Insured’s False “Expression of Personal Belief or Opinion” Insufficient to Warrant Rescission of Policy 

Applying Ohio law, the United States Court of Appeals for the Sixth Circuit held that an insured’s incorrect “expression of personal belief or opinion” in a renewal application only rendered the policy voidable, not void ab initio. Certain Underwriters at Lloyd’s of London v. KG Admin. Servs., Inc., 2021 WL 1943369 (6th Cir. May 14, 2021). The court further held that, where the policy states that “[a] claim includes the service of suit” against the insured, the date upon which a “claim” is made is the date the lawsuit is served, not the date the lawsuit is filed. 

The insured maintained a claims-made and reported E&O policy that was effective January 1, 2019 to January 1, 2020. The 2019-2020 policy was a renewal of an earlier policy that was effective January 1, 2018 to January 1, 2019. As part of the renewal application, the insured’s President submitted a “warranty statement” which provided that “[a]fter inquiry I, nor any principal, partner, director, officer or professional employee have any knowledge or information of any act, error, omission, fact, circumstance or contentions of any incident which may give rise to a claim being made against us.” Prior to the renewal, there had been three lawsuits filed against the insured.

The insured submitted the three lawsuits to the insurer in April 2019. The insurer brought suit against the insured, asserting a claim for rescission of the 2019-2020 policy and seeking a declaration that it had no duty to defend the insured under either the 2018-2019 or 2019-2020 policies. The district court entered judgment for the insurer on rescission, and in the alternative held that there was no coverage for the lawsuits under the 2018-2019 policy due to late notice and no coverage under the 2019-2020 policy because the lawsuits were claims made prior to the policy period. The Executive Summary’s coverage of the district court ruling is available here. The insured appealed.

The appellate court disagreed, ruling that the district court erred in granting the insurer’s motion for judgment on the pleadings with respect to the claim for rescission. The appellate court further ruled that, with respect to one of the three lawsuits, the district court erred in holding that the insurer had no duty to defend the insured.

On the rescission issue, the court’s analysis centered on whether the insured’s statement on the renewal application constituted a warranty or a representation. Under Ohio law, if a misstatement of fact is a warranty, it voids the policy ab initio. In contrast, if a misstatement of fact is a representation, it will render the policy voidable if it is fraudulently made and the fact is material to the risk. The court held that, even though termed a “warranty statement,” the President’s statement was an “expression of personal belief or opinion,” which constitutes a representation rather than a warranty. The appeals court declined to grant the insurer’s motion because the uncontested facts in the pleadings were insufficient to prove that the insured made its representation fraudulently and that it was material to the risk.

The appellate court rejected the district court’s holding that there was no coverage for the lawsuits under the 2019-2020 policy because they were filed prior to the policy period. The policy stated that a “claim” included “the service of suit or the institution of an arbitration proceeding against [the insured].” The appellate court held that, “under the 2019-2020 policy, a ‘claim’ is ‘made’ when [the insured] is served, not when the complaint is filed, at least in the absence of some earlier demand being made upon [the insured].” In so holding, the court stated that “an interpretation . . . that would have a ‘claim’ be ‘made’ at the time a lawsuit is filed would render the agreement’s express use of the word ‘service’ in the definition of claim superfluous, because service occurs only after filing.” The pleadings did not establish the date that one of the three suits was served on the insured, thus, the court declined to grant the insurer’s motion for judgment on the pleadings on that issue. The case was remanded to have the insurer establish the date of service for the third lawsuit.