Insured’s misrepresentations in the policy application could void the policy ab initio.

It has long been the law in Ohio that an insurer can only void a policy ab initio for misrepresentations in the application if the application is incorporated into the policy and the policy specifically warns the insured in the policy language. Allstate Ins. Co. v. Boggs, 27 Ohio St.2d 216, 271 N.E.2nd 855 (1971). A recent decision from the Ohio Supreme Court in Nationwide Mut. Fire Ins. Co. v. Pusser clarifies and expands the circumstances under which an insurer can void a policy for misrepresentations. In this case, the insured submitted a policy application in which she represented she was the only member of the household who drove. In fact, her adult sister lived with her.

The insured was involved in an accident and struck a pedestrian who died. While investigating the accident, Nationwide discovered that the insured had made the misrepresentation in her application. The policy provided: “The application for this policy is incorporated herein and made a part of this policy. When we refer to the policy, we mean this document, the application, the declarations page, and the endorsements.” The policy further stated: “If it is determined that any warranty made by the policyholder is incorrect, this policy may be held void ab initio.” The policy also provided that information in the application about “other operators in the household” was a warranty, which “if incorrect could void the policy from the beginning.”

After determining that there was a misrepresentation in the policy about the drivers in the household, Nationwide filed a declaratory judgment action asking the court to void the policy ab initio. The Court of Appeals held that since Nationwide had not taken action to void the policy and return the premium, the policy could not be voided. Further, the court held that since the policy states that it could be void ab initio, instead of shall be void ab initio, the language is insufficient to warn the insured that the policy would be voided. The Supreme Court held that the word “could” allowed Nationwide to void the policy ab initio if it discovered that the insured had made a misrepresentation in the application. It was sufficient warning to the insured regarding the potential result of a misrepresentation, but it did not require Nationwide to investigate every application and did not require Nationwide to void every policy where there was a misrepresentation. “But the non-mandatory nature of the word ‘could’ does not change the fact the policy baldly states that misstatement in the insured’s warranty, which plainly occurred here, renders the policy subject to being void ab initio.”

The court further held that the Court of Appeals had put form over substance when it required Nationwide to void the policy and return the premium before filing the declaratory judgment action. A declaratory judgment action was an appropriate and available remedy to determine Nationwide’s right to void the policy.

The Ohio Supreme Court’s decision clarifies and updates its earlier decision in Allstate v. Boggs and gives more certainty and direction to insurers that wish to contest misrepresentations found in insurance applications after a loss has occurred.

_{Case Law Alerts, 3rd Quarter, July 2020 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2020 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}