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It does not pay to be on an insurance application



Insurance is an agreement of the utmost good faith that requires that both parties to the insurance contract do nothing to deprive the other of the benefits of the insurance. I Michael Favreau et al. v. Navigators Insurance Company et al., G056718 c / w G056938, Court of Appeal of the State of California Fourth Appellate District Division Three (December 15, 2020) Favreau sought the annulment of a summary judgment granted to Navigators, claiming that he was not

FACTS

Michael Favreau and Favreau's Custom Woodworking, Inc., (FCW) were denied coverage by the Navigators Insurance Company (Navigators) for claims against them in an underlying construction defect dispute. In this case, Favreau and FCW both sued the Navigators for allegations of misconduct arising from this denial of coverage. The FCW's reluctant argument is based on the assertion that the Navigators' withdrawal of the policy was based on the same facts they relied on when they denied coverage in the underlying case. The navigator's denial of coverage for the underlying action was based on the fact that the work done by Favreau and FCW that gave rise to the underlying lawsuit fell outside the scope of the policy coverage. Navigator's subsequent repeal of the policy, on the other hand, was based on false statements by Favreau and FCW when applying for the policy.

Navigators began insuring FCW in November 2007, through an Artisans Contractors program administered by Navigators' agent. The program serves specific trading entrepreneurs including carpentry. It excludes main contractors and construction managers. The original policy described the FCW's operations as "Carpentry Interior."

FCW renewed its navigation policy for the last time in 2011. The renewal application contained a provision under the heading "Special conditions", which showed that FCW paid a lower premium. because "no new residential construction work before proof of occupancy is permitted."

The application represented that FCW "is a licensed contractor carrying out residential and commercial cabinet and wood shop operations", that "the value of its largest current or planned job" was $ 2600, and that the value of its largest job in the last three years was $ 3750. The application also represented that 100 percent of FCW's business was "non-structural redevelopment" and that 0 percent of its business was new construction or "structural redevelopment." It represented that FCW's gross annual revenue was $ 150,000.

The application contained, inter alia, several "questions of justification" and the FCW answered a false "No" to each of the questions, as well as a section entitled "Trade-Specific Qualification Questions." The FCW answered a false "no" to almost all questions.

In April 2013, Christopher and Theresa Ruiz started a lawsuit against Favreau, a company called Favreau's Construction Management – a fictitious company name established by Favreau – s amt FCW. The complaint alleged several causes of action, including fraudulent induction of contract, negligent presentation, breach of warranty and fraud and breach of contract. each claim related to the construction of their new custom homes in 2011 and 2012. More specifically, they claimed that Favreau had them hire him to build his own home through various misrepresentations and false promises about his license, his qualifications and the qualifications of the subcontractors he would hire to work on the project. Ruizes also claimed that FCW was involved in a "civil conspiracy" with Favreau and Favreau's Construction Management to commit these acts.

In June 2014, after conducting an investigation of the claim, the Navigators formally denied coverage because (1) the policy excludes coverage. at the expense of repair, replacement or removal of FCW's own work, (2) the insurance excludes all construction lines carried out for a fee (and does not list Favreaus Construction Management as an insured); and (3) the policy excludes work performed in the construction of a dwelling prior to the certificate.

The Ruiz atmosphere was tested in 2016 without Navigator's further interference. In April 2016, the court issued a judgment against Favreau and in favor of Ruizes for $ 700,000 in damages, measured by the depreciation of the home. The court awarded an additional $ 700,000 in damages to Favreau.

Navigators claimed that revocation was justified based on various misrepresentations in FCW's 2011 policy application, including material misstatement of its past – and planned – work on new housing construction prior to the issuance of a occupancy certificate; the size of the planned projects, the fact that the principal intended to act as construction manager for a job in which it was involved and its participation in waterproofing work.

The trial court held that a summary judgment was warranted.

