In determining whether or not to provide insurance to a particular applicant, one thing that insurance companies typically rely on is the insurance application submitted by the prospective insured. The application is designed to provide the insurance company with, among other things, a comprehensive overview of the risk to be insured. Given the importance of the application, and the reliance that insurance companies place on the information therein, insurance companies are generally permitted to rescind insurance policies if it is later discovered that the relevant application contained an intentional misrepresentation of an important piece of information. Specifically, Connecticut courts have held that an insurance policy may be voided if: 1) there was a misrepresentation or untrue statement by the insured in the application; 2) that the misrepresentation or untrue statement was knowingly made; and 3) that the misrepresentation or untrue statement was material to the insurer’s decision to insurer the applicant.
The issue of misrepresentation in insurance applications in Connecticut was recently highlighted in the federal court case of Known Litigation Holdings, LLC v. Navigators Ins. Co., et al., 2016 U.S. Dist. LEXIS 82675 (D. Conn. June 24, 2016). In that case, the bank, who later assigned its rights to the plaintiff, entered into a Courier Agreement with New England Cash Dispensing Systems (“NECD”) – an armored car/cash management company – to provide for the transport of the bank’s money. As part of the Courier Agreement, NECD was required to maintain insurance for the money being transported, and to include the bank as a loss payee on the policy.
From 2007 to 2010, NECD applied for and received four successive years of Armored Car Operators’ insurance (which is exactly what it sounds like) from the defendant insurer. In 2010, however, it came to light that a “great deal” of the bank’s money – $4,805,540 to be precise – that NECD was responsible for transporting was missing. The money had, in fact, been stolen by a number of NECD employees who were subsequently criminally convicted for a bank fraud scheme that had stretched back into at least 2006.
As a loss payee under NECD’s Armored Car Operators’ policy, the plaintiff bank submitted a claim for the missing money. The insurer denied the claim for a number of reasons, including the fact that NECD had lied on its multiple insurance applications. Specifically, NECD responded “No” in response to the question “In the last 6 years have you or any predecessor company suffered a loss or losses, whether covered by insurance or not and if insured whether a claim was paid or not?” Importantly, the person who signed the insurance application for NECD was a member of the conspiracy and was, at the time the applications were submitted, actively stealing money for which NECD was responsible.
The bank brought suit against the insurer. On cross-motions for summary judgment, the Court found that the insurer properly voided the policy and refused to pay the claim. The Court held that “no reasonable jury” could find that there were not material misrepresentations on the insurance applications submitted to the insurer because the evidence was clear that, when the applications were submitted, NECD knew that it had suffered significant losses due to employee theft.
Two final issues merit brief comment. First, as discussed above, the case was decided on summary judgment. Questions of fraud and/or misrepresentation are frequently fact-intensive, credibility-based determinations that may not be susceptible to resolution on summary judgment. The Court’s decision in this case, however, demonstrates that, at least in some cases, misrepresentations may be so clear-cut that summary judgment is appropriate. Second, the bank argued that it would be “unconscionable” for the Court to not permit it to recover its money given the malfeasance of a trusted third-party. The Court rejected that argument, noting that, as a loss payee, the bank had no greater rights than the insured under the policy, and that all defenses that could be asserted against the insured could be asserted with equal force against the loss payee.