INSURANCE: Rescission of insurance contract based upon false statement on application: RUDOLPH v. SHELTER INSURANCE COMPANIES (COA 9/5/2008)

INSURANCE:  Rescission of insurance contract based upon false statement on application


CLAYTON, JUDGE: Trial court granted summary judgment in favor of insurer seeking to rescind homeowner’s insurance policy based upon misrepresentation in the insurance application.  The COA found a genuine issue of material fact existed and vacated and remanded back to circuit court for further proceedings.

The insurance claim arose from a fire that destroyed the home of Mr. Rudolph and Ms. Potter. On the insurance application completed by Rudolph was the question –  "Have you or any member of your household ever been convicted of or plead guilty to a felony offense?”  In addition the applicant acknowledged in the application that he understood that "if Shelter discovers information contrary to that which has been provided, the policy may be voided, to the extent permitted by law, and if voided absolutely no coverage may exist.”  It was learned after the claim was filed that the applicant had a prior drug conviction.
Although the trial court denied summary judgment on the basis that Shelter made no showing that the misrepresentation by Mr. Rudolph on the application was material to the acceptance of the risk, or to the hazard assumed by the insurer as required by Kentucky Revised Statutes (KRS) 304.14-110, it did grant Shelter’s motion for summary judgment finding that Mr. Rudolph’s insurance contract with Shelter was void as a matter of law.

KRS 304.14-110 provides in its entirety: "All statements and descriptions in any application for an insurance policy or annuity contract, by or on behalf of the insured or annuitant, shall be deemed to be representations and not warranties."  Misrepresentations, omissions, and incorrect statements shall not prevent a recovery under the policy or contract unless Mr. Rudolph made a misrepresentation when he signed the statement accepting the answers as his own without thoroughly reading the statement or being asked the questions orally by the agent.

Mr. Rudolph argues the false answer was not a misrepresentation that would justify rescinding the insurance policy because the agent for Shelter never asked him whether he had been convicted of a felony and he did not fill out the answers on the insurance application.
Further, Mr. Rudolph asserts the answers were not his misrepresentation because he only signed the application in a perfunctory manner without reading the contents. In support of this argument, Mr. Rudolph cites to the decision in Ketron v. Lincoln Income Life Insurance Company, 523 S.W.2d 228 (Ky. 1975).
        In Ketron, this Court held an insurance company liable for an application containing false answers because the applicant fully revealed her condition to the agent, and “did not know the application contained false answers."   In Cook v. Life Investors Ins. Co. of America, 126 Fed. Appx. 722, 725 (6th Cir. 2005), the Court noted, “the presence of a material misrepresentation in [the insured’s] insurance application does not compel a judgment in favor of [insurer] if a reasonable jury could find (1) that [insurance agent] wrote the false answer to Question 2 and (2) that [the insured] signed the application in good faith.”
In sum, the COA found that the jury must decide who was the source of the “NO” answer to Question 1 on the applicant’s statement and whether Mr. Rudolph was aware of that false answer when he signed the application.
        Digested by Michael Stevens



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