NEW YORK - When Warren Coolidge, then in his late 70s, bought a fire insurance policy to cover a rental property in Springfield, a section of the application asked for a yes or no answer to "Any claims/occurrences that may give rise to claims for the [sic] prior five years." Coolidge's application was filled in with the "no" box checked.
After the company issued the policy and the property subsequently burned, the insurance company refused to pay and filed a declaratory judgment action in United States District Court. The company claimed Coolidge's policy was void ab initio because Coolidge had made a material misrepresentation in his application. This argument was based on the fact that in 1992, Coolidge had made a claim against another insurance company for a suspicious fire which caused $40,000 damage to a property he owned in Chester.
But Chief District Judge J. Garvan Murtha rejected the insurance company's claim last February, granting the motion for summary judgment filed by Coolidge's lawyer Fred Glover. 2 Vt.Fed.Cases F-30 (1998). "On its face, the question at issue may be construed as one by which Nationwide seeks to discover whether an applicant knows of any past claims or occurrences which may come to fruition during the period for which Nationwide proposes to provide coverage." Murtha wrote, "Viewed in this way, the question would not require disclosure of the 1992 claim...[I]f Nationwide wanted Mr. Coolidge to disclose any insurance claim he had made under other, prior policies, it could have clearly asked for that information."
Nationwide, represented by Susan Flynn of Affolter Gannon & Flynn, appealed to the Second Circuit. On March 3, the Circuit issued a summary order affirming Judge Murtha. "[T]hough a material misrepresentation in response to a question in the insurance company's application form generally allows the insurer to avoid liability, ambiguous questions are to be construed in favor of the insured," the panel of Judges Kearse, Sack and McAvoy wrote. "Although Nationwide contends that this question required Coolidge to disclose an occurrence for which he had already made a claim, which had been paid, it cannot be said that the question has that unambiguous meaning. Accordingly, we construe the question favorably to Coolidge and conclude that his negative answer to that question was not a misrepresentation. Coolidge was thus properly awarded summary judgment."
The panel rejected the insurance company's request to apply "the general principle that if a contract is ambiguous, extrinsic evidence may be used to determine what the parties meant" to this dispute over insurance coverage. "Nationwide concedes that '[n]o case in Vermont has applied these basic contract principles to an insurance application,' " the court observed. "Extensive evidence with respect to insurance contracts may allow a determination of whether or not there is an ambiguity; once it has been determined that there is an ambiguity, however, the ambiguity is resolved against the insurer."
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY v. WARREN COOLIDGE, No. 98-7654.
This article is reprinted with the permission of the publisher of Vermont Lawyer.