A Florida district court recently granted summary judgment in favor of an insurer, allowing it to rescind a general liability policy because the insured knowingly made misrepresentations on the insurance application. Scottsdale Ins. Co. v. Wave Tech. Commc’n Inc., No. 8:07-cv-1329-T-30MAP (M.D. Fla. Oct. 23, 2008). The court rejected the insured’s argument that the insurer had waived its right to rescind by having actual or imputed knowledge of the misrepresentations and failing to exercise due diligence during the underwriting inquiry.
In Scottsdale, the insured indisputably misstated the character and nature of its business on an insurance application. The insured had accurately described its business operations in its application for a prior policy from the same insurer, which had been cancelled. However, in the application for the second policy, the insured misrepresented its company as a new venture with no prior loss history, and falsely stated that it was a surveying company and did not perform construction services. In actuality, the insured had a loss history and had contracted to complete a major excavation and underground construction. If the insurer had been aware of the misrepresentations, it either (i) would not have issued the policy, (ii) would have issued a policy that did not cover the hazard that caused the loss or (iii) would have charged a different premium.
After the second policy was issued, one of the insured’s employees caused a project site accident, killing one person and severely injuring another. The insurer filed a declaratory judgment action seeking to rescind the policy pursuant to section 627.409, Florida Statutes, based on the insured’s misrepresentations in the application. The insured countered that the insurer had waived its right to rescind because it had actual or implied knowledge of the insured’s misrepresentations from the application for the prior policy and the insured’s broker, who allegedly advised the insured to lie on the application.
The district court granted summary judgment for the insurer. The court held that an insurer is entitled to rely on the representations an insured makes, and need not check its files, unless something calls the accuracy of the representations into question. Notably, the insured did not allege that anything in the application would have drawn attention to the misrepresentations or called for further inquiry.
The court also found that whether the insurance broker had encouraged the insured to lie was immaterial because the insured’s misrepresentations would not be imputed to the insurer unless the broker were the insurer’s agent. The insured’s conclusory statement that the broker was the insurer’s agent would not overcome the rebuttable presumption that an insurance broker is the agent of the insured, unless the insured could prove an “indicia of agency” between the broker and the insurer.
The insured appealed the order to the U.S. Court of Appeals for the Eleventh Circuit.