You have bought a house and are applying for homeowner’s insurance. Or maybe you are switching companies to try to get a better deal. Everything is more expensive nowadays and insurance is no exception. To make matters worse, some companies charge a premium for certain risks or won’t provide coverage at all if you have things, like swimming pools or trampolines, on your property. The temptation is surely there to bend the truth a bit to save a few bucks, right? Before you go there, you need to understand that you may be risking coverage.
A recent decision is an important reminder of just how risky it can be if you are not truthful during the application process. In Nabatov v. Union Mutual Fire Insurance, 2022WL 852150 (2nd Dept 2022), the court upheld a long line of cases that might not make a lot of sense to the average homeowner. The case involved a homeowner that failed to disclose that there was a swimming pool on their property when completing the insurance application process. The homeowner was approved for coverage and an insurance policy was written. The homeowner dutifully paid the policy premiums when due. There was a fire which caused significant damage to the property. After the fire, the insurance carrier learned of the pool and denied coverage stating that there was a material misrepresentation made by the homeowner.
It might seem logical if there were a drowning on the property, but what does having a pool have to do with a fire? An insurance policy is nothing more than a contract. Both parties to a contract have a right to understand what it is that they are getting into and are entitled to the information they need to make an informed decision. If one side hides something important from the other, the party who did not have all of the information may be able to get out of holding up their end of the bargain. They can “rescind” the contract, effectively making it is as if the contract never existed.
In this case, the trial level court sided with the homeowner, but was reversed by the appellate level court called upon to review the trial court’s ruling. The Appellate Division of the Second Department determined the insurance company was entitled to rescission of the insurance policy based upon a “material misrepresentation” made by the homeowner. The appeals court noted that a material misrepresentation, even if innocent or unintentional, is sufficient to warrant rescission of an insurance policy.
Significantly, the insurance company won’t get out of coverage if the misrepresentation is minor. The insurance company must demonstrate that the misrepresentation is “material”. This usually amounts to the insurance company having to demonstrate that it would not have written the policy had it known the true facts, not just which it would have charged more by way of premiums. The court noted that the insurance company established that it’s underwriting guidelines provided that swimming pools were an unacceptable risk. If the homeowner had revealed the existence of the pool on the application, the insurance company would not have issued the policy.
Other issues that can make it difficult to get coverage, and therefore may be considered material misrepresentations if not disclosed, include “attractive nuisances” like trampolines, or failing to reveal that your home is vacant for extended periods of time. (See, Snowbirds Beware! Exclusions to Your Homeowners Policy Could Leave Your Home Uninsured | Rochester Law Firm – Lacy Katzen). Finally, failing to reveal that you have a dog or even fibbing about its breed can leave you without coverage. Many insurers will pass on homes with certain high risk breeds of dogs like Pit Bulls, Dobermans, and even German Shepherds. Telling the insurance company that your Pit Bull is a boxer mix may seem like a good idea, but know that such conduct may come back to bite you!
The risk of failing to disclose information is not limited to the application process. Some insurance carriers will send forms requesting updated information from time to time. Failing to be candid in your response, or failing to respond at all, may get you into hot water. There may also be a provision in your policy that requires you to notify the carrier of significant changes in your situation. If you have dug a pool, bought a trampoline or adopted a puppy, your best bet is to play it safe and advise the insurance company of your change in circumstances, preferably in writing. Otherwise, you may quite literally watch your dream home go up in smoke without any coverage.
If you need assistance with an insurance dispute, the attorneys at Lacy Katzen LLP may be able to help. An experienced insurance coverage attorney can help determine if you are being treated fairly. We have been helping families and business owners with insurance disputes for over 60 years. Please contact us for more information.
By Jacqueline Thomas, Partner