DISCUSSION 19659004] An incorrect presentation or concealment of an essential fact in connection with an application for insurance is a reason to cancel the insurance. An actual intent to deceive does not have to be shown. An insurance company does not waive its right to revoke a policy due to false representations unless it was aware of the inaccuracy of these representations. An insurer also has the right to rely on the insured's answers to questions in the insurance application without verifying their accuracy.

There was no evidence that Navigator knew that the FCW had already planned to carry out this work when it submitted its police application. . To be sure, the Navigators had some reason to suspect that this was the case, as it also had a copy of the Ruiz complaint, which claimed that Favreau was engaged to act as construction manager on the project before the application was submitted. However, these allegations had not yet been proven, and the Navigators could not revoke the policy based solely on an unsupported third party's claim against their insured.

The general rule that delays in seeking revocation may lead to forfeiture of the right to revoke where delays result in damage to the other party exist but Favreau and FCW do not offer any evidence to suggest that they were harmed by Navigator's failure to assert suspension until they submitted their request for bad faith against it. The Court of Appeal therefore concluded that Favreau and FCW have failed to address a trivial issue in the question of whether Navigator has waived its right to repeal the 2011 policy.

Incorrect explanations justifying revocation

Navigators relied on Favreau's deposit testimony to show that FCW had been involved in at least three new residential construction projects before applying for the 2011 policy. Favreau also testified that in 2009 he became a "partner" for a turnkey contractor, Charlie Bogner, and that they "built a couple of houses together." Favreau further testified that he and Bogner collaborated on the "complete remodeling" of a second home, including structural elements, during the same general time frame – and FCW was hired to build and install the cabinets in that project as well.

In his proposal, the Navigators demonstrated that Favreau submitted his proposal to handle the construction of Ruize's new home in March 2010. And among the lines proposed at the time was "painted cabinets according to our plans and specifications" at a cost of 87 $ 869. Then, in March 2011 – seven months before Favreau signed the 2011 insurance application on behalf of FCW – Favreau signed a contract with Ruizes on behalf of Favreau's Construction Management for "services related to the new construction of a single family home."

It is axiomatic in California that the fact that the insurer has required answers to specific questions in an insurance application per se is usually sufficient to establish materiality as a legal issue. ( Imperial Casualty & Indemnity Co . v . Sogomonian (1988) 198 Cal.App.3d 169, 179 ( Imperial Casualty ) .)

The materiality of a misrepresentation or concealment is determined solely by the probable and reasonable influence of facts on the party to whom the communication depends, by making its assessment of the disadvantages of the proposed agreement or by making its inquiries. This is a subjective test seen from the insurer's perspective. Thus, an incorrect presentation or concealment is essential if a truthful statement would have influenced the insurer's insurance decision.

In this case, the Navigators' evidence clearly showed that the question of FCW's planned participation in newbuilding projects was decisive for the decision whether to issue the policy and, if so, how to price it. Why else, the court asked, would the Navigators ask the questions?

The undisputed facts show that Favreau expected the Ruiz job to generate profits well over $ 2600 for FCW, long before he signed the 2011 insurance application on its behalf. After concluding that Favreau and FCW did not raise any factual issues concerning the wrongful representations relied on by the Navigators in repealing the policy, the Court of Appeal had no choice but to find fault in the decision of the Court of Justice to grant a summary judgment in favor of the Navigators.

As my mother told me 70 years ago: "liars never succeed!" In this case, Favreau lied on the insurance application claiming that he was a small time cabinet manufacturer when he actually worked as a general contractor building new houses from scratch, rebuilding houses from scratch and not working as a small cabinet manufacturer taking jobs to a worth less than $ 3,000 when in fact he took on jobs worth hundreds of thousands of dollars. The court concluded that he lied to his insurance company and that his lie was material to its decision to insure or not to insure him against the risk of losing third party claims. The just remedy was applied and Favreau did not recover.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to employment as an insurance consultant specializing in insurance coverage, insurance management, insurance fraud and insurance fraud almost equally for insurers and insurers. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claims staff to become insurance claims staff.

https://zalma.com/zalmas-insurance-fraud-letter-2/ Last read two issues of ZIFL here.

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