When facts essential to a decision to insure or not insure a particular risk are misrepresented or concealed there is no basis for a contract of insurance and it can be, and should be, rescinded. In Mountain City Ford LLC v. Owners Insurance Co. and Auto-Owners Insurance Co. No. 2009-CA-002233-MR (Ky.App. 09/02/2011), the Kentucky Court of Appeals agreed.
Insurance agents and brokers who place insurance for businesses in which they hold financial interest will find that they are held to the duties of an agent for the insured rather than an agent for the insurer, even if the agent has an effective agency agreement with the insurer allowing it to bind insurance.
Ultimately, the issue resolved by the court was whether Mountain City Ford or Auto-Owners should bear the loss for $1.03 million paid in settlement to the original plaintiffs for injuries, including the death of Joey Kirk. These injuries were incurred in a motor vehicle accident between a Mountain City Ford vehicle driven by Rick Gussler and another vehicle driven by Paul Justice. Auto-Owners' policy insuring Mountain City Ford was predicated upon an insurance application prepared by The Elite Agency (Elite) and signed by Mountain City, but the policy did not list Gussler as a driver.
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