Rescission For Lie on Insurance Application

Prior Conviction for Insurance Fraud Material to Decision of Insurer

Post 4857

Jose Palma appealed the trial court's summary judgment in favor of Allied Trust Insurance Co that found a lie about a prior insurance fraud conviction was a material misrepresentation causing the insurer to rescind the policy.

In Jose Palma v. Allied Trust Insurance Co., No. 14-23-00063-CV, Court of Appeals of Texas, Fourteenth District (August 13, 2024) the Court of Appeals agreed with the insurer.

BACKGROUND

Palma purchased an insurance policy for his home with Allied. During the policy period, there was a fire at Palma's home. Palma submitted an insurance claim under the policy only to be faced with the discover of a prior conviction for insurance fraud that was not disclosed on his application for insurance. Allied rescinded the policy stating that Palma's misrepresentation rendered the policy void and that it would not have insured Palma had Palma disclosed his prior insurance fraud conviction.

Palma sued Allied for breach of contract, and a litany of bad faith charges. Allied answered and asserted the defense that it rescinded the policy because of Palma's "material misrepresentation" among other affirmative defenses.

THE MOTION FOR SUMMARY JUDGMENT

Allied moved for summary judgment concluding that the policy issued to Palma is void due to Palma's material misrepresentation in the policy application that he was never convicted of insurance fraud. Allied argued that Palma misrepresented material facts and in support of these elements, Allied submitted five exhibits:

the policy application;
the policy;
the "DocuSign certification of completion;"
correspondence with insurance agent; and
Palma's criminal conviction for insurance fraud.

The trial court rendered a final summary judgment in favor of Allied.

Misrepresentation in Insurance Application

Palma argued that whether a misrepresentation is material is a question of fact both under the Insurance Code and common law and, therefore, summary judgment was improper. Allied countered that there was ample, undisputed evidence in the record to show that Palma's misrepresentation was material and no evidence to the contrary.

ANALYSIS

The policy application included a statement that Palma agreed the policy would be void "if such information is false or misleading in any way that would affect the premium charged or eligibility of the risk based on company underwriting guidelines."

The purpose of a summary judgment is to provide a method of summarily terminating a case when it clearly appears that only a question of law is involved and that there is no genuine issue of fact. Various elements of claims may be a "question of fact" where there is an actual, genuine dispute between the parties about the facts. However, when no genuine issues of material facts exist, a court may properly grant summary judgment because there are no facts to find.

Allied submitted its undisputed evidence establishing its affirmative defense. Palma did not respond with evidence to dispute the facts as stated by Allied.

Put simply, the plain language of the statute indicates that a policy provision rendering the policy void or voidable for any false statement is a defense if the insurer demonstrates the misrepresentation was material to the risk or contributed to the contingency or event on which the policy became payable or due. None of these requirements obviates the insurer's ability to obtain summary judgment on its defense when the facts are undisputed.

ZALMA OPINION

A convicted insurance criminal lied on an application for insurance, obtained a policy based on the lie, only to have his home catch fire and burn resulting in a major claim. The insurer learned of the conviction by searching public records and, based on the lie, rescinded the policy from its inception because of the material misrepresentation about the plaintiff's criminal record and prior conviction for insurance fraud.  The court affirmed the rescission.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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