Insurance Material Misrepresentation In Insurance Application

The recent case of People’s Trust Insurance v. Roddy got me thinking about misrepresentations made by applicants for insurance. Roddy applied over the phone for homeowner’s insurance. He was asked several questions by the People’s Trust insurance agent including whether he had a burglar alarm. The agent checked a box on the application indicating that Roddy had an alarm but Roddy denied ever stating this. Roddy’s house was subsequently
destroyed by fire. He made a claim against People’s Trust but the insurance company denied coverage because it claimed Roddy misrepresented the fact that he had a burglar alarm.
At trial, a key evidentiary issue went against People’s Trust resulting in the jury awarding Roddy $766,258.06 in damages. The issue was whether evidence concerning a consent order that People’s Trust had entered into with
the Florida Department of Insurance should have been admitted. That evidence showed, among other things, that People’s Trust was using unlicensed agents who were giving quotes “based on every available discount” whether or not the insurance applicant claimed to have a device (such as a burglar alarm) that would warrant a discount.
On appeal, the Court rejected People’s Trust’s claim that testimony concerning the consent order was unduly prejudicial. Rather, the Court held that evidence concerning the consent order was relevant to whether Roddy made a
material misrepresentation in applying for insurance as it was evidence of People’s Trust business practice that its agents always check application boxes to reflect information provided by an applicant. To counter this evidence, said
the Court, Roddy was allowed to present evidence of a contrary practice embedded in People’s Trust’s computer software.
The Roddy case is a great victory for Mr. Roddy and his attorney. Unfortunately, it’s an anomaly. People’s Trust is obviously a substandard insurance company that was using questionable business practices and the
jury literally “made them pay.” Most “material misrepresentation” cases, however, go against the insurance applicant because the misrepresentations that will allow an insurance company to void coverage are those that are made either
intentionally or innocently. Florida Statute 627.409 provides that  “any misrepresentation, innocent or
intentional, will void an insurance contract if the misrepresentation ‘is material either to the acceptance of the risk or to the hazard assumed by the insurer’ or ‘[i]f the true facts had been known to the insurer …, the insurer in good faith would not have issued the policy.”  So, for example, even though you may have unwittingly failed to remember that you were involved in a prior automobile accident, or had seen a doctor for low back pain years before, or had made an insurance claim previously, you could be denied coverage by your auto, home or health insurer if the failure to disclose these facts was material to the risk or if the insurance company maintains it would not in “good faith” have issued the policy.