An April 27, 2015 Appeals Court decision, Commerce Insurance v. DeOliveira et al, affirmed that a severely injured bicyclist could not reach and apply any of Commerce’s $100,000 optional bodily injury limit because the insured had obtained the coverage using an altered Brazilian license.
The insured bicyclist, Kevin Fitzgerald, had recovered a $156,000 bodily injury judgment against Commerce’s insured and the unlicensed operator of the insured’s vehicle. But Commerce, based on its investigation of the Brazilian license used in applying for the coverage and the total lack of cooperation of the insured owner of the vehicle and of the unlicensed operator of the vehicle, refused to pay any of the $100,000 optional bodily injury limit.
Three vehicles allegedly owned with only insured as the listed operator
In August 2009, a person identifying himself as Marcio Alves DeOliveira appeared at the Kunevich & Lau Insurance Agency in Norwood. The person who applied through Kunevich & Lau presented a Brazilian license, filled out an application and requested among other coverages, optional bodily injury with a $100,000 per person limit. The policy was assigned through the MAIP to Commerce.
As it later developed, this was the third motor vehicle allegedly owned by Mr. DeOliveira that he had insured with only himself listed as an operator.
On June 26, 2012, the vehicle owned by Mr. DeOliveira and insured by Commerce struck a bicyclist, Kevin Fitzgerald, while he was bicycling in Norwood. The operator of the DeOliveira vehicle, Alexsandro Ferreira, was not listed as an operator on Mr. DeOliveira’s policy and was, in fact, unlicensed.
Commerce’s investigation leads to denial of optional bodily injury coverage based on altered license.
The three vehicles in Mr. DeOliveira’s name with no other operators and an accident involving an unlicensed operator quickly triggered the involvement of Commerce’s Special Investigations Unit. Commerce’s investigator made a number of efforts to obtain statements from the insured, Mr. DeOliveira, and the operator, Mr. Ferreira, without success. Finally, the insured and the operator flat out refused to cooperate. The investigator did, however, observe that the insured vehicle was parked at Mr. Ferreira’s address in Norwood but never at the address given by the insured as the vehicle’s place of principal garaging in Walpole.
Commerce also retained a private investigator, Charles McLaughlin, who had experience and expertise in investigating foreign drivers’ licenses to determine if they were forged or falsified Mr. McLaughlin, who had investigated over 500 Brazilian driver’s licenses and was familiar with the licensing system in Brazil, determined that the license submitted by the applicant, Mr. DeOliveira, had two alterations. The two alterations were to the license’s expiration date and to a Brazilian government identification number (“equivalent to a person’s Social Security number in the United States”).
As a result of its investigation and the conclusions of Mr. McLaughlin, Commerce denied the optional bodily injury coverage under Section 18 of the standard Massachusetts auto policy which provides:
False Information. If you or someone on your behalf gives us false, deceptive, misleading or incomplete information in any application or policy change request and if such false, deceptive, misleading or incomplete information increases our risk of loss, we may refine to pay claims under any or all of the Optional. Insurance Parts of this policy…”
Declaratory judgment actions do not overturn coverage denial
After Commerce communicated to Mr. Fitzgerald that it would only provide the $20,000 compulsory limit required by law in exchange for a release of its insureds, Mr. Fitzgerald sued Mr. DeOliveira and Mr. Ferreira for bodily injury and sued Commerce seeking a declaratory judgment rescinding the denial of coverage. Commerce, for its part, filed its own declaratory judgment seeking to affirm its denial of the optional bodily injury limit. The two declaratory judgment actions were eventually consolidated.
Before the consolidated declaratory judgment trial had commenced, Mr. Fitzgerald’s bodily injury suit was heard and judgment entered in his favor for $156,000. When, however, the declaratory judgment was heard jury waived for three trial days Mr. Fitzgerald did not fair so well. The Superior Court hearing the case found for Commerce instead of Mr. Fitzgerald, ruling:
I find and rule that providing an altered and doctored driver’s license to the agency and Commerce in order to obtain automobile insurance is a violation of the policy which increases the insurer’s risk of loss and justifies the denial of coverage of the optional limits. In this case the person claiming to be Marcio Alves DeOliveira did present an altered or doctored license with the intent of deceiving the agent and the insurer for the purpose of obtaining an insurance policy.”
As a result, judgment entered for Commerce and against Mr. Fitzgerald. Mr. Fitzgerald filed an appeal.
Appeals Court rules that altered license “increased the risk of loss”
On appeal, Mr. Fitzgerald argued that the two alterations found by Mr. McLaughlin did not in fact increase Commerce’s risk of loss, because the evidence also showed that:
(1) De Oliveira had a valid underlying Brazilian driver’s license at the time of application;
(2) the change to the expiration date had no impact on whether the license remained valid during the applicable policy period; and
(3) De Oliveira’s separate license number still accurately appeared on the license provided to the insurance agent (thereby allowing an insurer to gain access to his Brazilian driving history).
The Appeals Court, while acknowledging that Mr. Fitzgerald’s arguments were not frivolous, determined that they were based on too narrow a view that only took into account a specific increase in the risk of loss. The Court then went on to state that:
The concept of “risk of loss” is not limited to an increase in the actual risk loss, but rather embraces an insurer’s generally increased risk of economic loss or exposure…The [Superior Court] judge committed no error in concluding that the misrepresentations at issue here were material.
Agent takeaway: Underinsured motorist coverage
As this case shows, insurance companies are within their rights to strip optional coverage when an applicant has given “false, deceptive, misleading or incomplete information in any application or policy change request…” The company cannot legally refuse to pay compulsory coverage because G.L. c. 175, § 113A provides: “That no statement made by the insured or on his behalf,…in securing the policy…no violation on the terms of the policy and no act or default of the insured…shall operate to …avoid the policy…”
Since the company must pay the compulsory coverage in any event, the vehicle will never be uninsured by virtue of the insurance company denying coverage. So as in Mr. Fitzgerald’s unfortunate case, unless underinsured motorist coverage has been purchased with sufficient limits, an injured person may have no recourse if they are hit by an unlicensed driver such as Mr. Ferreira.
Agents may wish to use the example of this case in explaining to insureds that underinsured motorist coverage offers the only protection when one is hit by an insured who may have made material misstatements to get coverage.
Copies of Appeals Court and Superior Court decisions
The summary decision of the Appeals Court is available here: Commerce v. Oliviera et al.
The Superior Court decision which has many more details than the Appeals Court’s summary decision is available here: Superior Court Decision