The Ohio Supreme Court recently accepted a case that presents two issues with significant implications for insurers seeking to void policies based upon misstatements in policy applications: (1) whether “an insurance policy sufficiently warns the insured of the consequences of warranty misstatements where the policy states that it ‘may be held void ab initio,’” and (2) whether an insurer is required to void a policy and return an insured’s premium before bringing a declaratory judgment action to declare a policy void ab initio.
In Nationwide Mutual Fire Insurance Co. v. Pusser, No. 2018-1137, an auto policy application asked applicants to disclose all household members of driving age. It stated, “I . . . understand that misrepresentation of information on this application, including failure to disclose a driver or member of the household, could void some or all of my coverages.” (emphasis added). The policy incorporated the application and stated that “[i]f it is determined that a warranty made by the policyholder is incorrect, this policy may be held void ab initio, or void back to the date of inception, upon return of the policyholder’s premium.” (emphasis added.)
The insured did not disclose that her sister, who was over 16, lived with her. The sister was involved in a fatal accident while driving the insured’s car. The insurer sued seeking a declaration that it did not have to provide coverage to the victim’s estate. The trial court granted summary judgment to the insurer, finding the policy void ab initio. An Ohio court of appeals reversed, applying the two prong test set forth in Allstate Ins. Co. v. Boggs, 27 Ohio St. 2d 216, 271 N.E. 2d 855 (1971), and holding that the words “could” and “may” were not clear and unambiguous statements that a misstatement on the application would render the policy void ab initio. The insurer also did not declare the policy void and return the premium to the policyholder.
Oral argument is scheduled for September 11, 2019, we’ll keep an eye out for this one and keep you posted.