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Legal Memorandum: Liability Insurance – False Statement in Application

Issue: Whether Failure to Communicate Material Information to an Insurer May Void An Insurance Policy.

Area of Law: Insurance Law
Keywords: False statement; Liability insurance policies; A 'Separation of Insureds' provision
Jurisdiction: Vermont
Cited Cases: 885 F. Supp. 666; 89 F.3d 1386; 528 A.2d 758; 82 N.E. 745; 559 A.2d 687; 26 F.3d 1359
Cited Statutes: 8 V.S.A. §§ 4201-4256 (2005); Restatement (Second) of Agency § 272, 280, 282
Date: 03/01/2006

Vermont statutes regulate the issuance of liability insurance policies.  See 8 V.S.A. §§ 4201-4256 (2005).  A false statement in the application may bar the right to recover under the policy if either “the false statement was made with actual intent to deceive” or “it materially affected either the acceptance of the risk or the hazard assumed by the insurer.”  Id. § 4205.  Thus, under this statutory provision the Insurers need not prove that the insured made a false statement knowing it was false, as long as the Insurer can show “a causal connection between the misrepresentation and the insurer’s decision to issue a policy.”  McAllister v. Avemco Ins. Co., 528 A.2d 758, 759 (Vt. 1987).  “It makes no difference under Vermont law that the misrepresentation was innocently made.”  Id. at 759 (emphasis added).

See, e.g., Zion Christian Church v. Brotherhood Mut. Ins. Co., 126 Fed. Appx. 235, 236 (6th Cir. 2005).

“In Vermont, compliance with the notice provision of an insurance contract is a condition precedent to establishing liability of the insurer under the policy.”  Town of Windsor v. Hartford Acc. & Indem. Co., 885 F. Supp. 666, 670 (D. Vt. 1995).  Without evidence that the Insured complied with its timely notice obligation the Insurer may deny coverage.  Id. at 670.  Moreover, when the policy requires notice “as soon as practicable,” courts construe this to mean “with reasonable dispatch, in view of all the circumstances.”  U.S. Fid. & Guar. Co. v. […]

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