January 16, 2021

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Can My Insurance Company Deny My Claim After A Loss Based Upon A Misrepresentation in My Insurance Policy Application?

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Misrepresentations in an insurance policy application may provide a basis for an insurance company to deny an otherwise valid claim following a loss. In such circumstances, the insurance company argues that the insurance policy was null and void from its inception based on the misrepresentation because it would not have issued the policy or would not have issued it under the same terms if the representation had not been made.

Because the finding of a misrepresentation in an insurance policy application allows insurance companies to avoid paying claims, insurance companies may unjustly claim insureds have made misrepresentations on their policy application after a loss.

In a recent case,1 a federal appeals court held that an insured knowingly misrepresented a material fact on his insurance policy application in failing to disclose his wife’s bankruptcy, and that the misrepresentation justified the recission of the policy. In that case, when the insured applied for an insurance policy for a rental property he purchased in Louisiana in 2018, he represented that neither he nor his wife had been “involved” in a bankruptcy during the past five years. Until the end of 2015, however, the insured’s wife had been making payments to creditors pursuant to a Chapter 13 bankruptcy case filed in 2010.

After the insured signed and submitted the insurance application, the insurance company issued the policy. One month later, the house burned down. When the insured filed a claim for the loss, the insurance company requested the insured and his wife submit to an examination under oath (“EUO”) as required by the policy. At the insured’s EUO, the insured stated that he knew his wife was actively making payments on debts pursuant to a bankruptcy agreement with creditors through 2015. At the insured’s wife’s EUO, she testified that her husband knew of her bankruptcy, and further stated that her husband’s answer to the bankruptcy question was inaccurate.

The insurance company denied the claim for the fire because of the insured’s misrepresentation about his wife’s bankruptcy status and litigation began to determine whether the policy was properly rescinded on misrepresentation grounds. The appeals court found that, under Louisiana law, the insurance company’s rescission of the policy was proper because the insured had made a false statement about his wife’s bankruptcy status; that the false statement was material; and that it was made with intent to deceive. In finding so, the court determined there was no genuine dispute that the insured knowingly misrepresented the existence of his wife’s bankruptcy status to the insurance company based upon the EUO testimony. The court also found that the misrepresentation was material because the insurance company submitted an affidavit that provided it would have denied the insured’s application if he had answered “yes” to the bankruptcy question.

If your insurance claim was denied based upon a misrepresentation in your insurance policy application, contact your local Merlin Law Group attorney to see if there is a basis to fight the denial based upon the law of your state.
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1Geovera Specialty Ins. Co. v. Odoms, 2020 WL 6532087 (5th Cir. Nov. 5, 2020).

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