INSURER’S UNTIMELY NOTICE OF INTENT TO NOT BE BOUND DUE TO MISREPRESENTATION ON APPLICATION CREATES FACT ISSUE PRECLUDING SUMMARY JUDGMENT

January 22, 2016

Last Thursday, the Waco Court of Appeals reversed summary judgment in favor of an insurer after finding a fact issue on whether the insurer provided timely statutory notice of refusal to be bound based on a misrepresentation on the application for insurance.  In Wallace v. Amtrust Insurance Company of Kansas, 2016 WL 192304 (Tex. App. – Waco January 14, 2016), the insured sought coverage for a vacant mobile home and signed an application for insurance stating that the property was 100% occupied, despite his contention that the agent was told it was vacant.  The building later caught fire and during the investigation, the insured told the adjuster the property was vacant from the time of policy inception.  After further investigation, the claim was denied and the insured filed suit.  The trial court granted summary judgment in favor of the insurer and this appeal followed.

On appeal, the insured argued the insurer failed to give timely notice of its refusal to be bound under the policy based on a misrepresentation on an application as required by Texas Insurance Code Section 705.005.  Section 705.005(b) requires that a misrepresentation defense on the application may only be used if the insurer gives notice to the insured before the 91st day after the insurer discovers the purported falsity and also requires that that they declare their refusal to be bound by the policy.  In this case, the court found some evidence indicating the adjuster was told about the vacancy early in the investigation and, therefore, a fact issue existed as to whether coverage was denied within the 91 days allowed by the statute.  Accordingly, summary judgment in favor of the insurer was reversed and the case was remanded to the trial court.