Policyholders buy insurance coverage insurance policies as a security internet, promising monetary safety in occasions of want. Nevertheless, that security internet can disappear when an insurer rescinds a coverage—a devastating consequence for doubtlessly harmless policyholders. We just lately printed a publish following a Fourth Circuit choice addressing this challenge. The Ninth Circuit has additionally addressed this challenge, most just lately within the choice mentioned beneath.

Coverage rescission typically happens when an insurer retroactively cancels a coverage, often citing a fabric misrepresentation or omission by a policyholder in its insurance coverage software. California regulation permits rescission even when the misrepresentations or omissions are purportedly harmless. Because of this even unintentional errors or omissions on an insurance coverage software can result in the cancellation of protection, leaving policyholders with out the safety they thought that they had. One might imagine they’ll depend on their dealer to deal with the appliance for them, however doing so won’t excuse the policyholder from points of their software.

The Ninth Circuit Court docket of Appeals Reaffirms California Legislation That Harmless Errors Might Not Excuse Materials Misrepresentations or Omissions on an Insurance coverage Utility

In Hughes v. First Nationwide Insurance coverage Firm of America, et al., No. 23-55338, at *1 (ninth Cir. Mar. 20, 2024), a policyholder secured householders insurance coverage for her Malibu home with First Nationwide Insurance coverage Firm of America (“FNIC”) and Basic Insurance coverage Firm of America (“GNIC”). Hughes was required to finish an insurance coverage software that requested her (1) whether or not she used her residence for enterprise functions and (2) whether or not there have been losses on the property within the final 5 years. She responded that it was not used for enterprise and there have been no losses.

Hughes sought protection beneath the insurance coverage insurance policies for a hearth on the property, which was denied, and introduced swimsuit towards FNIC and GNIC. Each insurers sought to rescind their insurance policies primarily based on materials misrepresentations and omissions, asserting that Hughes used the property for business functions as a short-term rental and there had been at the least three prior losses on the property. The District Court docket granted the insurers’ abstract judgment motions, permitting them to rescind the insurance policies.

On attraction to the Ninth Circuit, the Court docket agreed with the District Court docket’s choice. Hughes tried to argue that she didn’t perceive the purposes due to a language barrier and relied on her dealer to finalize the purposes and submit them to the insurers. The Court docket, making use of California precedent, discovered her arguments immaterial, recognizing that “a fabric misrepresentation or concealment in an insurance coverage software, whether or not intentional or unintentional, entitles the insurer to rescind the insurance coverage coverage ab initio.” W. Coast Life Ins. Co. v. Ward, 132 Cal.App.4th 181, 187 (2005); Cal. Ins. Code § 331. The Court docket additionally discovered proof contradicting Hughes’ arguments, together with that she might perceive, learn, and write English, which can have doubtlessly impacted the Court docket’s choice. Regardless, rescission was acceptable as a result of there was a fabric misrepresentation—harmless or not.

Key Takeaway

This courtroom discovered the policyholder bore the duty to offer correct and full solutions throughout the software course of. Whereas insurance coverage brokers play a worthwhile function in guiding shoppers via the method, policyholders could not have the ability to absolve themselves of this duty by counting on their dealer.

Brokers is perhaps educated about insurance coverage merchandise and might provide steering, however they might not have detailed information of each side of a policyholder’s circumstances. Within the occasion of a declare, insurers could scrutinize the appliance for any discrepancies or inaccuracies. If materials details have been misrepresented or omitted, the insurer might rescind the coverage, leaving the policyholder unprotected. In the end, policyholders could also be legally accountable for the accuracy of the data offered on the insurance coverage software. Relying solely on a dealer with out verifying the data submitted could have critical penalties within the occasion of a dispute or declare denial.

If questions on the best way to reply questions within the software stay, policyholders ought to search insurance coverage counsel if needed. That approach, policyholders put themselves in a greater place to keep away from making any materials misrepresentation in response to the insurer’s requests.