The dangers of failing to provide truthful answers in insurance applications, and of not getting the applicant’s own signature, were vividly illustrated in a recent decision by a Massachusetts Federal Court Judge. In the case of RLI Insurance Co. v. Santos, 746 F.Supp.2d 255 (D. Mass. 2010), RLI Insurance Company issued a personal umbrella insurance policy to Beli R. Lima. Lima’s 17 year old son, Henrique Rocha Santos, was involved in an automobile accident with Maria Lopes in October 2006. Lopes filed a claim with RLI under Lima’s policy. RLI denied coverage, stating that the policy was void because Lima had made material misrepresentations about the number of drivers in her household when she renewed the policy. In particular, Lima failed to disclose in the renewal application that her 17 year old son, Santos, was living with her and her husband, and that Santos had his learner’s permit.
Additionally, there was evidence that Lima, herself, had not completed a second renewal application submitted after RLI rejected the first one as incomplete (and after Santos had obtained his driver’s license.) The agent who submitted the application testified at deposition that she recalled meeting with and assisting Lima with the completion of the application and that the application was blank when Lima arrived for a meeting to prepare it. On cross-examination, however, she testified that she did not remember meeting with Lima to fill out the application and that their meeting might have been only to make a correction to one question on the form. Lima testified that she did not recall seeing or signing the application. Both of the renewal application forms included the statement, “APPLICATION WIL NOT BE ACCEPTED WITHOUT APPLICANT’S ORIGINAL SIGNATURE.”
In 2009, Lopes commenced a civil action against Santos in Worcester Superior Court. Commerce Insurance Company, Santos’s primary carrier, defended him in that action. Later that year, Santos and Lopes agreed to the entry of judgment against Santos on all counts of the civil action in the amount of $950,000 plus interest at the statutory rate from the date of entry of the action. RLI was not provided with prior notice of this agreement. Commerce ultimately tendered Santos’s policy limit of $100, 000 to Lopes. Thereafter, Santos and Lopes made a written demand to RLI under Chapter 93A of the Massachusetts General Laws.
In turn, RLI filed an action for declaratory relief in which it contended that (1) Lima’s failure to disclose Santos’s status as a driver under the age of 22 – whether on either renewal application, or at any time after Santos received his driver’s license and before the renewal policy became effective – was a material misrepresentation that voided the policy, and (2) that an applicant’s signature on the renewal application is a condition precedent to receiving insurance coverage and that Lima was barred from recovering under the policy if she did not sign the second renewal application, as she alleged. After the filing of this declaratory relief action, all parties then moved for summary judgment.
The judge found there was “no question that a reasonable insurer would consider an applicant’s original signature important to its intelligent decision to issue a policy. An original signature assures the insurer that the applicant has attested to the verity of her answers and that she consents to entering into an insurance contract. Thus, the first prong of the test is met. “The judge further found that language in the application form (a) that the “APPLICATION WILL NOT BE ACCEPTED WITHOUT APPLICANT’S ORIGINAL SIGNATURE” and (b) that “any … misstatement of fact in the information given, which if known to … [RLI] would have caused …[it] to decline this application, is grounds for voiding the policy,” together clearly communicated “that a false signature would result in a voiding of the policy, fulfilling the second prong of the test.”
In short, the judge found there was no evidence that Lima assented to the creation of an insurance contract and that even if she were somehow involved in the submission of the second application, her failure to sign it constituted a breach of a condition precedent thus permitting RLI to void the policy as a matter of law.
The judge then went on to rule that even if Lima had submitted an application for the formation of an insurance contract, “she nonetheless had a duty to advise RLI of the presence of a teenage driver in her household before the policy issued.” In Massachusetts, “[s]tatements made in an application for insurance are in the nature of continuing representations and speak from the time the application is accepted or the policy issued. ” Therefore, “an [insurance policy] applicant has a duty to inform the insurer of any known changes rendering his or her initial representations untrue until such time as the policy becomes operative.”
Although she knew that Santos had received his driver’s license prior to the issuance of the policy, it was undisputed that Lima never made any attempt to advise RLI of that fact at any time before the policy became effective. The judge wrote, “Drawing all reasonable inferences in favor of defendants, the Court will assume that the omission was unintentional. Even a misunderstanding on the part of Lima, however, cannot prevent RLI from voiding the policy on those grounds.”
The judge rejected the defendant’s assertion that as a matter of law neither the policy itself nor the application required Lima to notify RLI of changes to the initial information that she provided. The judge found that RLI required the applicant to provide updated information in a renewal application as a condition of renewing the policy and that the application obliged Lima to answer honestly and accurately, and activated her duty to “inform [RLI] of any material changes that occurred between the time of the application and inception of the policy.” The judge ruled that “her failure to advise RLI that Santos had received his driver’s license – even if she was not aware of her obligaiton to do so – was, under the circumstances, a misrepresentation.”
The judge noted that although the issue was “complicated by Lima’s contention that she did not sign or submit the [second] application, …under any reasonable interpretation of the facts, there must have been a period of time during which an application was pending – and during which Lima had a duty to update. It is undisputed that Lima signed and submitted the [first] application (which did not reveal the presence of a teenage driver) … In short, under any view of the undisputed facts, Lima reasonably should have known that RLI was proceeding in reliance on the statements she made in her application. Lima was obligated to inform RLI of any material changes that occurred between the time of her application and the inception of the renewal policy. It is undisputed that she never advised RLI that Santos had received a driver’s license. Her failure to do so gives RLI the right to void the policy.” (the judge also noted that it was undisputed that providing coverage for Santos would materially raised the premium for Lima’s policy.)
The judge summarized his ultimate conclusion that RLI was not obligated to provide coverage under the policy as follows: Either (1) the application for the policy contained a material misrepresentation, and the policy is therefore voidable; (2) no application or other document evidencing Lima’s assent was ever submitted to RLI, and thus no insurance contract was ever formed; or (3) Lima failed to provide updated information to RLI after the application and before the issuance of the policy, and the policy is once again voidable.” The judge accordingly entered summary judgment in favor of RLI on its declaratory judgment claim and rejected the defendants’ counterclaims that RLI breached its contract and violated Chapter 93A.
