Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance


Attempt to Void Coverage Has No Teeth Due to Ambiguities in Policy Application

It is well-established that ambiguities in an insurance policy are construed against an insurer.  In Schultz v. Tilley, the Massachusetts Appeals Court has confirmed that this principle applies equally to questions in a policy application.  In Schultz, Vermont Mutual sought to void a homeowner’s policy, asserting that the insureds made material misrepresentations in their application for coverage.  The dispute arose after the insureds’ American Bulldog, Bocephus, attacked two Yorkshire Terriers while out for a walk with their owner near the insureds’ home.  In attempting to protect her dogs from the attack, the Yorkies’ owner suffered a broken arm, lacerations and scrapes.

Vermont Mutual investigated the incident and learned that Bocephus had bitten two other dogs (Bruno and Buddy) before the date of the insureds’ application to Vermont Mutual for homeowners’ coverage.  The insureds paid a $200 veterinarian bill for Buddy following his encounter with Bocephus.  Bruno’s owner did not seek any compensation.

In seeking to void coverage, Vermont Mutual pointed to a question in the policy application asking about the “bite history” of any animals or exotic pets kept on the premises and a separate question asking about “any losses, whether or not paid by insurance.”  The insureds disclosed Bocephus and his breed, but stated “no biting incidents.”  They did not disclose the prior $200 payment for Buddy’s vet bill.  Following a bench trial, the Superior Court Judge ruled in favor of Vermont Mutual, concluding that the phrase “biting history” was not ambiguous and required disclosure of the incidents with Bruno and Buddy.  Because those bites were not disclosed, the policy was void due to the insureds’ material misrepresentation.

The Appeals Court reversed.  The Court agreed with the trial judge that it was reasonable to read the application as requesting information about prior biting incidents involving either other humans or other animals, or even inanimate objects, such as chew toys.  That, however, was not the only reasonable interpretation of the question.  Instead, a reasonable person could also read the application as asking only about biting incidents involving a human.  The Court noted that it is not difficult to imagine a dog that hunts and catches wildlife, playfully nips another dog, or gets into an occasional scuffle with a neighborhood dog.  Such incidents might be common or negligible enough for a reasonable applicant to believe an insurance company would not be interested in such information when not clearly called for by the application.

The Court also concluded that Vermont Mutual was barking up the wrong tree when it relied on the insureds’ failure to disclose the $200 veterinarian bill payment as an alternative ground for voiding the policy.  At trial, the insured testified that he did not consider the payment to be a “loss.”  Rather, he understood the question to be asking about claims payments by insurers.  The Appeals Court held that the question was ambiguous, at least as to the lower limit of a loss that must be disclosed to avoid rescission of the policy because in the context of an application designed to assess risk, the question could be read as not seeking information on payments of small sums.  In reaching this conclusion, the Court may have been influenced by the insured’s testimony that he did not read the application word for word, but responded to questions asked by the broker.

Although the insureds (but possibly not Bocephus) avoided the dog house, it is not clear that a Court would have been as lenient in the event of an omission by a commercial insured.  Therefore, it remains important for insureds to proceed cautiously when completing policy applications.  For insurers, Schultz is a good reminder that policy applications should be drafted with the same care as insurance policies.

Image credit: HAMZA BUTT

About the Author

Tamara S. Wolfson – Partner

Tamara litigates commercial cases, and represents insurers and insureds in complex insurance coverage and bad faith litigation.

Posted In: Policy Application

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