Insurer Entitled to Rescind Policy Based on Misrepresentation

GENERAL STAR NATIONAL INSURANCE COMPANY v. JAMES BOUDREAU (Ct. of Appeals, Mich. Jan. 14, 2010)

In the course of applying for a real estate appraiser’s errors and omissions insurance policy, the defendant completed applications for the years 2004 to 2007. Included within these applications was the following declaration: "The applicant has not been disciplined by any state licensing board or other regulatory agency as a result of appraisal activities within the past five years," to which the applicant would answer true or false.

Defendant in this case answered true to this statement in each application. Subsequently, the insurer learned that the defendant had indeed been disciplined on December 27, 2001 and sought to rescind the policy. In an effort to stave off rescission of the policy, the defendant relied upon the "last antecedent rule" and argued that the phrase "within the past five years" modified the noun phrase "appraisal activities" and not the verb phrase "not been disciplined." The court explained that the last antecedent rule is a principle of statutory construction standing for the proposition that a modifying or restrictive word or clause contained in the statute was defined solely to the immediately preceding clause or last antecedent unless something in the statute requires a different interpretation.

Even assuming this rule of statutory construction applied to the policy, the still court concluded that the last factor of this principle undermined the plaintiff’s position. The court stated that in considering all the questions together, it is clear that plaintiff’s interpretation was more fair and reasonable because plaintiff’s overall goal in asking the questions was to assess the risk. Thus, because the defendant was disciplined in December 2001, his representations stating that he had not been disciplined within the past five years was false. Moreover, he repeatedly made this false statement, on March 15, 2004, January 15, 2005, and December 3, 2005, respectively. The plain language of the application warned that if defendant answered false to any of the questions, he was not eligible for coverage. The evidence showed that plaintiff relied upon the applications and misrepresentations therein, the insurer was therefore, entitled to void the policy.

Impact: This case is an example of a policyholder stretching the limits of contract interpretation to absurd lengths in order to attempt to create an ambiguity.

For a copy of this decision, click here: http://insurancecoverage.typepad.com/insurance_and_reinsurance/2010/02/cases-for-professional-liability-monthly.html