Filling out an application for insurance seems like a straightforward step, but it can cause problems if you are not careful. Mistakes can happen. Unfortunately, a recent court decision makes clear that such a mistake can be very costly and result in denial of coverage even if it was an innocent error.
No matter what type of insurance is involved, an insurance application will ask for details about what is being insured and the “insurance risk” involved. For example, you will be asked to provide a description of the property or business, how it is used, etc. This information is used by the insurer to determine whether it will provide insurance and the amount of the premiums. Often the application is filled out by an insurance broker. This is particularly the case where there is a long-standing relationship with the broker and where the application seeks renewal of an existing policy. Regardless of who fills out the application, however, the insured is held responsible for the accuracy of the information.
A recent decision of the New York Supreme Court Appellate Division, Second Department emphasizes the importance of submitting an accurate application and the consequences of errors. If an insurer can demonstrate that an insured made a “material misrepresentation” in its application, it can deny coverage for a claim. A misrepresentation is material if the insurer would not have issued the policy had it known the true facts.
The decision in Estate of Chu v. Otsego Mutual Fire Ins. Co. demonstrated that it is irrelevant whether a misstatement is made innocently or with the intent to deceive. In the case, the insured purchased a three story house with three separate living units. The Certificate of Occupancy and tax bills indicated that it was a legal two-family dwelling. The insurance application indicated that it was a two family dwelling. When the house was damaged by fire, the insurer refused to provide coverage. The Court held that because the insurer established it would not have issued the policy for a three family home, its disclaimer of coverage was proper. This was true even though there was evidence that the owner had a good faith belief that it was a two family home.
In order to avoid a potential denial of coverage, insureds should take these steps:
- Review a copy of the application initially and each year when renewed.
- Make sure the insurance broker knows about changes to the business or house. Many times, particularly with policy renewals, insurance brokers will complete the policy application with information from a prior application. If they don’t know about changes, the application will not be accurate.
Notwithstanding these steps, if you did submit an inaccurate application and have received a denial of coverage, there may be grounds to challenge the insurer’s decision. Contact a qualified attorney to review your case.
Read more about how we help clients with insurance coverage disputes.
This post does not constitute legal advice or establish an attorney-client relationship.