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Insurance applicant didn’t have to disclose pending foreclosure – appeals court

  • Reverses ruling that allowed insurer to void homeowners’ policy for misrepresentation
  • 8th Circuit said the standard form was ambiguous

(Reuters) – A standard insurance form that asks if an applicant “has had a foreclosure in the past five years” does not clearly require disclosure of pending foreclosures, a federal appeals court held on Tuesday in a case of first impression.

The 8th US Circuit Court of Appeals overturned a ruling by a federal judge in Arkansas that allowed a Hiscox Ltd insurance unit to void Suzan Taylor’s $2.6 million property insurance policy after her lake house in Hot Springs National Park burned to the ground.

While investigating Taylor’s claim, the insurer learned that her borrower had begun foreclosure proceedings a week before she applied for the policy in February 2018.

Taylor reached an agreement to stop the foreclosure, but the lower court judge said her failure to mention the pending foreclosure proceedings on her insurance application was a material misrepresentation that would void any coverage she may have under the Hiscox policy. destroyed.

Reversing that decision, the 8th Circuit said the phrase “has a foreclosure” is ambiguous, as it can refer to the foreclosure sale or to the entire process leading up to the sale. (The panel noted that the 6th Circuit reached a similar conclusion in a nonprecedential opinion in 2007.)

“If Hiscox wanted certain information so he could make an informed insurance decision, he should have asked Taylor for it in a clear, unambiguous way,” Circuit Judge Morris Arnold wrote for the panel. He was joined by circuit judges James Loken and Jonathan Kobes.

Hiscox also argued that it was not to blame for any ambiguity because it had not drafted the application. Instead, Taylor’s insurance agent used an “industry standard ACORD application form, which is used by retail agents to seek quotes from multiple insurers and wholesale brokers,” the company said.

However, the 8th Circuit said Hiscox effectively “selected the relevant language on the subject of foreclosure by prompting applicants to file this very form.”

It sent the case back to the lower court to review Hiscox’s other defenses to coverage.

Hiscox and his attorney did not immediately respond to requests for comment Tuesday. Neither does the Association for Cooperative Industry Research and Development (ACORD), a standard-setting body for the insurance industry.

One of Taylor’s attorneys, Wes Christian of Christian Levine Law Group, said he expects the decision “will result in most applications being refiled,” and believes it will also protect policyholders from cancellation or rescission “based on responses to ambiguous questions”.

The case is Hiscox Dedicated Corporate Member Ltd v. Taylor, 8th US Circuit Court of Appeals, No. 21-3534.

For Hiscox: Scott Stirling of Walker Wilcox Matousek

For Taylor: Jennifer Doan of Haltom & Doan; and James (Wes) Christian of Christian Levine Law Group

Our Standards: The Thomson Reuters Trust Principles.

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