On April 30, 2009, the Tennessee Court of Appeals issued yet another opinion on the topic of misrepresentations on insurance applications. The case is Tennessee Farmers Mut. Ins. Co. v. Farrar (view slip opinion here).
First, it should be noted that T.C.A. 56-7-103 provides that a misrepresentation on an application voids the policy if (1) the misrepresentation was made with actual intent to deceive, or (2) the misrepresentation increases the insurance company’s risk of loss. Over the years, Tennessee courts have applied this statute on numerous occasions, and have held that a misrepresentation increases the insurance company’s risk of loss when it is of such importance that it "naturally and reasonably influences the judgment of the insurer in making the contract."
In Farrar, the insured indicated on his application for insurance that he was the only person with an ownership interest in the property. It turns out that another individual (who happened to be a disabled person with a history of alcoholism and mental illness) had a life estate in the insured property and lived with the insured. Relying on prior case law holding that misrepresentations as to the title of the property are sufficient to void a policy and the fact that the insurer "never had an opportunity to ask [the insured] questions so it might evaluate the risk associated with the dual ownership interests," the court held that the misrepresentation increased the insurer’s risk of loss and affirmed the trial court’s ruling that the policy was void.
The result in Farrar was really no surprise. However, what would have happened if there were no misrepresentations on the application and the life estate had been granted after the application was submitted? We will find out soon – I presently have a case on appeal in which the insured lived at his Chester County home for 20 years, but conveyed it to his son before a fire. Despite the conveyance to his son, he continued to live at the house, maintained it, and treated it as his own in all respects. There was no provision in the policy that required the insured to notify the insurance company if title to the property changed. My client (the insured) won at the trial court level, and the case is presently on appeal. The issue there will be one of insurable interest, which is another topic altogether. Look for an opinion toward the first of next year.