Yesterday I wrote about the February 2011 landmark decision of the Tennessee Supreme Court in Morrison v. Allen. There was one relatively minor point concerning an alleged misrepresentation in an application that grabbed my attention. In Morrison, the insurance company denied Ms. Morrison's claim for life insurance benefits based on alleged misrepresentations of her husband in his application for insurance. Specifically, the application asked, "In the past five years, have any proposed insureds been charged with or convicted of driving under the influence of alcohol or drugs or had any driving violations?" The insured answered, "No."
The alleged misrepresentation arose from the insured's conviction for driving while impaired ("DWI") a couple of years prior to the submission of the application. On first glance, it might appear clear that failure to disclose the DWI would constitute a material misrepresentation based on the language of the question in the application. But not so fast. The Supreme Court affirmed that the insured's response was technically correct because he was convicted of DWI, which is a separate offense from driving under the influence.
Although this particular issue was literally just a footnote in the very lengthy opinion, it might come in handy one of these days for the unfortunate soul who finds his claim denied as a result of an undisclosed DWI.
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.