Rescission attempt fails: you can lie to an insurer in Illinois and still keep coverage.
Plaintiff Direct Auto Insurance Co. (DAI) filed an action seeking a declaratory judgment, arguing that: (1) an insurance policy it issued to defendant Elia Beltran was rescinded and null and void, ab initio; (2) that DAI owed no duties under the policy to any of the defendants; and (3) that defendants were not entitled to any recovery under the policy. DAI and defendant Acuity Insurance Company (Acuity), as subrogee of Alice Obermann, George Obermann, and Mark Obermann, filed cross-motions for summary judgment. The trial court granted Acuity's motion and denied DATs motion, finding coverage.
DAI appeals, and the appellate court in Direct Auto Insurance Co. v. Beltran, 1-121128 (111.App. Dist.109/27/2013) was called upon to resolve the dispute.
DAI is an insurance company. Elia Beltran (Elia), Mario Beltran (Mario), and Araceli Beltran (Araceli) are Illinois residents. Elia speaks limited English and her Spanish literacy is limited by the fact that she cannot write in Spanish.
DAI received an application for automobile insurance from Northwest Insurance Network, Inc. (NIN), an insurance broker. The application listed Elia as the applicant. The application lists Elia's gender as "M," despite Elia being a woman. The application states that Elia has an international driver's license. Elia testified in her deposition that she does not know how to drive an automobile. Elia owns a 2006 Ford Freestyle SE motor vehicle (the Elia vehicle). Elia intended that Mario, her brother, would use the Elia vehicle to drive her to and from work. Elia did not sign the application, and instead, the applicant signature lines bear the notation "T/O" (over the telephone). After receiving the application, DAI issued a policy of insurance to Elia (the DAI policy). The DAI policy covered bodily injury, property damage, medical payments, uninsured motorist, and physical damage.
Acuity is licensed to write insurance in the State of Illinois. Alice Obermann (Alice), George Obermann (George), and Mark Obermann (Mark) are Illinois residents. Acuity, as subrogee of Alice, George, and Mark filed a two-count complaint in the circuit court of Cook County, alleging negligence against Mario and negligent entrustment against Elia.
While Mario was operating it, the Elia vehicle caused property damages to Mark's vehicle and injuries to Mark requiring medical treatment. The complaint alleged that Elia was negligent.
DAI filed a declaratory judgment action, alleging that Elia made material misrepresentations in her application for insurance, and as a result, there was no coverage. The application listed Elia as a driver and she warranted that there are no other drivers. The application contains a paragraph stating that the applicant acknowledges that she has read and attests that all answers provided are true.
The trial court denied DATs motion for summary judgment.
Acuity, as subrogee of Alice, George, and Mark, filed a motion for summary judgment seeking a favorable disposition of its counterclaim for a declaratory judgment. Acuity also attached Elia's deposition, at which she testified to the following:
* Upon purchasing the vehicle, someone at the dealership informed Elia that the vehicle came with insurance.
* Elia does not know how to drive.
* She purchased the vehicle with the intent that Mario would operate it.
* Someone at the dealership asked Elia about whether other people in her household would drive the vehicle--she told the broker at the dealership that she didn't know how to drive and that her brother is going to drive the Elia vehicle and they said, "It's okay."
The Illinois Insurance Code establishes a two-prong test to be used in situations where insurance policies may be voided:
1) The statement must be false, and
2) The false statement must have been made with an intent to deceive or must materially affect the acceptance of the risk or hazard assumed by the insurer.
First, DAI asserts, without argument, that the first prong of the rescission test has been satisfied because Elia made a false statement. Elia herself indicated that the information in the application was false because she failed to disclose a licensed driver at her residence in addition to herself.
The appellate court, ignoring the facts as proved, concluded that the number of drivers covered under the policy is the same as the number of drivers disclosed by Elia: one. In effect, by conflating her testimony, the appellate court concluded Elia was given coverage for Mario for a non-owned automobile. It found that the discrepancy lies in the name of the insured driver. The application states that a male named Elia Beltran is the insured driver, when in fact (1) a male named Mario Beltran was the intended insured driver and (2) Elia is a female.
DAI argued, unsuccessfully, that Elias misrepresentations were material because the status, number and character of the persons who are likely to be driving the vehicle with the owner's permission are, by definition, relevant to the risk. However, Elias deposition repeatedly states that Elia cannot and does not drive, and that she purchased the Elia vehicle with the intention that Mario would drive it. Therefore, Elia's deposition indicates that there was only one driver in her residence. As a result, there was no misrepresentation that substantially increased the chances of the events insured against. The number of drivers likely to be driving the Elia vehicle was one. Since the number of drivers disclosed on the application matches the number of drivers who actually drove the Elia vehicle, any misrepresentation by Elia was found to be not material because she did not misstate the number of regular drivers of the Elia vehicle.
DAI also argued that, although the factual allegations of the complaint have not been admitted against Acuity and the Obermanns, the factual allegations have been admitted against Elia and Mario. The appellate court refused to treat the factual allegations of a complaint as "evidence" which under DATs reasoning would be to place an improper burden upon non-defaulting defendants. Nondefaulting defendants would be subjected to a higher burden as a result of the conduct of the defaulting defendants, which is out of the control of nondefaulting defendants.
The trial court further found that if the application had included Mario's name instead of Elia's, Mario would not have been required to disclose that Elia lived in the residence with him because she was not a licensed driver, according to the application form questions. The trial court found no evidence of any indicators that insuring Mario would have negatively affected DAI's risk, such as a bad driving record. There was no such evidence in the record.
DAI was deceived. It insured Elia based on her application that falsely stated she was the only driver and had an International driver's license. There was no question that Elia could not drive nor did she read, write or speak English nor did she read or write Spanish, her native language. DAI failed to show that Mario, her brother, who actually drove the Elia vehicle, was not a person they would have insured.
This is a rescission that should have been granted. It was not granted because of a judicial need for "fairness" and because of the failure of DAI to present sufficient evidence to prove that it was deceived and that had she told the truth the policy would never have been written to cover Elia for the ownership of the Elia vehicle nor the liability of Mario when he was operating the vehicle.
The court did justice. Whether it applied the law is a question I cannot answer because I have never been appointed as an appellate justice. The decision seems to allow a person who intentionally or negligently defrauded DAI to profit from the lie and obtain the liability coverage that was never requested.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ ZalmaLibrary. The new books are Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma's book "The Insurance Fraud Deskbook" available at http://shop.americanbar.org/eBus/Stor e/ProductDetails.aspx?productld=2146 24, or 800-285-2221 which is presently available.
Mr. Zalma's e-book, "Zalma on California Claims Regulations--2013 explains in detail the reasons for the Regulations and how they are to be enforced; "Rescission of Insurance in California --2013;" "Random Thoughts on Insurance" a collection of posts on this blog; "Zalma on Diminution in Value Damages --2013,""Zalma on Insurance," "Heads I Win, Tails You Lose," "Arson for Profit" and others that are available at www.zalma.com/zalmabooks.htm. Mr. Zalma reports on World Risk and Insurance News' web-based television programing, http://wrin.tv or at the bottom of the home page of his website at http://www.zalma.com.
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|Title Annotation:||ON MY RADAR|
|Date:||Nov 22, 2014|
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