YOU HAD BETTER READ THAT INSURANCE APPLICATION BEFORE YOU SIGN IT.
YES, SIREE. BUT NOT ALWAYS.
This point was brought home by the 8th Circuit in the case of Metropolitan Prop. and Cas. Ins. v. Calvin, 802 F.3d 933 (2015). There, Calvin’s house burnt down. He collected insurance and rebuilt on the same land. When the second house was finished, he sought coverage from his original insurer, State Farm. The agent told Calvin that renewal from State Farm seemed unlikely due to the prior fire. So Calvin sought coverage from Metropolitan.
Calvin’s agent filled out the Metropolitan form for insurance. Calvin provided the answers verbally. The agent asked if Calvin had any previous fires and Calvin answered “yes.” However the agent mistakenly checked the box “no.” Then….wait for it, wait for it….another fire occurred shortly after the policy was issued.
Metropolitan investigated and suspected arson. Metropolitan also discovered Calvin’s misrepresentation on the policy where he denied any previous fire claims. Metropolitan filed a declaratory judgment suit, alleging that Calvin’s misrepresentation voided the policy. Metropolitan also argued that Calvin made other statements in the policy that also were not true, such as denying that he had been rejected by another insurer when State Farm had indeed refused to renew, and at least ten other material misrepresentations in his application form.
Calvin argued that he did not make the errors, the agent did. Nonetheless, the district court found that the misrepresentations voided the policy – regardless of who made them. Calvin signed the application. It contained a statement that said “I have read this document and the information in it is true.” Under Arkansas law, which applied here, any person who signs a document is bound under the law to know its contents. Id. at 937. The district court granted summary judgment to Metropolitan, the insurer. Calvin appealed.
Not so fast, the 8th Circuit said. Even though a person is bound to know and understand those documents which they sign, there are some exceptions under Arkansas law. One relates to insurance. “(W)here an insured signs an application which was prepared by an insurance company’s agent, and a conflict in the evidence arises as to whether an error on an insurance application was caused by the fraud, negligence or mistake of the agent, a question of material fact is presented which precludes entry of summary judgment.” Id. at 937.
This rule is not without its own controversy. Three Arkansas judges dissented in the controlling opinion that was cited by the 8th Circuit. They stated that “the effect of today’s opinion is that any applicant for insurance can now renege on any statement in his or her application by simply saying: ‘I was never asked that question’ or ‘I did not read that application.’ All an insured has to do is make either of those declarations, and the matter will automatically be sent to trial.” Id. at 938 quoting Neill v. Nationwide Mutual Fire Inc. Co., 139 S.W.3d 484, 489 (2003).
In urging the 8th Circuit to ignore the Neill rule and to uphold the summary judgment for the insurance company, Metropolitan argued that Calvin made many errors on the application. Another significant error was Calvin’s denial that his insurance application had been rejected by another insurer. State Farm had denied him coverage, Metropolitan said. But the Court found that this was not entirely true. Instead, Calvin’s agent advised him against seeking coverage from State Farm – which is not the same as an express denial of insurance coverage. Id. at 938. In any event, Metropolitan argued, the cumulative effect of all of Calvin’s errors on his Metropolitan application makes them all collectively material, sufficient in size and scope to render the policy void. Id. at 939.
The 8th Circuit agreed. In part at least. It said that this may be true; but if it is, then both parties have a right to present this evidence to the trial court for a full determination on the merits. It is not acceptable to conclude, as a matter of law, that one who signs a document is absolutely bound by the contents. There are nuances and exceptions to this rule, all of which must be ferreted out in the trial court below. Id.
You still had better read everything you sign. Even if your insurance application is filled out by your agent. Your agent’s error is not an absolute excuse. But it could be. Make every attempt to read what you sign, especially if the contract states that you did.