Howard "Anthony" Jesmer (Jesmer) appealed against the granting of a summary judgment against him in this insurance dispute. Jesmer claimed that the district court erred in concluding that his answer to a question about an insurance application invalidated his insurance under Tennessee law. In Howard Anthony Jesmer v. Erie Insurance Company No. 21-5186, United States Appeal Court, Sixth Circuit (September 30, 2021) examined what is needed to repeal a policy in Tennessee.
On January 30, 2018, Jesmer applied for real estate insurance to cover "extensive hazards" to his home in Arlington, Tennessee. As part of the application process, Jesmer and his father, Howard Jesmer (Howard) met an Erie agent on 310 Fields Drive. Jesmer answered the insurance application's questions about the property. When Jesmer answered the questions orally, the insurance agent filled in the written questionnaire. Jesmer answered "no" to the question "Does the applicant carry out business or professional activities on the premises?"
The application warned that "[a] an incorrect response, intentional or not, to any information may jeopardize the acceptance [Erie’s] of this application." Jesmer and the agent signed the completed application. Jesmer "glanced" at the application before signing Erie issued a policy for the property that provides coverage for certain housing and property losses from February 1, 2018 to February 1, 2019.
In October 2018, Jesmer submitted accurate proof of loss under the insurance policy stating that a "fire of unknown origin [had] completely burned the home [his] and all its contents. "Jesmer claimed $ 760,732.96 in covered losses. Erie denied Jesmer's claim, and its agent then informed Jesmer's attorney that the claim had been partially denied, because at At the time of applying for insurance, Jesmer worked for a company owned by his father called H&M Recycling. keep tow trucks and vehicles on site. After Jesmer's father moved from the insured site, Jesmer continued operations from the premises. Jesmer sued Erie.
It was common ground that when Jesmer signed the insurance application, he worked for his father Howard's towing company, H&M Auto Recycling (H&M), and had done so since he was about seventeen years old. H&M acquires cars and dismantles them either for scrap or fixes them for resale. Around 2015, Howard moved the business from its former location in Mississippi to Jesmer's property.
Jesmer testified at the sale that his work for H&M consisted of "picking up vehicles" and driving them anywhere by his father. H&M paid Jesmer $ 1,000 in cash each week to carry out this work. Jesmer regularly stored H&M tractors on the property for use when sent during a call. Howard, the father, explained that Jesmer's job was to "run" the business from the property and that it was helpful for Jesmer to live in the house because it would prevent people from "stealing" the company vehicles.
Lisa Keller, an insurer for Erie who was familiar with the insurance policy issued to Jesmer, stated in a confirmation attached to Erie's summary judgment that "[h] ad application submitted by Anthony Jesmer revealed that he ran his father's business outside insured premises, the police would not have been written because Erie insurance company's risk of loss would have increased. ”
Under Tennessee law, only certain erroneous claims in an insurance application invalidate an insurance policy from the outset. The relevant statute states:
No written or oral misconception or guarantee made in the negotiation of an agreement or insurance policy, or in the application for a contract or insurance policy, by the insured or on behalf of the insured, shall be considered material or defeat or invalidate the insurance or prevent it from being attached, unless incorrect representations or guarantees have been made with the intention of deceiving, or if the matter does not represent an increased risk of loss.
In Tennessee, in order to avoid coverage under the charter, an insurer must prove two things:
- that the answers to the questions in the application were false.
- that the misrepresentation was material, which requires that either prove that the false answers were given with the intent to deceive the insurer or that the false answers increased the risk of loss.
If a misconception turns out to increase the risk of loss, the insurance is canceled according to the charter even if the misrepresentation was made innocently. The questions whether there is a misconception and whether false answers were given with the "intention to deceive " are factual questions to be decided by the fact seeker. Once it has been established that there is a misconception, it is a legal question, not a fact, for the court as to whether the misrepresentation increased the risk of loss.
The court concluded that reasonable minds could not agree that Jesmer's insurance application was incorrect in his commercial and professional activities on the property, and that, by law, that incorrect presentation increased Erie's risk of loss. Jesmer and his father both testified that at the time of application, Jesmer regularly stored tow trucks and sometimes towed vehicles on the premises.
Under Tennessee law, Jesmer was ultimately responsible for ensuring that the insurance application contained truthful information. An insured has an obligation to read the application for insurance and to verify the information. Jesmer would have been responsible for the content of the program even if he had not read the application at all.
Jesmer's tractors on the premises were business activities within the meaning of the Tennessee Act because they were both profit-driven and regular or continuous. Jesmer claimed that "
In order to determine whether an erroneous perception increased an insurer's risk of loss, the Tennessee courts examine whether the misrepresentation is of such importance that it naturally and reasonably affects the insurer's assessment at the conclusion of the contract. Tennessee law does not require the insurer to establish that the insurance would not have been issued if the truth had been revealed. It is sufficient that the insurer was denied information which it sought in good faith and which was considered necessary for an honest assessment of the insurance capacity.
Answered "no" to the relevant question, while keeping tractors and sometimes towed vehicles on Jesmer denied Erie the opportunity to make an informed decision as to whether, and at what cost, it was willing to insure Jesmer's property. Common sense also indicates that the presence of H&M tugs and sometimes towed vehicles on the premises would increase the value of the insured personal property and the risk of loss.
As Jesmer's insurance application contained a materially incorrect statement that invalidated the insurance under Tennessee law, the district court's decision was upheld.
People who obtain insurance by incorrectly presenting material facts forget that the association for good faith and fair trade is as much about the insured as it is about the insurer. In this case, Jesmer failed to inform the insurer in good faith of the risks of loss he asked it to take. The insurer's testimony established that the misrepresentation was material to the insurer who would have refused to insure Jesmer if it knew he was operating on the premises, a greater risk than for an ordinary homeowner who does not store tractors and damaged vehicles on the premises. He was therefore his worst enemy.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to employment as an insurance consultant specializing in insurance coverage, insurance claims handling, bad faith insurance 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 and claims management attorney and more than 54 years in the insurance industry.
He is available at http://www.zalma.com and firstname.lastname@example.org. 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 insurance companies and their indemnity staff to become liable for insurance.
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