Insurer May Deny a Claim When Insured Lies on Application
Rescission Requires Return of Premium Denial of Claim Does Not
Cesar Benitez appealed the trial court’s entry of final summary judgment in favor of Universal Property and Casualty Insurance Company (“Insurer”) in a first-party property insurance dispute over a water damage claim.
In Cesar Benitez v. Universal Property And Casualty Insurance Company, No. 4D21-3281, Florida Court of Appeals, Fourth District (October 12, 2022) the Court of Appeals was asked to interpret a statute and the policy wording.
In his application for a policy with Insurer Benitez reported no previous losses on his property. However, after Benitez filed a claim for new damage, Insurer’s inspector found signs of pre-existing damage and repairs. Insurer denied Benitez’s claim but continued to collect premiums from him for several years. Benitez then sued for breach of contract, and Insurer asserted an affirmative defense based on section 627.409, Florida Statutes (2019). The statute provides:
(1) Any statement or description made by or on behalf of an insured or annuitant in an application for an insurance policy or annuity contract, or in negotiations for a policy or contract, is a representation and not a warranty. Except as provided in subsection (3), 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 to the acceptance of the risk or to the hazard assumed by the insurer. § 627.409(1)(a), Fla. Stat. (2019) (emphasis added).
Additionally, Insurer’s policy allowed denial of coverage if Benitez “[i]ntentionally concealed or misrepresented any material fact or circumstance; (2) [e]ngaged in fraudulent conduct; or (3) [m]ade material false statements; relating to this insurance.”
The Insurer also moved for dismissal based on fraud on the court or, in the alternative, for summary judgment pursuant to section 627.409 based on material misrepresentations.
At a hearing on that motion, Benitez did not dispute his failure to disclose the prior claim in both his policy application and discovery responses to interrogatories and sworn statements in his deposition. Benitez instead argued the Insurer could not claim rescission as an affirmative defense because the Insurer had continued to collect premiums from him for approximately two years after learning of the prior undisclosed claim. The Insurer contended it sought only to deny coverage under section 627.409 and not to rescind the policy.
The trial court held that no genuine issue of material fact existed as to whether Benitez’s failure to disclose the prior claim on his policy application or in discovery amounted to material misrepresentations such that the claim could be denied under the policy provisions and section 627.409.
While section 627.409 provides that an insurer may seek rescission of a policy, the plain language of the statute alternatively allows for an insurance provider to deny coverage of an individual claim. When the statute is clear and unambiguous, courts will not look behind the statute’s plain language for legislative intent or resort to rules of statutory construction to ascertain intent.
The Insurer’s affirmative defense was based on the statute, and the Insurer made clear at the summary judgment hearing that it was not seeking rescission of the policy pursuant to the statute but was instead seeking the alternative remedy of denial of the claim.
The trial court properly granted summary judgment on Insurer’s denial of coverage of Benitez’s claim based on material misrepresentations.
An appellate court may affirm a trial court’s decision so long as there is any basis which would support the judgment in the record. As a result, the appellate court did not need to determine whether a basis existed for denying the claim founded upon fraud on the court.
Rescission is an equitable remedy whereby both parties to the contract of insurance are put back into the position they were in before the policy came into effect and treats the insurance as if it never existed. An insurer who rescinds must return the premium. However, by the terms of the policy, and Florida statutes, if the insured lies about material facts the insurer may simply deny the claim and leave the policy in force. As my mother, rest her soul, told me often: “Liars never prosper.” This case proved her right.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
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