Certain Underwriters at Lloyd's London v. Jimenez , 2016 Fla. App. LEXIS 9231 ( 2016 )

Third District Court of Appeal
State of Florida
Opinion filed June 15, 2016.
Not final until disposition of timely filed motion for rehearing.
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No. 3D15-54
Lower Tribunal No. 09-89718
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Certain Underwriters at Lloyd's London,
Appellant,
vs.
Raul and Ada Jimenez,
Appellees.
An Appeal from the Circuit Court for Miami-Dade County, Spencer Eig,
Judge.
Clinton D. Flagg and Carol A. Fenello, for appellant.
Arthur J. Morburger, for appellees.
Before WELLS, FERNANDEZ and SCALES, JJ.
FERNANDEZ, J.
Certain Underwriters at Lloyd’s London (“Lloyd’s”) appeals a final
judgment following a non-jury trial, in which the trial court granted declaratory
relief to Raul and Ada Jimenez, the appellees/homeowners, and determined that
Lloyd’s was not entitled to rescission of the property insurance policy issued to the
homeowners. We reverse because the misrepresentation by the Jimenezes in the
insurance application was material and was detrimentally relied upon by Lloyd’s,
precluding coverage for the Jimenez’s kitchen fire and entitling Lloyd’s to
rescission of the policy.
In 2007, appellee Raul Jimenez, on behalf of himself and his wife, Ada
Jimenez, completed and executed an application for homeowner’s insurance policy
on their home built in 1985, with assistance from their insurance agent, A&A
Insurance Underwriters (“A&A”). A&A submitted the Jimenez’s homeowner’s
insurance application to a managing general agent of Lloyd’s.
During the application process, A&A asked whether Mr. Jimenez had a
smoke, temperature or burglar alarm, and if so, whether these alarms were
monitored. Mr. Jimenez said he had a monitored central station alarm on the
property. On the application form, Mr. Jimenez designated the central station
monitor as a protection device that monitored for smoke, temperature, and
burglary.
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The agent explained to Mr. Jimenez that by signing the "Applicant’s
Application Statement," Mr. Jimenez warranted that the information provided was
true, complete and being offered and warranted to the insurer as a condition to
issue the policy. This statement expressly superseded the "knowledge and belief"
affirmation on the second page of the application. After signing the application,
Mr. Jimenez was given a copy and was given a chance to ask questions and make
sure his answers were true and correct. Based on the Jimenez’s representations in
the application, Lloyd’s issued to them a homeowner’s insurance policy, effective
in 2007. The policy was given a discount because of the representation that the
Jimenezes had a central station alarm monitoring for smoke, temperature, and
burglary. The quote for the policy stated that the discount was conditioned on the
representation of the presence of a central station monitored alarm in the home.
The 2007 policy was set to expire in 2008. A&A was notified of this
expiration by Lloyd’s managing general agent. The application for the 2008 policy
included Lloyd’s conditional endorsements, one of which was the Protection
Device Endorsement. The Jimenezes, through their agent A&A, requested to be
bound to the new 2008 policy coverage. A&A, as agent of the Jimenezes,
affirmatively represented that there had been no changes in the property or the risk
as previously stated in the insureds’ application for coverage. When the 2008
policy expired, the Jimenezes reapplied for a 2009 policy. For the 2009 policy,
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they provided written confirmation that the property and risk were as stated in the
2007 application.
The 2009 policy was effective from February 9, 2009 through February 9,
2010. The policy application provided a Concealment or Fraud provision, stating
that the policy would be void if the applicant intentionally concealed or
misrepresented any material fact or circumstance; engaged in fraudulent conduct;
or made false statements pertaining to the insurance. The entire policy would be
void if an insured has made false statements, regardless of whether the statements
are intentional or fraudulent. The policy also included the Protection Device
Endorsement provision, stating that the discounted premium reflects the
submission that there is a central station alarm present on the property. As a
condition of the insurance, the Jimenezes were required to maintain in good
working order all fire alarms, security systems and physical protection devices
identified in their application for insurance. The Protection Device Endorsement
provision provided that all alarms/security systems must be fully operational and
engaged at all times. Failure to comply with this condition would render the
insurance null and void.
The 2009 policy was personally underwritten by Efren Serrate, president of
the managing general agent of Lloyd’s. Serrate testified at trial that a
representation in the application that the property had central station monitored
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smoke and temperature alarms was material to the risk. He further stated that, if the
property actually did not have those systems, the Protection Device Endorsement
would preclude insurance coverage. Serrate specified that he would not have
accepted the risk and quoted a premium if he had known that the Jimenezes did not
have a central station monitored smoke and temperature alarm.
