Misrepresentations and Voiding Insurance Policies: What is the Effect of Silence?

Interesting case out of the Massachusetts Appeals Court at the end of last month on one of the more difficult questions in insurance coverage law, which is when does an insured commit a misrepresentation in providing information to its insurer such that the policy should be deemed void. Lots of tricks and ins and outs on that one.

In the latest wrinkle, the insurer of a commercial auto policy sought to avoid coverage because the insured had never notified it, upon renewals of the policy, that the company for which the policy had originally been written had in fact been dissolved, and that, while the auto remained in use and listed under that policy, the company to whom the policy was issued was no longer in existence. The Appeals Court found that, absent actual inquiry from the insurer upon renewal into the question and a misrepresentation by the insured in response, the policy could not be voided for misrepresentation; the insured’s silence alone, without more, did not rise to actionable misrepresentation.

The court summed up the law in Massachusetts on misrepresentations and insurance policies, and extended it to the scenario presented by the case, as follows:  

Peter [the insured] does not dispute that he was required to provide accurate information in the original application for insurance and inform Quincy [the insurer] of any material changes that occurred between the time of the application and the inception of the policy. See Chicago Ins. Co. v. Lappin, 58 Mass. App. Ct. 769, 780 (2003) (applicant has duty to inform insurer of changes prior to inception of policy that render initial representations untrue). He also does not dispute that Quincy could have insisted on updated information at each yearly renewal of the policy, and that upon inquiry as to changes, he would have been obliged to answer honestly and accurately. However, he contends that where the policy did not impose such an obligation, and where neither Quincy nor Fair & Yeager [the insurance agent] requested such information nor conditioned renewal upon completion of an application or questionnaire, he was under no obligation to identify the matters that the insurer might deem material and notify it of such changes. Contrast Hanover Ins. Co. v. Leeds, 42 Mass. App. Ct. 54, 60 (1995) (insured's failure to disclose in renewal application that location of insured vehicle had changed concerned the calculation of risk at the time the renewal application was submitted).

Whether Peter's silence amounts to a misrepresentation turns on whether the obligation is one of inquiry by the insurer or sua sponte disclosure by the insured when neither a policy provision nor a renewal application or questionnaire requires such information of an insured. Does an insurer have a duty to identify and ask its insured for information that it deems material (relevant to the risks being underwritten during the period of insurance or renewal)? Or does the insured have a duty to identify what is material and notify the insurer of such changes from prior policy periods?

We conclude that, when neither a policy provision nor a renewal application requires the insured to provide updated information to the insurer, the insured's failure to do so is not a misrepresentation within the meaning of G. L. c. 175, § 186. In such circumstances, the onus is on the insurer to identify the information that it considers material and request from the insured updated information concerning any changes. Absent such obligation or request, the insured's silence is not a misrepresentation within the meaning of the statute.  

I am not sure I disagree with the court at all; it seems easy enough for an insurer to always ask at renewal even a broadly phrased question such as whether any facts at all stated on the initial application for coverage have changed, which should thereby place the onus instead on the insured to fess up facts such as those at issue in this case and allow the policy to be voided if the insured doesn’t do so. On the other hand, if the insured actually had any reason to know that the information in question would be relevant to the insurance company, but didn’t disclose it, I am hard pressed to understand why that type of active and knowing decision not to disclose should not void the policy. Perhaps the tipping point on this issue is in the fact that this case involved an auto policy, and not some other form of coverage. There is an extent to which auto policies really exist for the benefit of the public at large placed at risk by the automobile, rather than for the benefit of the insured himself, who can protect his assets through umbrella policies and other avenues; the mandatory nature of auto coverage is there to make sure that those injured have recourse to insurance benefits of the tortfeasor, and perhaps making it easier, rather than harder, to void such policies would run opposite of that public interest.

In any event, the case is Quincy Mutual Fire Insurance Co. Vs. Quisset.