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Claims Practices

Agent's Lie to Insurer Voids Policy

Barry Zalma | April 8, 2016

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Fingers crossed swearing oath

Most people do not understand insurance. Most do not understand the importance of the absolute truth of the matters of fact stated in an application for insurance. As a result, the average person relies on his or her insurance agent/broker to do what is necessary to obtain insurance.

When the agent/broker transacting insurance with—but not on behalf of—an insurer misrepresents material facts to the insurer, the person insured can be harmed and found to be without coverage. In all cases, when a claim is denied, both parties are upset, and litigation invariably follows.

Georgia Casualty v. Valley Wood

In Georgia Cas. & Surety Co. v. Valley Wood, Inc., 2016 Ga. App. LEXIS 181 (Ga. Ct. App. Mar. 23, 2016), the Georgia Court of Appeals was faced with a situation where Georgia Casualty and Surety (GCS) lost a jury trial seeking insurance coverage and bad faith damages and appealed the failure of the trial judge to grant a directed verdict. Valley Wood also appealed the refusal of the trial court to grant it bad faith damages.


Following a jury trial, GCS appealed from a judgment in favor of Valley Wood, Inc. GCS asserted that it was entitled to a directed verdict in its favor based on OCGA § 33–24–7(b), which provided the following.

"Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless:

  1. Fraudulent;
  2. Material either to the acceptance of the risk or to the hazard assumed by the insurer; or
  3. The insurer in good faith would either not have issued the policy or contract or would not have issued a policy or contract in as large an amount or at the premium rate as applied for or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been known to the insurer as required either by the application for the policy or contract or otherwise."

The evidence introduced at trial showed that the co-owner of Valley Wood, Richard Ramey, obtained insurance coverage with GCS, and that the insurance applications submitted to GCS were not signed. Ramey testified that until the week before trial, he had never seen the application before. He denied being asked the questions in the application "by anybody," giving permission for anyone to answer the questions or being asked the type of questions in the application by anyone at the Lanier agency. No one from the Lanier agency testified at trial.

An underwriter with GCS testified that he received the application through an email from the Lanier agency, that he would have rejected the application for crime coverage if the application had stated that Valley Wood did not audit with a certified public accountant and did not require countersignatures on checks, and that his underwriting decision was based on the applications. Ramey admitted that Valley Wood did not perform full audits each year or require countersignatures on checks.


"A directed verdict is authorized only where 'there is no conflict in the evidence as to any material issue and the evidence (adduced), with all reasonable deductions therefrom, shall demand a particular verdict.' OCGA § 9–11–50(a). [Cit.]" Massachusetts Bay Ins. Co. v. Wooten, 215 Ga. App. 386, 387(2) (450 S.E.2d 857) (1994).

A material misrepresentation is one that would influence a prudent insurer in determining whether or not to accept the risk, or in fixing a different amount of premium in the event of such acceptance. While ordinarily the question of materiality is for the jury, where the evidence excludes every reasonable inference except that the misrepresentation was material, the issue becomes a question of law for the court. It is well-established that the insurer need not show "actual knowledge of the falsity of misrepresentations in order to prevent a recovery under the policy." United Family Life Ins. Co. v. Shirley, 242 Ga. 235, 237–238 (248 S.E.2d 635) (1978).

In this case, the undisputed evidence showed that the use of a CPA audit and a requirement that checks be countersigned were material to GCS's decision to issue crime coverage to Valley Wood and that it would not have issued the policy if it had known the true facts. Where the evidence shows that the insurer would not have issued the policy if it had been aware of the true facts, the evidence demands a finding that the omissions or misrepresentations were material to the acceptance of the risk.

To the extent Valley Wood argues that it could not be bound by misrepresentations in an unsigned application submitted by its insurance agent, the court concluded that these arguments had no merit. Independent insurance agents or brokers are generally considered the agent of the insured, not the insurer. A principal is bound by all representations made by his agent in the business of his agency and also by his willful concealment of material facts, although they are unknown to the principal and known only by the agent. The Lanier agency was authorized to procure insurance on behalf of Valley Wood, and its conduct in submitting an application for insurance would undoubtedly fall within the scope of its agency relationship.

GCS sought "a declaration that the insurance policy is void because Valley Wood made misrepresentations in its applications for insurance to Georgia Casualty."

The court explained that an insurer may file a declaratory action in order to determine whether an insurance policy is voidable. Although a prerequisite to rescission is placing the other party in the status quo ante, it does not follow that the insurer must allege a return of premiums when seeking a declaratory judgment that it is entitled to void the policy. An insurer may want to know whether a policy is, in fact, voidable before seeking to rescind the policy, and a declaratory judgment is an appropriate means to that end.

The trial court's denial of a directed verdict in favor of GCS was reversed on the issue of whether the policy was void based on misrepresentations in the application. The appeal of the insured was dismissed as moot.


As I have said often, insurance is a contract of utmost good faith. When a person appoints an agent to obtain insurance for him or her, the agent must deal fairly and in good faith when applying for the insurance. In this case, the agent lied about material facts that the insured admitted were false, and the insurer's underwriter testified to the materiality of the facts misrepresented. In simple words, lies told to an insurer about material facts voids insurance.

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