In a time of both increasing numbers and severity of claims, many insurers are responding by focusing on statements made in applications to determine whether grounds exist to deny coverage. In those instances in which coverage is denied due to a misrepresentation in the application for insurance, insureds often look to blame either their broker or the insurer's agent, claiming it was their respective responsibilities for having incorrect information. Such claims typically take three forms:
- The insured claims that they supplied the correct information but the broker or the insurer's agent improperly recorded it;
- The insured claims that their broker or the insurer's agent told them to put down the incorrect information; or
- The insured claims that as a result of the failure of the broker or the insurer's agent to request the information or explain exactly what information was being requested, incorrect or incomplete information was provided.
Depending upon which theory is espoused, and against whom the defense is raised (the broker or the insurer's agent), these claims have varying degrees of success under Massachusetts's law.
Historically, claims that information was incorrectly recorded were of little help to the insured if the insured signed or ratified those errors in an application.1 However, current case law has provided more flexibility to the insured in pursuing these claims. The most recent trend in Massachusetts is to allow the insured to shift responsibility for the correct completion of an application where such completion is undertaken in substantial part by the agent or broker.
The focus of these claims is on the information provided by the insured. In general, if the information provided by the insured to the agent or broker is incorrect, responsibility rests with the insured.2 As a result, claims by an insured that they provided incorrect information merely because the agent or broker failed to explain a question or the "significance" of an answer are typically unsuccessful. Conversely, where the insured does provide correct information to the broker or insurer's agent who then incorrectly completes the application, the insured can be successful in a claim against the insurer or broker. 3
As a result, the key question in these instances is who was the source for the incorrect information. Absent an admission by one side or the other, this is typically a question of fact to be determined at trial.4 For example, where an agent receives correct information from an insured, but records the information incorrectly on an application and then falls to have the insured verify the information before signing the application, an insurer issuing a policy based on that application cannot avoid providing coverage to the insured.5
Similarly, a broker can be held liable to either an insured or an insurer for submitting an application for insurance containing incorrect information, even where the insured is complicit in the misrepresentation. Central to such claims is the issue of the broker's knowledge of the inaccuracy. For example, where a broker knew, or reasonably should have known, that the information in the application was incorrect, and that disclosure of truth would have led insurer to reject the application, the broker may be liable to the insurer for damages, including multiple damages under the Massachusetts Consumer Protection Act, G.L. c. 93A.6 Alternatively, where the broker merely conveys false information provided by the insured, there is no liability.7
The responsibility for a failure to obtain complete or correct information can also be extended to the insurer itself In a recent Massachusetts Appeals Court case, an insurer Sought to deny coverage for an automobile accident because the policyholder, a New York Corporation, had been dissolved and the vehicle had been insured under a commercial auto policy. The Superior Court sided with the insurer, but the Appeals Court reversed that decision. While agreeing that the insurer had incorrect information about the insured at the time of the loss, the Appeals Court also stated that the fault for that inaccurate information rested with the insurer. That was because despite having the ability to do so, the insurer did not request or require that the insured provide updated information when renewing the policy annually. The Appeals Court further stated that absent such a request, an insured does not have a duty to inform the insurer of changes in the information on their original insurance application.8 This is in contrast to instances where the insured fails to provide updated information to an insurer which has requested such information. In those instances, denial of coverage has been affirmed.9
In instances where insurance coverage is denied based on an insured's response to a question in their application, insurance professionals are increasingly finding themselves in the unenviable position of trying to prove that they are not responsible for the content of that application. Accordingly, as with most claims relating to insurance agents and brokers, documentation is critical. While an agent or broker may wish to assist a prospective client by completing an application on their behalf, doing so comes with some potentially significant pitfalls. Even transcription of an insured's handwritten responses onto a typed form can result in claims. As such, not only is it important for insurance professionals to have insureds verify that they have reviewed the information contained in their applications for insurance and that such information is accurate and complete, but also that they have not relied on the insurance professional in determining what information to provide.
1. Sullivan v. Manhattan Life Ins. Co. of New York, 626 F.2d 1080 (1st Cir. 1980) (An applicant who signed an application in blank and allowed the agent to fill in the necessary information was bound by the information contained in the application).
2. John Hancock Mutual Life Ins. Co. v. Schwarzer, 354 Mass. 327 (1968).
3. Sullivan v. John Hancock Mutual Life Ins. Co., 342 Mass. 649 (1961) (Where an insured had signed an application for insurance in blank and given truthful answers to an examining physician but the physician had recorded incorrect answers in the application, an insurer was not permitted to declare a policy void and decline coverage). Gurrier v. Commerce Insurance Company, 66 Mass. App. Ct 351 (2005) (Where an insured signed an application in blank, they were not liable for misstatements on the application inserted by the insurer's agent).
4. Sullivan v. John Hancock Mutual Life Ins. Co., 342 Mass. 649, 651-654 (1961); James H. Boyle & Son, Inc. v. Prudential Ins. Co. of America, 359 Mass. 191 (1971).
5. Dunigan v. Boston Mut. Life Ins. Co., 2000 Mass. App. Div. 1 (2000), citing John Hancock Mutual Life Ins. Co. v. Schwarzer, 354 Mass. 327 (1968).
6. St. Paul Surplus Lines Ins. Co. v. Feingold & Feingold Ins. Agency, Inc., 427 Mass. 372 (1998).
7. Liquor Liability Joint Underwriting Association of Massachusetts v. AIM Insurance Agency, 55 Mass. App. Ct. 715 (2002).
8. Quincy Mutual Fire Ins. Co. v. Quisset, 69 Mass. App. Ct. 147 (2007).
9. Hanover Ins. Co. v. Leeds, 42 Mass. App. Ct. 54 (1995) (In which denial of coverage was upheld where an insured failed to disclose in a renewal application that the location of the insured vehicle had changed).
This article originally appeared in The Standard (http://www.spcpub.com/article.cfm?id=1073).