Implied covenant of good faith and fair dealing applies equally to the person insured when it applies to insurer. When a person applies for insurance and misrepresents material facts the covenant is breached and the insurer has the right to seek a court order that the policy is rescinded from its inception and that any duty to defend the policy does not exist since rescission establishes that the policy does not exist. policy never existed
Philadelphia Indemnity Insurance Company by William Asperi, Civil Action No. 18-cv-02372-CMA-NRN, United States District Court of the Colorado (February 13, 2019) William Asperi and his declaration were policy filed from its inception
On November 1
On June 20, 2017, Tabatha filed a complaint against Defendant in the Denver County District Court, case number 2017CV32255 (the "underlying"). lawsuit "). In the underlying lawsuit, Ms. Goodrich indicated that beginning in January 2015, she had been treated by Defendant, who claimed to be a "Registered Psychotherapist in the State of Colorado [and] held himself as having knowledge and skill in the field of neuropsychology and psychology." alleged that Defendant's registration was based on Defendant's submission of "false, misleading, incomplete and fraudulent information in his application for the Registration with the Colorado State Board." Specifically, he led to the Board, with regard to his physical and mental condition and his criminal record. Defendant was suspended from the practice of psychotherapy on September 22, 2015.
Defendant's fraudulently obtained credentials allowed him to provide mental health services to Ms. Goodrich. Defendant spent substantial time psychoanalysis Ms. Goodrich, "Here's what she was trying to find out what was wrong with her," and he eventually diagnosed Ms. Goodrich with Borderline Personality Disorder. Ms. Goodrich subsequently became pregnant as a result of her relationship with Defendant. Defendant's conduct gave rise to the underlying lawsuit in which Ms. Goodrich sued Defendant for multiple claims including negligence
Plaintiff was provided notice of the underlying lawsuit on August 11, 2017 and Plaintiff is currently providing defense to Defendant pursuant to a reservation of rights. Plaintiff sued seeking declaratory relief with respect to the validity of the policy and argues that the policy should be declared void because of Defendant made material misrepresentations.
DEFENDANT HAS DEFAULTED
Plaintiff served Defendant via personal service on November 16, 2018. Defendant has nevertheless failed to answer the Complaint or otherwise responded, and the time to do so has expired.
Under Colorado law, when policyholder misrepresents material facts to obtain insurance, the provisions obtained during those circumstances are void from their inception. Materiality is established in the case of false or concealed fact materially affected either the risk accepted or the hazard insured against such that the insurer would not have included the coverage commission it had been truthfully informed.
In the instant case, Plaintiff has shown that it may void the policy. Defendant explicitly represented that he had never been convicted of a misdemeanor or a felony. Moreover, by executing the agreement, Defendant acknowledged that he understood "that incorrect information could cover the insurance coverage."
In fact, Defendant had a lengthy criminal record that spanned more than two decades, and included more than two boxes of criminal cases. and a felony conviction before applying for insurance with Plaintiff in 2014. Therefore, Defendant misrepresented facts in his insurance application.
Plaintiff's decision to issue coverage was made in reliance on Defendant's misrepresentations and Plaintiff would not have issued the coverage if truthful information. Therefore, the policy was void ab initio which is to say void from its inception.
Where, as a contract is void ab initio, the party penalized has now rights thereunder. As a result, this policy does not impose on any duty to defend or indemnify Defendant for any claim related to the underlying law suit. Therefore, Plaintiff does not owe Defendant a duty of defense or indemnification with respect to the underlying lawsuit.
Insurers are compiled, by the covenant of good faith and fair dealing, to believe the facts represented by a prospective insured at the time of The application is considered to be prohibitive and since almost 100% of prospective insureds are honest and forthright. Misrepresentations are usually discovered when a claim is presented. In this case it was obvious since the underlying suit alleged that the insured song to the licensing board with lies that were also material to the insurer.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance, faith and insurance fraud almost equally for insurers and policyholders. He also serves 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 handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com
Mr. Zalma is the first recipient of the first annual claims magazine / ACE Legend Award.
About the last 51 years Barry Zalma has dedicated 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 make it possible for insurers and their claims staff to become insurance claims professionals.
Insurance claims expert and expert witnesses Kevin Quinley said about the following volumes: “Zalma's series of books is a terrific blend of both the legal underpinnings and the practical implications for the claim practitioner. Insurance Maven Bill Willson said: "Zalma On Insurance Claims" is a tour de force, an indispensable tool that should be a part of every claims training program in America and in the library of every claims professional for quick and frequent reference. This comprehensive guide is in the library of every insurance defense and policyholder law firm. It should be part of every claims training program of carriers, independent adjusting firms, and public adjusters. Many of these are part of the training or reference programs for non-claims personnel, from agents to underwriters to risk managers. ”Like this: