Policy Properly Rescinded for Misrepresentation of Material Facts

Insured Required to Read and Affirm Application Even If Filled out by Agent

Insurance is a business of utmost good faith. The covenant requires that neither party do anything that would harm the right of the other to the benefits of the policy. When an insured misrepresents a material fact the insurer has the option to rescind the policy from its inception and treat it as if it never existed.

In Broaddus v. Kentucky National Insurance Company, Not Reported in S.W.3d Court of Appeals of Kentucky (February 19, 2016),  2016 WL 675911 the Kentucky Court of Appeal was asked to deal with a rescission of an automobile policy where the insured claimed it was unfair to allow the rescission.

Charles Michael Broaddus brings this appeal from a December 8, 2014, summary judgment of the Nelson Circuit Court concluding that Kentucky National Insurance Company properly rescinded a motor vehicle insurance policy issued to Gary Aldridge and dismissing Broaddus’ petitions for declaratory relief.


On June 28, 2013, Broaddus was a passenger in a 2003 Kia Optima owned and operated by Brittany Jackson. On that date, Jackson negligently operated the Kia causing an accident in which Broaddus suffered physical injury. At the time of the accident, the Kia was insured with Kentucky National Insurance Company (National Insurance) through an automobile insurance policy issued to Jackson’s father, Gary Aldridge. Jackson was an adult child who did not reside at her father’s residence.

Shortly after the accident, National Insurance rescinded the insurance policy based upon a misrepresentation contained in the application for insurance coverage. Aldridge failed to disclose that he did not own the Kia and, in fact, answered in the negative a question on the insurance application specifically asking whether any third party owned any of the vehicles to be covered under Aldridge’s policy.  As National Insurance rescinded the insurance policy covering the Kia, it refused to provide any benefits to Broaddus.

Broaddus claimed that Aldridge made no material misrepresentation in the application of insurance, and, alternatively, if he had done so, Broaddus would, nonetheless, be entitled to benefits under the Kia’s insurance policy as an innocent third party. Additionally, Broaddus asserted that National Insurance failed to give Aldridge twenty days notice before rescinding insurance coverage on the Kia, which was mandated by the language contained in the insurance policy.

National Insurance argued that rescission of the Kia’s motor vehicle insurance policy was valid per Kentucky Revised Statutes (KRS) 304.14–110 based upon Aldridge’s material misrepresentation as to ownership of the Kia in his application for insurance coverage.

On December 8, 2014, the circuit court granted National Insurance’s motion for summary judgment and dismissed Broaddus’ petitions for declaratory relief on December 8, 2014.


In the insurance application, Kentucky National specifically included the following question: “With the exception of any encumbrances, are any vehicles not solely owned by and registered to the applicant?” This question was answered “no.”

At that time, Aldridge did not own the Kia, but his adult daughter, Jackson, was the owner.  Aldridge’s nonownership of the Kia was “material either to acceptance of the risk, or the hazard assumed” by National Insurance. The Court of Appeal concluded that there existed a material misrepresentation in the application.

Aldridge averred that he did not personally complete the insurance application but that Oliver (the broker) had done so on a computer. Aldridge admitted that he did not read the insurance application but did sign the application. Viewing the facts most favorable to Broaddus, he asserts that Oliver actually inserted false information in the application as to Aldridge’s ownership of the Kia.

An applicant who signs an insurance application is put on notice of its contents and is responsible for the information contained therein. Statements written in the application by the local agent were actually or constructively known to the applicant the applicant may not thereafter repudiate the answers in the application and recover on the policy.  In short, whether they read the application or not, the Hornbacks are held to have actual or constructive knowledge of its contents. Further, by signing the application, the Hornbacks adopted the answers as their own. Therefore the circuit court properly determined that the Hornbacks had made misrepresentations that were material to the insurer’s acceptance of the risk and that there was no fact issue in this regard.

Aldridge is charged with having constructive knowledge of the contents of the application and cannot now attempt to repudiate the answers in the application and recover on the policy. The circuit court properly rendered summary judgment determining that Aldridge made a material misrepresentation as to ownership of the Kia in the insurance application, thus justifying National Insurance’s rescission of the insurance policy.


Broaddus also argues that National Insurance must provide him insurance benefits as an innocent third party.

In this case, the insurance policy involved was issued to Aldridge, who was not the owner of the Kia. This interpretation is also consistent with the policy and purpose of the MVRA. Had Aldridge owned the Kia involved in the accident that was driven by his daughter, the outcome of this case would be different. However, the circuit court was correct that Broaddus was not entitled to insurance benefits as an innocent third party.


Broaddus next maintains that the policy language in the insurance policy restricted National Insurance’s ability to rescind the policy for a material misrepresentation on the application and that National Insurance could only prospectively cancel the policy for a material misrepresentation in the application.

To begin, the terms “cancel” and “rescind” when used in conjunction with insurance policies have acquired recognized and particular meanings. Generally a rescission avoids the contract from its inception where a cancellation merely terminates the policy as of the time when the cancellation becomes effective. Cancellation of a policy operates prospectively while rescission, in effect, operates retroactively to the very time that the policy came into existence.

National Insurance was permitted to cancel the policy prospectively based upon a material misrepresentation by giving twenty days notice to Aldridge. The insurance policy is silent about rescission and the notice requirement does not apply to the equitable remedy of rescission.

National Insurance was not required to give twenty days notice prior to its rescission of the Kia’s insurance policy and that the insurance policy did not limit National Insurance’s ability to rescind based upon a material misrepresentation in application.


I once owned a custom automobile with limited production. My insurer cancelled the policy because it could not determine its value. I went to an agent of a direct writer who agreed to insure me against the loss of the vehicle an filled out the application for me with a statement that I had never been cancelled because he did not believe the cancellation was material. I, unlike Mr. Aldridge, forced him to change the application before I would sign it. I got the insurance anyway. It doesn’t pay to lie on an application and it is the duty of the insured to read the application and make sure its statements of fact are accurate.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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