Policyholders should present correct solutions to questions in insurance coverage functions or face the potential for no restoration. Prior losses and use of the property as a enterprise or as rental property are sometimes inquired about earlier than an insurer will conform to insure the property. The solutions should be correct or a policyholder will jeopardize protection lengthy earlier than a loss happens.

A California misrepresentation within the utility case was determined in opposition to a policyholder final week and highlights these rules.¹ After successful on the trial degree,² the insurer argued the next on attraction:

The district court docket appropriately concluded there was no real challenge of fabric truth concerning whether or not Hughes misrepresented each the usage of the Property as a enterprise and the prior losses on her utility for the Restricted Property Coverage.

First, it’s undisputed that Hughes instructed her insurance coverage agent there was no enterprise use on the Property when finishing the appliance by cellphone, and it’s undisputed that this query is materials for FNICA. Ample proof—together with reservation statements, rental confirmations, and screenshots of ads for the property on rental platforms—demonstrated that Hughes in truth incessantly used the Property for short-term leases. Hughes confirmed this in her EUO. Hughes now purports to have misunderstood the query within the utility, however even when true, that may not undermine the district court docket’s abstract judgment order. That’s as a result of even unintentional misrepresentations give rise to a proper by the insurer to rescind the coverage.

Second, it is usually undisputed that (i) Hughes instructed her insurance coverage agent there have been no prior losses when finishing the appliance by cellphone, (ii) there have been in truth prior losses, and (iii) the claims historical past is materials for FNICA. Hughes purports to have misunderstood this query as properly, however even a mistaken misrepresentation nonetheless offers rise to a proper by the insurer to rescind the coverage.³

The appellate court docket agreed with the insurer. First, the court docket famous that the misrepresentations had been materials:

Hughes doesn’t dispute the materiality of both illustration. In any occasion, they’re materials as a result of FNICA and GICA would have robotically rejected her functions had she disclosed that her property was used as a short-term rental or that she suffered prior losses. See Mitchell v. United Nat’l Ins. Co., 25 Cal. Rptr. 3d 627, 640 (Ct. App. 2005) (reasoning data is materials if it might have an effect on the insurer’s determination to offer insurance coverage protection, estimate the diploma of danger, or repair the premium charge).

The court docket dismissed the allegations that the policyholder didn’t perceive the questions within the utility:

Hughes additionally claims she didn’t perceive the functions due to a language barrier, and that the brokers who finalized her insurance coverage functions didn’t search her approval earlier than sending them to FNICA and GICA. Beneath California regulation, nevertheless, ‘a fabric misrepresentation or concealment in an insurance coverage utility, whether or not intentional or unintentional, entitles the insurer to rescind the insurance coverage coverage ab initio.’ W. Coast Life Ins. Co. v. Ward, 33 Cal. Rptr. 3d 319, 323 (Ct. App. 2005); Cal. Ins. Code § 331. Hughes’s subjective understanding or intentions had been thus immaterial as to if she misrepresented the usage of her property. Even so, the proof exhibits that Hughes understands, reads, and writes English, and that she acquired and signed the functions earlier than they had been despatched to FNICA and GICA.

The appellate court docket affirmed the district court docket’s findings, which acknowledged:

Beneath California regulation, ‘a fabric misrepresentation or concealment in an insurance coverage utility, whether or not intentional or unintentional, entitles the insurer to rescind the insurance coverage coverage ab initio.’ West Coast Life Ins. Co. v. Ward, 132 Cal. App. 4th 181, 186–187, 33 Cal. Rptr. 3d 319 (2005)…see Cal. Ins. Code § 331 (‘Concealment, whether or not intentional or unintentional, entitles the injured get together to rescind insurance coverage.’); Cal. Ins. Code § 359 (materially false illustration could lead to rescission of insurance coverage coverage). Due to this fact, ‘an insurer could, beneath Insurance coverage Code sections 331 and 359, rescind a hearth insurance coverage coverage based mostly on an insured’s negligent or unintentional misrepresentation of a fabric truth in an insurance coverage utility, however the willful misrepresentation clause included within the required commonplace kind insurance coverage coverage (Ins. Code §§ 2070 and 2071).’ Mitchell v. United Nat’l Ins. Co., 127 Cal. App. 4th 457, 463, 25 Cal. Rptr. 3d 627 (2005); see Star Ins. Co. v. Sunwest Metals, Inc.,…(Mitchell’s holding gives the proper authorized commonplace in motion claiming misrepresentation in hearth insurance coverage utility).

…

Accordingly, Hughes’ failure to reveal the usage of the Property as a short-term rental constitutes a fabric misrepresentation that helps FNICA’s declare for rescission.

The district court docket additionally famous that insurers are usually not required to seek for a policyholder’s loss historical past and may rely on the appliance:

Hughes’ extra protection of her omission on the bottom that her lawsuit with Lexington was public doesn’t assist her. Insurers do not need an obligation to seek for an insured’s prior claims and should depend on an applicant’s solutions with out verifying their accuracy. See Mitchell, 127 Cal. App. 4th at 476 (underwriter has no obligation to confirm the accuracy of the representations made by applicant).

FNICA contends with out dispute that Hughes’ loss historical past was extremely materials to FNICA’s determination to challenge protection. (Movement at 24). FNICA explains that an correct loss historical past is important to underwriting a selected danger as a result of FNICA wants the data to evaluate the character of potential claims that will rise, the circumstances that would give rise to claims, and what FNICA could face with respect to future losses. (Id.). California courts have acknowledged that an applicant’s loss historical past generally is a truth materials to insurance coverage danger. See Imperial Cas. & Indem. Co. v. Sogomonian, 198 Cal. App. 3d 169, 181, 243 Cal. Rptr. 639 (1988) (insureds’ failure to reveal that (1) one other insurer had refused to resume their earlier home-owner’s coverage; and (2) that insureds suffered damages in landslide with ensuing litigation with downhill neighbor had been materials nondisclosures which entitled insurer to rescind coverage). Hughes doesn’t dispute that her prior loss historical past was a fabric truth to insurance coverage danger. Hughes additionally doesn’t contest that the disclosure of her three prior losses would have prompted FNICA’s on-line score platform to robotically reject and deny her utility.

Functions for insurance coverage are vital. After a loss happens, many insurers will then verify the appliance to find out if the solutions given had been correct. Offering correct data in an utility is essential for policyholders lengthy earlier than a loss ever occurs.

Thought For The Day

When you inform the reality, you don’t have to recollect something.
—Mark Twain

¹ Hughes v. First Nationwide Ins. Co., No. 23-55338, 2024 WL 1191142 (ninth Cir. Mar. 20, 2024).
² Hughes v. First Nationwide Ins. Co., No. 2:22-cv-01759 [Order Granting Defendant’s Motion for Summary Judgment] (C.D. Cal. Mar. 15, 2023).
³ Hughes v. First Nationwide Ins. Co., No. 23-55338 [Appellee’s Answering Brief] (ninth Cir.).