When Florida property owners experience a loss in the form of damage to their home, they often are shocked when their insurer handles the claim in less than an expeditious manner. While the purpose of insurance is to cover unexpected losses, the insurance industry maximizes its profits by finding ways not to pay claims. When homeowners file a property damage claim, insurance companies frequently look for justifications to deny coverage. When an insurer is investigating a claim, the process often begins with close scrutiny of the insurance application. Questions that are answered incorrectly may lead to a denial based on claims of misrepresentation or non-disclosure.
Although inaccuracies or lies in a policy application can constitute a valid basis to deny a claim, insurance companies cannot automatically refuse to settle a claim because there is incorrect or missing information on the application. By the same token, innocent mistakes by policyholders can have devastating consequences in certain situations. The relevance of the inaccurate information to the decision to issue a policy, policy limits, or the amount of the premium will determine whether the omission or misstatement allows the insurance company to rescind a policy and deny the claim. Florida Statute Section 627.409 authorizes insurers to rescind an insurance contract under certain circumstances based on false statements or non-disclosures.
This provision provides in pertinent part:
“Representations in applications, warranties.—
(1). . . A misrepresentation, omission, concealment of fact, or incorrect statement may prevent recovery under the contract or policy only if any of the following apply:
(a)The misrepresentation, omission, concealment, or statement is fraudulent or is material either to the acceptance of the risk or the hazard assumed by the insurer.
(b)If the true facts had been known to the insurer pursuant to a policy requirement or other requirement, the insurer in good faith would not have provided coverage with respect to the hazard resulting in the loss.”
The Florida 2nd District Court of Appeals in Mora v. Tower Hill Prime Insurance Company recently reaffirmed the requirement that the non-disclosure be material to the insurer’s decision-making in issuing the policy under the agreed terms. The policyholders in Mora filed a sinkhole damage claim several years after purchasing their policy. The policy included a question that asked if the insured had knowledge of prior “cracking damage” that had been repaired.
The insurer obtained two forms during the discovery process that the insurance company claimed established that the policyholders did not answer the question accurately. The documents were inspection forms that included notations regarding cracking around the swimming pool and a large drywall crack in the ceiling. Hand printed notes on the report referenced the following:
- “repair drywall at . . . stairwell base board”
- “fix cracks under window”
- “repair 3 cracks in drywall at ceiling”
- “repair cracks at entry under soffit (stucco)”
The policyholders indicated that they did not remember these notations nor any repairs to the stucco and drywall during their deposition. However, a representative of the insurer submitted an affidavit indicating the insurance company would not have approved the policy if it had been aware of the prior repairs. This was the sole evidence offered by the insurer in support of its Motion for Summary Judgment.
While the trial court granted summary judgment based on the affidavit from the insurance company representative, the Third DCA reversed the decision based on a commonsense analysis. The appellate court observed that an innocent misrepresentation can be the basis for denial of a claim if the insurer relied on the inaccurate information to its detriment. The court also indicated that such a denial is only proper if the insurer provides a good faith rationale for why it would have declined coverage or insisted on other terms.
Under this standard, the court found the references to repairs of cracks was not material to the insurer’s decision to approve the terms of the policy. The court indicated that the reference to “cracking damage” was ambiguous in terms of its application to the language in the inspection documents. The court observed that policyholders would not assume that “crack damage” applied to common maintenance issues like cracks in stucco and drywall. If the policy was read to include such ordinary maintenance as grounds for denying coverage, the insurance company would have essentially no customers because virtually every property in Florida would have such cracks.
While the court’s ruling in this case was favorable for the policyholders, the analysis should make clear that it is very important to be accurate when completing an insurance application.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].