Prof. Bill Long 1/11/06
When a State Statute is Involved
The previous essay probed the issue of misrepresentation or concealment on an insurance application from the perspective of the common (judge-made) law. This essay presents a case where the same issue is at stake but from a jurisdiction that has a statute on the issue. In addition, this case was only decided three weeks ago (Dec. 20, 2005), so you see that the issue is very much a "live" one. As a matter of fact, when I did a Westlaw search of "misrepresentation" /s "insurance application" under all state cases, I turned up more than 600 cases. In contrast to the previous essay, however, the court (in this case the OK Supreme Court) focused exclusively on the legal definitions in the statute.
Scottsdale Ins. Co. v Tolliver (2005 WL 3470044; Ok, 2005)
The only fact of relevance is that the Tollivers were denied coverage by their insurer after a fire when the insurer discovered that the Tolliver's had not disclosed previous compensable losses on their application for homeowner's insurance. Like the Vlastos case, this one was brought in federal court (ND OK), and the court certified a question to the OK Supreme Court. That question was:
"Whether Oklahoma law requires a finding that the insured intended to deceive the insurer before a misrepresentation, omission, or incorrect statement on an insurance application can serve as a ground to prevent recovery under the policy pursuant to Okla. Stat. Tit. 36 § 3609."
Though the OK Supreme Court ultimately declined to answer the question, because it didn't comport with the requirements of the Uniform Certification of Questions Act, in fact the court did respond to the question. Let's first present the OK statute and then the Sup Ct's response.
The Oklahoma Misrepresentation Statute
Adopted in 1957, the statute provides:
"A. All statements and descriptions in any application for an insurance policy or in negotiations therefor, by or in behalf of the insured, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy unless:
1. Fraudulent; or
2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or
3. The insurer in good faith would either not have issued the policy, or would not have issued a policy in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or otherwise," 36 O.S. Sec. 3609.
The statute is interesting in light of the Vlastos case, because it (the statute) eliminates the common law distinction between warranties and representations. Thus, every statement made by an applicant for a policy (and, by extension, every so-called warranty in an Endorsement--such as in Vlastos) would be a representation and would not necessarily have to be complied with strictly. Recovery would only be prevented if one of the three conditions listed was present.
But the question then arises: How do you construe the statute? It talks about "misrepresentations" and "concealments" and "omissions" and "incorrect statements" being enough to prevent recovery if they were material or fraudulent. What level of deception, however, is required to trigger a "misrepresentation"?
The court was ready with an answer. It cited its first case decided under the statute (Mass. Mutual Life Ins. Co. v. Allen, 416 P2d 935 (1965), in which an insurer sought to cancel a life insurance policy because the insured gave incorrect statements to the agent about a biopsy he had undergone. The agent admitted, however, that he had put down a wrong answer on the insurance application. Nevertheless, the insurer argued that it was entitled to judgment as a matter of law because the insured's misrepresentations, omissions, concealments of facts and incorrect statements violated all three subsections above. The court sided with the beneficiaries and defined the statute's terms to require "intent to deceive" on the part of the insured. Thus, for example, misrepresentation (the first term in the statute) could be defined as:
"a statement as a fact of something which is untrue, and which the insured states with the knowledge that it is untrue and with an intent to deceive, or which he states positively as true without knowing it to be true, and which has a tendency to mislead, where such fact in either case is material to the risk." (quoting 29 Am.Jur., Insurance at § 698.)
It similarly defined the other three terms.
Thus, we see that in OK, even with a statute that provides several grounds for rescission of an insurance contract, the court has substantial room to define the basic terms that trigger rescission. In OK, as in many states, the terms are defined in an "insured-friendly" way.
Copyright © 2004-2007 William R. Long