The U.S. District Court for the District of Columbia has ruled that an insurance policy was void as a result of a material misrepresentation where the insured's application said that it was going to operate a delicatessen when in fact it operated a pool hall and nightclub, providing live entertainment and hosting private events where alcoholic beverages were sold.
The Case
On August 31, 2012, Regina Ruckman signed a commercial insurance application on behalf of her company, Almco, Limited, seeking a “premier businessowners” policy from Nationwide Mutual Fire Insurance Company. The application described Almco's business as a “deli,” and it stated that Almco did not have a website, did not “serve or sell alcohol,” and did not “have bouncers, DJs, live entertainment, pool tables … paid admissions, cover chargers or other similar exposures.”
The application also represented that Almco did not have “any other exposures that have not been identified” in the application.
In signing the application, Ms. Ruckman certified that the answers were “true, correct and complete to the best of [her] knowledge.”
As of August 31, 2012, however, when Ms. Ruckman signed the application, Almco had yet to ever operate as a deli, and its business involved billiards and alcohol.
In January 2013, a shooting occurred on Almco's business premises during a private event where alcohol was being served. Several patrons alleged that they had been injured and, as a result, claims were presented against the Nationwide insurance policy.
Almco “demanded that Nationwide afford it indemnification and a defense for all claims and causes of action arising out of” the January 2013 incident.
Nationwide sought a declaratory judgment that the policy it had issued to Almco had been “procured as a result of a material misrepresentation by Almco Limited, and as a result, the said policy is void, thereby relieving Nationwide from any obligation to defend, indemnify or otherwise provide insurance coverage or benefits” to Almco.
Almco moved for summary judgment on the grounds that it had not intended to deceive Nationwide through its responses on the application.
Nationwide filed a separate cross-motion for summary judgment on the issue of whether the allegedly false statements on the application had materially affected Nationwide's decision to issue the policy.
District of Columbia Law
A District of Columbia statute provides:
The falsity of a statement in the application for any policy of insurance shall not bar the right to recovery thereunder unless such false statement was made with intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the company.
D.C. Code § 31-4314.
The Court's Decision
The court granted Nationwide's motion.
In its decision, the court first found that the representations on Almco's insurance application seeking coverage with Nationwide “were false when they were made.” The court determined that Almco had never operated as a deli but, instead, conducted business as a billiards hall and entertainment venue that served alcohol and provided live music and entertainment.
The court also ruled that the false statements “materially affected Nationwide's acceptance of risk in insuring Almco.” The court stated:
A disco is not a deli, and the risks posed by the combination of billiards, booze, and entertainment are materially different from the hazards that could arise out of a corned beef on rye.
The court concluded that, in light of the materiality finding and the alternative nature of the statute, it did not have to reach the question of the existence of an intent to deceive.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].