Misrepresentation Defense By Insurance Company

Insurance attorneys in Texas need to know how the “misrepresentation defense” works. A good illustration in found in this January 2016, opinion from the Waco Court of Appeals. The case is styled, Karl Wallace v Amtrust Insurance Company of Kansas, Inc.
Until the time of his death in 2007, Wallace’s father lived on property located at 1100 Lone Oak Drive in Oakhurst, Texas–a few hundred miles from Fort Worth, Texas. This property included both a mobile home and 130 acres of land. Because he had been granted a life estate in the property, Robert Guenther began living in the mobile home until he died in 2009. Wallace, a resident of Fort Worth, subsequently took sole ownership of the property in late 2009.
Realizing that the property was left vacant and that the mobile home was deteriorating, Wallace decided to sell the property. However, to protect his interest in the interim, Wallace contacted John Cole Insurance Agency, Inc. to procure insurance. Wallace transacted with Cole because Cole’s company had insured the property for Wallace’s father.
Because he did not have authority to sell or bind coverage on behalf of AmTrust, Cole had to submit an application for insurance to Stroud Insurance Agency, Inc.–a managing general agency that had a duty to follow the underwriting guidelines of AmTrust. Cole asserts that Stroud and AmTrust do not issue Farm and Ranch insurance policies on properties that are vacant or unoccupied at the time the insurance application is submitted. Wallace claims that he told Cole that the property was vacant and unoccupied. Nevertheless, an insurance application was submitted to Stroud and AmTrust for approval.
Wallace admitted that, on January 12, 2010, he signed the commercial application of insurance that was submitted to Stroud and AmTrust for approval. Wallace further testified that he believed that he answered all of the application questions truthfully. In any event, Cole, on behalf of Wallace, indicated that the property was 100% occupied, among other things. Furthermore, in the Farm and Ranch Supplemental, which was made a part of the application, Cole indicated that none of the dwellings on the property were vacant or unoccupied. Once the application was completed, Cole faxed the document to Wallace for review. Cole instructed Wallace to verify the accuracy of the statements and to correct any mistakes. Without making any corrections, Wallace signed the application, including the Farm and Ranch Supplemental, and returned it to Cole, who, in turn, submitted the application to Stroud for approval. Stroud and AmTrust ultimately approved Wallace’s application and issued a policy, with a renewal effective on January 18, 2011. The policy was subsequently renewed.
No problems arose until January 29, 2011, when a grass fire destroyed the mobile home on the property. In an affidavit that was executed on May 17, 2012, and later struck by the trial court as to the Cole defendants, Wallace noted the following:
I turned in the claim for the loss to the house the day after the loss. Within a week or two at most, I gave statements and answered questions posed to me by the adjuster. At that time, the adjuster was informed that the house was vacant and unoccupied at the time of the loss and had been vacant and unoccupied since I had taken possession of it. The adjuster was also informed that all utilities were off at the house and had been since I had taken possession of the house. I told them this in response to their repeated requests to provide them with utility bills.
AmTrust began investigating Wallace’s claim.
Wallace ended up filing suit for violations of the Texas Insurance Code, breach of contract, and DTPA violations.
In response Amtrust and Cole filed motions for summary judgment which the court granted and this appeal followed.
Among the many arguments advanced by Wallace on appeal is that AmTrust failed to meet its burden regarding a required statutory notice provision–namely, section 705.005 of the Insurance Code. Section 705.005 provides the following:
(a) This section applies to any suit brought on an insurance policy issued or contracted for after June 29, 1903.
(b) A defendant may use as a defense a misrepresentation made in the application for or in obtaining an insurance policy only if the defendant shows at trial that before the 91st day after the date the defendant discovered the falsity of the representation, the defendant gave notice that the defendant refused to be bound by the policy:
(1) to the insured, if living; or (2) to the owners or beneficiaries of the insurance policy, if the insured was deceased.
(c) This section does not: (1) make available as a defense an immaterial misrepresentation; or (2) affect the provisions of Section 705.004.
On appeal, Wallace contends that “AmTrust did not conclusively prove that it provided the required notice because a fact issue remains regarding when it discovered the misrepresentations.” In making this argument, Wallace relies heavily on his May 17, 2012 affidavit, which was struck as to the Cole defendants but not as to AmTrust.
As summary-judgment evidence, AmTrust submitted the August 18, 2011 letter it sent to Wallace, wherein AmTrust noted that it discovered misrepresentations during Wallace’s July 26, 2011 examination under oath and that AmTrust had no obligation to pay Wallace under the policy. However, in his May 17, 2012 affidavit, which was included in the summary-judgment evidence as to AmTrust, Wallace indicated that, among other things, he notified the AmTrust adjuster that the house was vacant and unoccupied at the time of the loss and had been vacant and unoccupied since he had taken possession of the property. AccordingtoWallace,thisconversationoccurredwithinaweekortwo of the grass fire, which would have been in mid-February 2011.
Given that we take as true all evidence favorable to Wallace, and we indulge every reasonable inference and resolve any doubts in Wallace’s favor, we believe that the statements Wallace made in his May 17, 2012 affidavit raise a material fact issue as to whether AmTrust complied with the notice provision of section 705.005(b) of the Insurance Code. In other words, the record contains competent summary-judgment evidence that AmTrust may have discovered Wallace’s false statements in mid-February 2011, but did not deny coverage under the policy until August 18, 2011, which was more than ninety days after mid-February 2011. We therefore conclude that the trial court erred in granting summary judgment in favor of AmTrust.