Facts
- David Busskohl applied for a De Smet homeowner’s policy in December 2004 and answered “No” to whether any insurer had “cancelled, refused, restricted, or declined to renew similar insurance,” certifying the application was true and correct.
- De Smet issued a homeowner’s policy based on the application.
- Busskohl had a prior loss history, including two prior house fires (1983 and 1990), and after the 1990 fire he and his then-wife sought homeowner’s coverage from American Family Insurance Company.
- Deposition testimony from Busskohl’s former wife and an American Family agent indicated American Family declined to insure the Busskohls’ newly built home due to their prior loss history.
- In 2005, Busskohl’s insured home was destroyed by fire, and De Smet paid $476,350 under the policy.
- During later litigation involving Busskohl and the insurance agent/agency, De Smet learned of the earlier American Family refusal and sought to rescind the policy and recover amounts paid.
- De Smet submitted underwriting testimony that disclosure of a prior refusal would have prompted further investigation and led De Smet to decline issuing the policy.
Issues
- Whether Busskohl made a misrepresentation by answering “No” to the application question asking whether any insurer had previously refused similar insurance.
- Whether the misrepresentation was material, permitting rescission and supporting summary judgment for the insurer.
Decision
- The South Dakota Supreme Court affirmed summary judgment for De Smet.
- The court held there was no genuine dispute of material fact that American Family had refused similar insurance and that Busskohl’s “No” answer was a misrepresentation.
- The court held the misrepresentation was material as a matter of law because it would naturally influence the insurer’s underwriting decision and, on this record, would have led De Smet to decline the risk.
Legal Principles
- An insurer may rescind an insurance contract when the insured makes a material misrepresentation in the application.
- A prior insurer’s refusal of coverage may be established by testimony showing the insurer declined to insure through its agent/underwriter communications; a formal written application or written rejection is not required to constitute a “refusal” for application-disclosure purposes.
- Materiality may be resolved on summary judgment when undisputed underwriting evidence shows truthful disclosure would have altered the insurer’s decision to issue the policy.
Conclusion
The court upheld rescission and summary judgment for the insurer because the insured’s application answer denying any prior refusal of similar insurance was false on the undisputed record and was material to the insurer’s decision to write the homeowner’s policy.