 1998).
3 Id . at 776.
4 Id .
5 Stix v. Continental Assur. Co. , 3 So. 2d 703, 707 (Fla. 1941).
6 Columbian Nat. Life Ins. Co. v. Lanigan , 19 So. 2d 67, 70 (Fla. 1944).
7 Stix , 3 So. 2d at 707.
8 Gaskins v. General Ins. Co. of Fl. , 397 So. 2d 729 (Fla. 1st D.C.A. 1981).
9 Id .
10 Great Oaks , 530 So. 2d at 1054 (emphasis added).
11 Id . at 1055 (emphasis added).
Stacey A. Giulianti graduated from the University of Miami School of Law, cum laude , in 1993. He currently practices in the area of insurance law with Wasserstrom Giulianti, P.A., Hollywood. The author thanks Gary D. Gelch for his assistance in writing this article.
This column is submitted on behalf of the Trial Lawyers Section, Dominic M. Caparello, chair, and Thomas P. Barber, editor.
