Texas Insurance Law Newsbrief - August 20, 2024
GO FIGURE – INSURED’S FAILURE TO DISCLOSE PRIOR INSURANCE FRAUD CONVICTION ON INSURANCE APPLICATION VOIDS POLICY
The Fourteenth Court of Appeals in Houston upheld summary judgment in favor of an insurer where the insured failed to disclose a prior conviction for committing insurance fraud on an application for homeowners’ insurance.
In Palma v. Allied Trust Insurance, Co., NO. 14-23-00063-CV2024, Tex. App. Lexis 5769* (August 13, 2024), Palma purchased a homeowners insurance policy with Allied and then sustained a fire loss during the policy period. During the claim investigation, Allied found that Palma had a prior conviction for insurance fraud that was not disclosed on Palma’s application for insurance with Allied. Allied then sent Palma a letter rescinding the policy advising that the misrepresentation rendered the policy void. And that Allied would not have insured Palma had he disclosed his prior insurance fraud conviction.
Palma filed suit against Allied alleging breach of contract, breach of the duty of good faith and fair dealing, deceptive trade practices and unconscionable conduct, Texas insurance code violations, fraud and conspiracy. Allied answered asserting that the policy was properly rescinded because of Palma’s “material misrepresentation” among other affirmative defenses and filed a traditional motion for summary judgment. Allied argued that it conclusively established: (1) the policy’s “concealment or fraud” condition voided the policy; (2) Palma made a material misrepresentation on the Policy application; (3) Allied relied and acted upon on the material misrepresentation; (4) and the policy is void due to Palma’s material misrepresentation.
In support of its motion, Allied attached five exhibits including the “Docusign certification of completion,” correspondence with the insurance agent and a copy Palma’s criminal conviction for insurance fraud. In response, Palma argued that there was no intentional or material misrepresentation and, that under Texas Insurance Code § 705.004(c), “it is a question of fact whether a misrepresentation for the policy or in the policy itself was material to the risk or contributed to the contingency or event on which the policy became due and payable.” In response, Allied asserted there was “ample” undisputed evidence in the record to show Palma’s misrepresentation was material, including Allied’s own statement that it “would have rejected the policy application but for the misrepresentation made in the policy.” The trial court agreed and granted summary judgment in Allied’s favor on all claims. This appeal followed.
The Court of Appeals closely examined the elements of a material misrepresentation as discussed above and, Texas Insurance Code § 705.004(c) and Palma’s assertion that the provision stating that “it is a question of fact whether a misrepresentation made…was material to the risk.” The court noted the purpose of summary judgment to summarily resolve a case when “there is no genuine issue of fact” and that “a court may properly grant summary judgment because there are no facts to find.” In this case, the evidence was undisputed and established the affirmative defense. Accordingly, the court overruled Palma’s first issue on appeal.
Interestingly, Palma also argued for the first time on appeal, that Allied could not have relied on the misrepresentation in the application, because the application was not submitted until after Allied had issued the policy. The Court of Appeals agreed with Allied that the issue was waived because it was not presented in the trial court and overruled Palma’s second issue on appeal. Similarly, Palma’s argument that wording in Texas Insurance Code § 705.004 that materiality must be “shown at trial” to render the policy void, was not made at the trial court level and therefore, not preserved for review on appeal. And even if it was, the court stated that they disagreed with Palma’s interpretation. “None of these requirements obviates the insurer’s ability to obtain summary judgment on its defense when the facts are undisputed.” Accordingly, the court overruled Palma’s third issue on appeal and affirmed the trial court’s summary judgment in favor of Allied Trust Insurance, Co. on all claims.
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