In August 2009, there was a kitchen fire at the Jimenez’s home. Lloyd’s
filed a two-count complaint for (1) declaratory relief, claiming that the policy did
not provide coverage for the kitchen fire based upon the language of the protection
device endorsement provision, and (2) alternatively, seeking rescission of the
policy due to material misrepresentations in the application; i.e., that the Jimenezes
had central station monitored smoke and temperature alarms. Even if not subject to
rescission, Lloyd’s alleged that coverage was precluded by the Protection Device
Endorsement provision. The Jimenezes answered and counterclaimed for
declaratory relief as to coverage and breach of contract.
Delta Alarm Systems monitored and maintained the Jimenez’s alarm
system. At trial, Jose Quintero, the corporate representative of Delta Alarm
Systems, testified that the Jimenezes had a burglar alarm but not a central station
monitored smoke or temperature alarm system. He further testified that they did
not have this central station system and only the burglar alarm from the date of the
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2007 application policy to the date of the kitchen fire incident on August 6, 2009,
or at any other time.
Richard Corbett, who holds a Ph.D. in risk management and insurance,
explained that the existence of protection device systems are material to a risk for
two reasons: first, the possession of these types of alarms often create a discount in
the rating; and second, these protection devices for homes of a particular age and
configuration may be part of that cutoff test, whether the underwriter would take
the risk at all. According to the record, the property was 22-years-old at the time of
the application. Lloyd’s contends that because this was close to Lloyd’s age cutoff
(25 years) for acceptance of properties without renovations, the underwriter would
look for positive features, such as a monitored alarm, to determine acceptance of
the risk.
Lloyd’s alleged that it had tendered the full return of the insurance policy
premium to the Jimenezes for the 2/9/09 to 2/9/10 policy which was in effect at the
time of the loss. Furthermore, Lloyd’s also tendered to them the return of
premiums for the prior 2007 and 2008 policies. At trial, the parties agreed that the
return of the premiums for each of these policy years had been tendered in full to
the Jimenezes. The trial court found in favor of the Jimenezes for declaratory
relief as to coverage and for breach of contract and held that Lloyd’s was not
entitled to rescission.
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The interpretation of an insurance contract is a question of law and subject
to de novo review. Certain Interested Underwriters at Lloyd’s London v. Pitu, Inc.,
95 So. 3d 290 (Fla. 3d DCA 2012). Whether a question in an insurance application
is ambiguous is also a question of law subject to de novo review. GRG Transp.,
Inc. v. Certain Underwriters at Lloyd’s London, 896 So. 2d 922 (Fla. 3d DCA
2005).
First, regarding the summary judgment issue, we agree with Lloyd’s that the
Jimenez’s misrepresentations of the presence of a central monitored alarm system
for smoke, temperature and burglary were material as a matter of law to the
issuance of Lloyd’s insurance policy. As such, recovery for the Jimenez’s house
fire was unwarranted.
Florida Statute section 627.409(1) provides that misrepresentations,
omissions, concealment of facts, and incorrect statements on an insurance
application will not prevent a recovery under the policy unless they are either: (1)
fraudulent; (2) material to the risk being assumed; or (3) the insurer in good faith
either would not have issued the policy or would have done so only on different
terms had the insurer known the true facts. Lloyd’s relies on (2) and (3) in claiming
that the Jimenez’s central monitored system statements in their application prevent
recovery under the policy in question. See § 627.409(1), Fla. Stat. (2009).
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An insurance company has the right to rely on an applicant's representation
in an application for insurance and is under no duty to inquire further unless it has
actual or constructive knowledge that such representations are incorrect or untrue.
Indep. Fire Ins. Co. v. Arvidson, 604 So. 2d 854, 856 (Fla. 4th DCA 1992) (“An
insurer is entitled, as a matter of law, to rely upon the accuracy of the information
contained in the application and has no duty to make additional inquiry.”); North
Miami Gen. Hosp. v. Cent. Nat’l Life Ins. Co., 419 So. 2d 800, 802 (Fla. 3d DCA
1982).
Under Florida law, an insurer has the right to unilaterally rescind an
insurance policy on the basis of misrepresentation in the application for insurance.
Fabric v. Provident Life & Acc. Ins. Co., 115 F.3d 908, 912 (11th Cir. 1997). The
misrepresentation need not be fraudulently or knowingly made but need only affect
the insurer's risk or be a fact which, if known, would have caused the insurer not to
issue the policy or not to issue it in so large an amount. First Nat'l Bank Holding
Co. v. Fidelity & Deposit Co. of Maryland, 885 F. Supp. 1533, 1535 (N. D. Fla.
