Policyholders beware – misstatements as to warranties in policy applications might render the policy void from the beginning. On May 6, 2020, in Nationwide Mut. Fire Ins. Co. v. Pusser, 2020-Ohio-2778, the Ohio Supreme Court analyzed specific policy language and concluded that the policy “plainly stated” that a breach of a warranty in the application rendered the policy void ab initio.
The case involves an automobile insurance policy between Nationwide and Diane Lapaze. The application Lapaze submitted, which was incorporated into the policy under the policy’s terms, indicated that she was the only member of her household. However, on August 13, 2012, Barbara Pusser, Lapaze’s sister who lived with her at the time, was driving the vehicle at issue when she struck and killed a pedestrian. Nationwide filed a complaint for declaratory judgment, arguing the policy was void ab initio as a result of the misstatements in the application.
The trial court granted summary judgment in favor of Nationwide, but the court of appeals reversed. The Ohio Supreme Court held the trial court correctly ruled in favor of Nationwide and explained:
The policy states, “The application for this policy is incorporated herein and made a part of this policy. When we refer to the policy, we mean this document, the application, the Declarations page, and the endorsements.” (Emphasis deleted.) The policy also states that answers provided to questions in the application are warranties, which “if incorrect, could void the policy from the beginning.” And it says that information provided regarding “other operators in the household” is a warranty.
Therefore, based on the particular contractual terms and the facts at issue, the trial court correctly held that Nationwide was entitled to summary judgment and the policy was void ab initio.
The court of appeals had relied solely on policy language which stated “[w]arranties which, if incorrect could void the policy from the beginning.” The Supreme Court disagreed, holding “the nonmandatory nature of the word ‘could’ does not change the fact that the policy baldly states that a misstatement in the insured's warranty, which plainly occurred here, renders the policy subject to being void ab initio.” Moreover, the Supreme Court noted the nonmandatory nature of the word “could” might actually benefit the insured, because the policy is not required to be voided and the insurer is not required to continually scour policy applications for misstatements. Instead, the policy language acts as a “sufficient warning.”
Finally, the Supreme Court held the insurer does not violate policy terms by failing to declare the policy void and return the insured’s premiums before bringing a declaratory judgment action. According to the Court, elevating such form over substance would “likely have served no purpose and been uneconomical, not to mention that such a requirement would leave an insured without insurance during the pendency of the declaratory judgment action.” Instead, “once a policy has been judicially declared void, an insurer can return any premium that the insured paid on the policy.”