By Leisa Boley Hellwarth, a dairy farmer and attorney near Celina
This past May 6, the Ohio Supreme Court issued a merit decision in Nationwide Mutual Fire Insurance Company v. Pusser. While this is not an agricultural case, everyone who has an insurance policy should be aware of the ruling. And farmers tend to have their share of insurance policies. The case deals with misstatements made by applicants when applying for insurance and the serious problems that can result.
The question before the Ohio Supreme Court was whether the specific language in an insurance policy was sufficient to warn the insured that misstatements as to warranties in her application for the policy rendered the policy void from the beginning (void ab initio). The Ohio Supreme Court ultimately held that the insurance policy involved in the case plainly stated that a breach of warranty in the application for the policy rendered the policy void ab initio.
Let’s look at the facts of the case. Diane Lapaze obtained an automobile insurance policy from Nationwide. Barbara Pusser is Lapaze’s sister and lived with Lapaze when Lapaze purchased the insurance policy.
On Aug. 13, 2012, Pusser was driving the car covered under the policy when it struck a pedestrian, Robert D. Boak, who died as a result of the accident. This is tragic.
The insurance application submitted to Nationwide indicated that Lapaze was the only member of the household. Pusser nor any other person was listed as a member of Lapaze’s household.
Nationwide filed a complaint for declaratory judgment in the Mahoning County Court of Common Pleas claiming that it had issued the policy in reliance on the information in Lapaze’s application and that because of Lapaze’s misstatements, the policy was void ab initio based on the following language in the policy: “If it is determined that any warranty made by the policyholder is incorrect, this policy may be held void ab initio.” The policy also stated that information provided in the application about “other operators in the household” was a warranty, which “if incorrect, could void the policy from the beginning.”
The trial court granted summary judgment to Nationwide, determining “that the automobile insurance policy in question was void ab initio due to breach of warranties contained in the policy and policy application concerning disclosure of all drivers and other operators in Diane Lapaze’s household.”
The Seventh District Court of Appeals reversed, determining that under this court’s decision in Allstate Ins. Co. v. Boggs, the policy’s terms did not “clearly and unambiguously” indicate that Lapaze’s misstatements as to a warranty could render the policy void ab initio. The court of appeals also determined that because Nationwide had failed to itself declare the policy void and return Lapaze’s premium, “it failed to even attempt to void the policy.”
The Ohio Supreme Court granted Nationwide’s discretionary appeal. The court of appeals found that the policy language “warranties which if incorrect could void the policy from the beginning” wasn’t good enough to warn Lapaze that the policy could be voided ab initio because “could” speaks of possibilities, not certainties. The high court disagrees, finding that the non-mandatory nature of “could” doesn’t change the fact that the policy unequivocally states that a misstatement in the insured’s warranty, which is what happened here, subjects the policy to being found void ab initio.
Insurance companies are absolutely allowed to file a declaratory judgment action to establish their rights and obligations under a policy. The insurer does not have to declare the policy void and return the premiums first before filing such an action, as the Seventh District found. In finding otherwise here, the reasoning of the appeals court “unduly elevates form over substance,” wrote Donnelly, for the Court. Premiums can be returned once the policy has been declared judicially void.
The Ohio Supreme Court reversed the judgment of the court of appeals and reinstated the trial court’s grant of summary judgment in favor of Nationwide. The result for Lapaze was she was the owner of a vehicle that caused a fatality, and she was uninsured. This situation could have been avoided had Lapaze listed all members living in her household at the time of the application.
“The truth doesn’t cost anything, but a lie could cost you everything.”
Leisa Boley Hellwarth is a dairy farmer and an attorney. She represents farmers throughout Ohio from her office near Celina. Her office number is 419-586-1072.