A federal court in Tennessee found a policy void due to the insured’s misrepresentation in the policy application. Mount Vernon Fire Ins. Co. v. Liem Constr., Inc., 2017 WL 1489082 (M.D. Tenn. Apr. 26, 2017).
The insured submitted an application for insurance that asked whether the insured had ever been identified by a different name and what classifications of work the insured performed. The insured indicated that the corporation had no other name (although the corporation was previously identified under a different name) and that the construction work was related only to carpentry and painting and did not include roofing work (even though the insured did roofing work). Subsequently, the insured subcontracted to perform certain improvements, including roof repairs, to residential apartments. The roofing work was defective and resulted in property damage to the apartment buildings. The property owner sued the insured, and the insured tendered the claim to its insurer. In ensuing coverage litigation, the insurer moved for summary judgment that it had no duty to defend or indemnify based on the insured’s misrepresentations regarding its prior name and classifications of work, arguing that both misrepresentations unfairly increased the insurer’s risk of loss and should result in the voiding of the policy.
The court granted summary judgment for the insurer, finding that the insured’s misrepresentation that it did not do roofing repairs was sufficient to void the policy. The court noted that under Tennessee law, a misrepresentation is held to increase the risk of loss if the misrepresented information naturally and reasonably influenced the judgment of the insurer in making the contract. The court dismissed the insurer’s argument that the insured’s misrepresentation as to prior names deprived it of information related to previous losses which may have affected its decision to make a fair appraisal of the risk, finding the mere potential to discover hypothetical information was not sufficient to void the policy. However, it found that the misrepresentation that the insured never performed roofing work misrepresented a fact plainly relevant to the possibility of roofing-related liability.