The Eighth Circuit recently considered whether State Farm was authorized to deny coverage for fire loss based on the insured's alleged misrepresentation. See Warren v. State Farm Fire & Casualty Co., No. 07-2010 (8th Cir. July 10, 2008).
The insured's home was destroyed by a fire in the early morning hours while she slept elsewhere. The insured gave two statements to State Farm which were the source of the alleged misrepresentations. In her first statement, she denied having any prior insurance loss claims. She also denied having any judgments entered against her. In the second statement, however, she admitted she had a 2002 insurance loss claim arising from a car fire. Further, the insured claimed she was unaware of a 2001 default judgment entered against her son and herself as a co-signer on a car note.
State Farm denied the claim based on material misrepresentations. The insured sued. After the insured prevailed in the district court and was awarded damages, State Farm appealed. The Eighth Circuit looked to the terms of the policy, which stated a material misrepresentation existed where the insured "intentionally concealed or misrepresented any material fact or circumstances relating to the insurance whether before or after a loss." Therefore, State Farm had to show a misrepresentation was both intentional and material.
The incorrect statement that insured had no outstanding judgments was not a material misrepresentation because State Farm presented no evidence that the insured possessed the requisite intention to mislead. Further, whatever relevance the prior car fire claim had, State Farm presented no evidence that its investigation would have been different had it known of the prior fire loss in the insured's first statement. Therefore, the initial misrepresentation was not material.
Hawai`i approach to an insured's alleged misrepresentation was expressed in Park v. Government Employees Ins. Co., 89 Haw. 394, 399974 P.2d 34, 39 (1999). There, the Hawai`i Supreme Court adopted the general rule regarding materiality stated in 7 Couch on Insurance 2d sec. 35:45 (1985). This rule states that, "generally, a misrepresentation is material either when the insurer would not, as a careful and intelligent man, have issued the policy had the truth been known, or would have issued it only at a higher rate of premium."