1995). The insurer must prove that the insured's statement is a misrepresentation,
that it is material, and that the insurer detrimentally relied on it. Mora v. Tower
Hill Prime Ins. Co., 155 So. 3d 1224, 1227-28 (Fla. 2d DCA 2015).
In Mora, the insureds filed a claim with the insurer to recover for sinkhole
damage to their home. Id. at 1226. The trial court granted the insurer’s motion for
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summary judgment on the basis that the insureds made misrepresentations in their
insurance application regarding presence of cracks in the mobile home, that insurer
was unaware of the cracks, and that had it known about these cracks, it would not
have issued an insurance policy. Id. at 1227. The insurer relied on discovery
documents citing previous repairs of cracks in the home, and the assistant vice
president of underwriting’s testimony that, had the insurer known of the past
cracks, it would not have issued the policy. Id. at 1226-27. No evidence such as
descriptions of the cracks or testimony from repairers about the extent of the
cracks was submitted. Id. at 1226.
The Second District Court of Appeal reversed and remanded, finding that
the insurer did not provide sufficient evidence: “the insurer needs to provide an
explanation as to why ‘in good faith’ and ‘pursuant to a policy requirement or
other requirement’ it would not have issued the policy or would not have issued it
under the same terms.” Id. at 1228. The insurer failed to establish beyond factual
dispute that the insureds made a misrepresentation on their application when they
indicated that they were unaware of any prior repairs for “cracking damage” on
their home. Id. Additionally, the assistant vice president’s conclusory opinion did
not provide sufficient facts to explain why the answer to this specific question
were material to the risk and something on which the insurer detrimentally relied
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on. Id. at 1228-29. Nor were the discovery documents regarding previous repairs a
matter that would have caused the insurer in good faith to not issue its policy. Id.
Unlike the Mora case, Lloyd’s has presented sufficient evidence to show
that the misrepresentation regarding the presence of a central monitored system
was material to issuance of a policy and that, had Lloyd’s known of such lack of
protection, it would not have issued its policy. As discussed previously, Corbett
explained that the existence of protection device systems was material. The
testimony provided by Delta Alarm Systems’ corporate representative, Jose
Quintero, indicated that no agent for Lloyd’s had been notified of the lack of a
central monitored system on the property until after the fire incident occurred.
Lloyd’s correctly contends that misrepresentation of a central monitored
system on the Jimenez’s property was material as a matter of law and need not
have been made intentionally to be material. See Cont’l Assur. Co. v. Carroll, 485
So. 2d 406 (Fla. 1986) (life insurance policy on child voided where parents
misstated child's health on policy application, though misstatement may have been
unintentional); Life Ins. Co. of Va. v. Shifflet, 201 So. 2d 715, 719 (Fla. 1967)
(incorrect and untrue statements to questions on an insurance application, material
to the acceptance of the risk of the contract, do not under statute have to be made
with knowledge of the incorrectness and untruth to vitiate the policy); Martinez v.
Gen. Ins. Co., 483 So. 2d 892, 893 (Fla. 3d DCA 1986) (based on evidence
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presented, trial court was entitled to find that the omission of insured’s son’s name
was sufficiently material to the insurer's acceptance of the risk to warrant a denial
of coverage, even if the omission was unintentional); First Nat’l Bank Holding
Co., 885 F. Supp. at 1536 (material misstatements in application by someone other
than the insured, even if unintentional, void the policy). Accordingly, the
misrepresentation made by the Jimenezes regarding the presence of a central
monitored system on the property in the insurance application precludes coverage
because the misrepresentation was material and was detrimentally relied upon by
Lloyd’s.
Secondly, Lloyd’s alternatively contends on appeal that, because the lack of
a central monitored system was material to the issuance of the policy and was
relied upon, the trial court erred in denying Lloyd’s entitlement to rescind the
policy. We also agree with this position.
If an insured’s misrepresentation was material to the insurer’s acceptance of
the risk or, if the insurer in good faith would not have issued the policy under the
same terms and premium, then rescission of the policy by the insurer is proper.
United Auto. Ins. Co. v. Salgado, 22 So. 3d 594, 604 (Fla. 3d DCA 2009).
Misrepresentations in or omissions from an insurance application may fail to meet
the knowledge and belief standard (that the information given was correctly
recorded, complete, and true to the best of the insured's knowledge and belief) and
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entitle the insurer to rescind the policy without the misrepresentation or omission
being intentional. Casamassina v. U.S. Life Ins. Co. in City of New York, 958 So.
