The Hawaii Intermediate Court of Appeals previously held an insurer faces a difficult burden justifying on summary judgment a denial of coverage due to incorrect information stated in an insurance application.  See First Ins. Co. of Hawaii, Ltd. v. Sariaslani, 80 Haw. 491, 911 P.2d 126 (Haw. Ct. App. 1996).  The ICA determined there were genuine issues of material fact whether the insurer would have denied insurance had it been aware the insured had made incorrect statements in its application.  Id., 80 Haw. at 496, 911 P.2d at 131.

     The Ninth Circuit reached a similar result last week regarding statements in an application for insurance.  See James River Ins. Co. v. Herbert Schenk, P.C., No. 06-15622 (9th Cir. March 18, 2008).  The insured, Herbert Schenk, was a law firm.  The Nolans were clients, but grew increasing frustrated with the firm’s failure to return phone calls over several months.  The Nolans finally wrote the firm and terminated the relationship. 

     Shortly before receiving the letter, Herbert Schenk applied for a professional liability policy with James River.  The application asked whether the firm was aware of any potential claims being made against it?  The firm answered yes and listed several actual and potential claims, but failed to mention a potential claim by the Nolans.  Two weeks after the Nolans’ letter, James River sent an insurance quote to Herbert Schenk that again inquired about known claims.  Herbert Schenk reported it had no additional claims to report, and James River issued the policy.

     The Nolans subsequently sued Herbert Schenk.  James River defended under a reservation of rights and filed for declaratory relief.  James River argued its policy excluded coverage for claims arising from legal services rendered prior to the policy if the insured knew or could have reasonably foreseen the services could give rise to a claim. The district court granted James Rivers’ motion for summary judgment.

     The Ninth Circuit reversed based on reasoning similar to the Hawaii appellate court in Sariaslani.  Summary judgment was unwarranted because it was unclear that the Nolan claim was reasonably foreseeable.  The Nolans never suggested in the communications with Herbert Schenk they would bring a claim.

     Consequently, the Ninth Circuit is united with the Hawaii courts on the insurer’s summary judgment  burden when seeking to deny a claim based upon information in an application