Beware! Review Your Insurance Policy
A tragic but increasing trend among insurance companies is the rescission of your insurance policy after you have suffered a loss. This vile process by the insurance companies is also known as “post loss underwriting.” A typical policy rescission occurs as follows:
A fire occurs and the insured’s property is burnt to the ground. The property is a total loss and thankfully, the insured purchased $500,000 in coverage for just such an event. The insurance company investigates the loss and examines the insured’s application for insurance which was filled out years before the loss. The insured receives a letter in the mail which states “regrettably, we cannot afford coverage for your loss. Your policy has been rescinded due to your misrepresentation in the application which was material to the risk insured. You stated in your application that you have not had a lien filed against you in the last 5 years. Our investigation reveals that you did in fact have a lien filed against you. Therefore, your policy is void from its inception.”
The insured contacts the insurance company and explains that she did not know there was a lien filed against her. The insurance company explains that it does not matter whether or not she knew there was a lien since she signed a “Warranty” statement on her application whereby she guaranteed the insurance company that there were no misrepresentations in the application, regardless of whether she knew about the lien or not.
The end result is harsh and, unbelievably, is perfectly legal. To date, the Florida Department of Financial Services and our State Legislature refuse to prevent this type of injustice. There is no obligation imposed upon insurance companies to investigate representations in the application for insurance.
The only time an investigation into applications occurs is after the loss occurs. What does a lien have to do with the risk of insuring a house? Nothing! However, the insurer will swear out an affidavit from their underwriter stating that the misrepresentation was material to binding the risk and they would not have issued the policy had they known the truth.
So what can an insured do? Challenge the insurance company’s rescission or pursue a claim against the insurance agent. In the first instance, the insurance company must prove that they would not have issued the policy or would have charged more for the policy if they had known that the answer to the lien question was incorrect.
Many times, the insurer’s rescission can be challenged in court. For instance, if the application does not contain a warranty provision, the statutory provision only requires that the insured is making statements on the application to the best of their knowledge. Fortunately, this standard is more lenient and forgiving.
Some examples of potential misrepresentations in the application that may result in policy rescission:
- Not disclosing prior policy cancellations, non renewals or existence of other policies;
- Not disclosing ownership of other properties;
- Stating that the property is your primary residence (this occurs many times where the purchaser of the property is a “straw buyer” for a family member and the insurance is placed in the name of the non-resident owner as required by the lender);
- Stating that you have a smoke and burglar alarm monitored by a monitoring company when you don’t;
- Stating you have completely renovated your roof, electrical, plumbing and heating systems when you haven’t;
- Stating that you have never been arrested for a DUI when you have;
- Stating that you have never been arrested or convicted for an arson offense when you have;
- Stating that you have never filed for bankruptcy or stating you have never had a foreclosure when you have;
A complete illustration of all the possible misrepresentations is exhausting and the ones listed above are only a few examples. We urge you to review your application for insurance with care. Contact your insurance agent and request a copy of your application. Review it thoroughly and revise any misrepresentations. Don’t wait until a loss occurs. Additionally, don’t rely on your insurance agent’s verbal assurances that your application does not require review.
If you have a problem involving policy rescissions of insurance policies covering your residential or commercial property, please don’t hesitate to contact us Miami Insurance Attorney James C. Ligman PA. Let our years of experience in all aspects of first person property insurance litigation work for you.