2d 1093, 1101 (Fla. 4th DCA 2007). Even an insured's failure to read a policy
application in its entirety prior to signing it does not preclude an insurer's right to
rescind the policy for nondisclosure of material information. Nationwide Mut. Fire
Ins. Co. v. Kramer, 725 So. 2d 1141, 1143 (Fla. 2d DCA 1998).
The Jimenezes cite to Perlman v. Prudential Insurance Co. of America, Inc.,
686 So. 2d 1378 (Fla. 3d DCA 1997), in support of their position, but we find it to
be distinguishable from the present case. In Perlman, the plaintiff was alleging the
contract to be void because it was induced by Prudential Insurance’s fraudulent
representations as to its cost. Id. at 1379. The plaintiff argued that, if found liable,
Prudential Insurance must return all the premiums plus interest. Id. at 1380. This
Court rejected the plaintiff’s contention: “[a]lthough this is indeed apparently the
majority rule . . . we think it is erroneously in conflict with the principle that the
parties to a rescinded agreement are required, insofar as possible, to restore the
status quo . . . by crediting each other with ‘the value of what he has received in
the transaction.’ ” Id. This Court ruled that the policy owner is entitled to the return
of the premiums already paid plus interest, less only the actuarial value of the
insurance during its existence; the carrier cannot retain the expenses, costs,
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commissions, and profits involved in the transaction which it expended to others or
kept for itself. Id. at 1380-81.
Upon final determination of entitlement to rescission, the insured in Perlman
would be entitled to interest on the returned premium. Lloyd’s is correct when it
argued that this does not mean that payment of interest is a condition precedent to
rescission. Nowhere in Perlman did this Court find that return of interest in
premiums must be fulfilled prior to rescission. The final determination of
entitlement to rescission was adjudged based on other factors separate from
payment of interest. Therefore, there is no basis for the Jimenez’s argument that
Lloyd’s was not entitled to rescission because Lloyd’s failed to tender the interest
prior to the final determination by the trial court.
The Jimenezes further argue that Lloyd’s was not entitled to rescission
because Lloyd’s allegedly returned the second and third premiums after 22 months
(which seems to be the time between when the fire occurred in August 2009 and
the tender of the premiums for the previously-expired policies). Where an insurer
seeks to rescind a voidable policy, it must give both notice of rescission, and return
or tender all premiums paid within a reasonable time after discovery of the grounds
for avoiding the policy. Gonzalez v. Eagle Ins. Co., 948 So. 2d 1, 3 (Fla. 3d DCA
2006).
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There is little case law available describing what constitutes a reasonable
time to tender all premiums paid. However, we find that under the facts of this
case, a 22-month delay is not demonstrated. The Jimenezes raised, for the first
time, the issue of the return of premiums for the two prior policy years in their
Amended Answer served May 30, 2011. Lloyd’s tendered the return of the
premiums for those policies on October 25, 2011.
Accordingly, the Final Judgment is reversed, and the case is remanded to the
trial court with instructions to enter Final Judgment in Lloyd’s favor because the
policy does not provide coverage for the Jimenez’s kitchen fire under the language
of the Protection Device Endorsement, and because Lloyd’s is entitled to rescission
of the policy due to material misrepresentations in the application.
Reversed and remanded with instructions.
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Certain Underwriters at Lloyd’s London v.
Raul & Ada Jimenez
Case No. 3D15-54
WELLS, J., (specially concurring).
I agree that the final judgment entered below must be reversed. The
undisputed evidence is that the homeowners falsely represented in their
applications for fire insurance coverage that their home had a monitored central
station alarm system; that these representations were material to the insurer’s
decision to insure the risk; and that the insurer relied on these representations in
issuing the fire insurance coverage at issue. On this record, the insurer was entitled
to rescission of the policy at issue. See §627.409(1), Fla. Stat. (2007); United
Auto. Ins. Co. v. Salgado, 22 So. 3d 594, 599 (Fla. 3d DCA 2009) (“[W]here a
misstatement or omission materially affects the insurer’s risk, or would have
changed the insurer’s decision whether to issue the policy and its terms, [section
627.409] may preclude recovery.”); Gonzalez v Eagle Ins. Co., 948 So. 2d 1, 2
(Fla. 3d DCA 2006) (“Florida law indeed gives an insurer the unilateral right to
rescind its insurance policy on the basis of misrepresentation in the application of
insurance.”); Union Am. Ins. Co. v. Fernandez, 603 So. 2d 653, 653 (Fla. 3d DCA
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1992) (stating that if a material misrepresentation is established at trial, “the
subject insurance policy would be void ab initio”).
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