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Court News Ohio

Auto Policy Can Be Cancelled If Policyholder Misstated Information When Applying

Nationwide Insurance’s warning to a Mahoning County auto policyholder that making a misstatement in the application could result in cancelling her policy was sufficient to void the policy and not cover an accident caused by her sister, the Ohio Supreme Court ruled today.

In a 6-0 decision, the Supreme Court ruled that Nationwide made it clear in the policy issued to Diane Lapaze that the information she provided about “other operators in the household” was a warranty, which “if incorrect, could void the policy from the beginning.”

Writing for the Court, Justice Michael P. Donnelly stated the Court had ruled previously that an insurer can only void a policy based on misstatements in the application if it specifically warns the applicant of the consequence when issuing a policy. He wrote that Nationwide’s policy plainly explained that the information in the application would become part of the policy and warned of the consequences of making a misstatement about other drivers.

Justice Patrick F. Fischer did not participate in the case.

The decision reversed the Seventh District Court of Appeals, which found the phrase “could void the policy” too ambiguous to decline coverage for Lapaze after her sister, Barbara Pusser, caused a fatal accident when driving Lapaze’s car.  The Supreme Court held the “nonmandatory nature” of the word “could” does not change the fact that  Nationwide warned that a misstatement in the application voids the policy from the beginning.

Sister Hits, Kills Pedestrian
When Lapaze applied for auto insurance from Nationwide Mutual Fire Insurance Company, Pusser lived with Lapaze. The application that Lapaze submitted to Nationwide indicated that she was the only member of her household; neither Pusser nor any other person was listed as a member of Lapaze’s household. Under the terms of the Nationwide policy, the information in the application was incorporated into the policy. 

On August 13, 2012, Pusser was driving the car covered under the policy in Youngstown when it struck a pedestrian, Robert D. Boak, who died as a result of the accident. Lapaze sought coverage for the accident. Boak’s estate and another driver sought compensation from Lapaze’s insurance policy.

In 2014, Nationwide sought a declaratory judgment from the Mahoning County Common Pleas Court, claiming that it had issued the policy based on the information in Lapaze’s application. Because of Lapaze’s misstatements, the policy was void from the beginning and it did not have to cover the accident, the company stated. The trial court granted summary judgment to Nationwide, finding that the misstatements were a breach of warranty that voided the policy.

Boak’s estate appealed the decision to the Seventh District. The Seventh District reversed the trial court’s decision, determining that under the Ohio Supreme Court’s 1971 Allstate Ins. Co. v. Boggs, decision, the Nationwide policy’s terms did not “ ‘clearly and unambiguously’ ” indicate that Lapaze’s misstatements could void the policy.

Nationwide appealed the Seventh District’s decision to the Supreme Court, which agreed to hear the case.

Policy Terms Warned Applicants of Consequences
The Court explained that its Boggs decision addressed whether responses to questions on the insurance applications are “representations,” which do not lead to consequences, or “warranties” that do. The Court found in Boggs that representations made by the applicant are warranties only if the insurance company makes that expressly clear to the applicant.

The Court notes that Nationwide appeared to have addressed the issues in Boggs by informing applicants that the representations they make in the applications are warranties and are part of the policy when a policy is issued. The policy indicates that misstatements by the applicant can void the policy from the beginning.

The opinion noted that the Seventh District appears to be persuaded “by the on-its-face nonmandatory nature” of the word “could.”  The Supreme Court found the use of the “could” did not change Nationwide’s right to void the policy. The Court also cautioned that today’s decision does not mean an insurance company must void a policy or that a breach of a warranty automatically cancels a policy.

Insurer Not Obligated to Cancel Policy before Turning to Court
The Seventh District also faulted Nationwide for not voiding Lapaze’s policy and returning her premium before filing for a declaratory judgment from the trial court.

The Supreme Court stated Nationwide had the right to seek a court judgment noting that under R.C. 2721.03, a party to a contract can bring a declaratory judgment action to obtain a binding judicial interpretation of the agreement.

The Court also stated that requiring Nationwide to void the policy and return the premium before seeking a declaratory judgment “would likely have served no purpose and been uneconomical.”

Such a requirement would leave an insured without insurance during the time a decision on the judgment was pending. But once an insurance policy has been judicially declared void, an insurer can return any premium that the insured paid on the policy, the opinion concluded.

2018-1137. Nationwide Mut. Fire Ins. Co. v. Pusser, Slip Opinion No. 2020-Ohio-2778.

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