“We consider the language in the policy—which states that the policy could be rendered void ab initio if the insured’s warranty proved to be untrue—to be a sufficient warning.”

Justice Donnelly, opinion of the Court

On May 6, 2020, the Supreme Court of Ohio handed down a merit decision in Nationwide Mut. Fire Ins. Co. v. Pusser, Slip Opinion No. 2020-Ohio-2778.  In a 6-0 opinion written by Justice Donnelly, the Court held that the insurance policy at issue in the case was void ab initio because of material misstatements by the insured. The case was argued September 11, 2019. The concluding section of the opinion says “Fischer, J., not participating,” which is the reason why only six justices decided the case. I assume “not participating” means not participating in the decision-making process, because Justice Fischer did not recuse himself from the case initially, participated in the oral argument and asked several questions. I’m guessing something came up during or after argument that caused him to realize he had a conflict.

Case Background

The insured in this case is Appellee Diane Lapaze. At the time Lapaze bought the insurance policy from Nationwide, her sister Appellee Barbara Pusser lived with her. But on the application Lapaze submitted to Appellant Nationwide to get the policy, no one was listed as a household member. The application was incorporated into the policy.

On August 13, 2012, Pusser was driving Lapaze’s car and struck and killed a pedestrian named Robert Boak, whose estate is the only participating appellee this appeal.

Nationwide filed a declaratory judgment action seeking a declaration that the policy was void ab initio based on Lapaze’s misstatements about her household members. The specific policy language relied on by Nationwide stated, “if it is determined that any warranty made by the policyholder is incorrect, this policy may be held void ab initio.” The policy also stated that information about other operators in the household was such a warranty.

The trial court granted summary judgment to Nationwide, agreeing that Lapaze’s incorrect answer on the application was a breach of warranty which voided the policy ab initio. The Seventh District Court of Appeals reversed, finding pursuant to Supreme Court precedent in Allstate Ins. Co. v. Bogg, that the terms of the policy did not “clearly and unambiguously” indicate that Lapaze’s misstatements could void the policy. The appeals court also held that Nationwide had itself failed to declare the policy void and return Lapaze’s premiums.

Read the oral argument preview of the case here and the analysis here.

Key Precedent

R.C. 2721.03 (“Any person interested under a . . . written contract . . .  may have determined any question of construction or validity arising under the instrument . . . and obtain a declaration of rights, status, or other legal relations under it.”)

Allstate Ins. Co. v. Boggs, 27 Ohio St.2d 216 (1971) (In order for an applicant’s misstatement in an insurance application to be a warranty that voids the policy ab initio, (1) the representation must plainly appear on the policy or must be plainly incorporated into the policy and (2) there must be a plain warning that a misstatement as to the warranty will render the policy void from its inception.)

Skivolocki v. E. Ohio Gas Co., 38 Ohio St.2d 244 (1974) (Courts should interpret contracts “so as to carry out the intent of the parties, as that intent is evidenced by the contractual language.”)

Preferred Risk Ins. Co. v. Gill, 30 Ohio St.3d 108 (1987) (R.C. 2721.03 permits an insurer to bring a declaratory judgment action in order to obtain a binding judicial interpretation of its rights and obligations under an insurance contract.)

Personal Serv. Ins. Co. v. Lester, 2006-Ohio-5199 (4th Dist.) (Policy language stating that the insurer “may void coverage” provides “a plain warning” as required under Boggs.)

Med. Protective Co. v. Fragatos, 2010-Ohio-4487 (8th Dist.) (Policy language stating that the insurer “may act to render any contract of insurance null and without effect” is a sufficient warning under Boggs.)

Dominish v. Nationwide Ins. Co., 2011-Ohio-4102 (“Ambiguous language in an insurance contract is construed against the insurance company.”)

Westfield Ins. Co v. Hunter, 2011-Ohio-1818 (A decision granting or denying a motion for summary judgment based on an insurance contract is reviewed de novo.)

Nationwide’s Propositions of Law Accepted for Review

Proposition of Law No. 1

An insurance policy sufficiently warns the insured of the consequences of warranty misstatements where the policy states that it “may be held void ab initio.”

Proposition of Law No. 2

An insurer is not required to void a policy and return an insured’s premium before bringing a declaratory judgment action regarding whether the insurance policy is void ab initio.

Does the Court Adopt Nationwide’s Propositions of Law?

Yes

Merit Decision

Analysis

A Few Black Letter Truisms

An insurance policy is a contract. Contracts are to be interpreted to carry out the intention of the parties which is determined from the four corners of the document. Ambiguous language in Insurance policies must be strictly construed against the insurance company. Grants of summary judgment are reviewed de novo.

Boggs

Boggs held that when an insured’s statement is a warranty, a misstatement of fact voids the policy ab initio. But in order for the policy to be void ab initio, the policy must contain a clear statement that the representation in the policy is a warranty or incorporates the application by reference into the policy.

Boggs also differentiated the terms “warranties” and “representations.” If a warranty is untrue, the policy can be found void ab initio. An untrue representation makes the policy only voidable. In a footnote Justice Donnelley suggests the language in Nationwide’s policy at issue here may have been based on the differentiation in that decision.

Nationwide Complies with Boggs

Nationwide undeniably incorporated the application into the policy. The policy language expressly says so. The information Lapaze gave about other household members was a warranty. The policy expressly says that as well.

Where the Appeals Court Erred

The court of appeals found that the policy language “warranties which if incorrect could void the policy from the beginning” wasn’t good enough to warn Lapaze that the policy could be voided ab initio because “could” speaks of possibilities, not certainties. The high court disagrees, finding that the nonmandatory nature of “could” doesn’t change the fact that the policy unequivocally states that a misstatement in the insured’s warranty, which is what happened here, subjects the policy to being found void ab initio. 

Insurer Need Not Return Premiums Before Filing a Dec Action

Insurance companies are absolutely allowed to file a declaratory judgment action to establish their rights and obligations under a policy. The insurer does not have to declare the policy void and return the premiums first before filing such an action, as the Seventh District found. In finding otherwise here, the reasoning of the appeals court “unduly elevates form over substance,” wrote Donnelly, for the Court. Premiums can be returned once the policy has been declared judicially void.

Case Disposition

The judgment of the court of appeals is reversed, and summary judgment in favor of Nationwide is reinstated.

Trial Court Judge (affirmed)

Mahoning County Court of Common Pleas Court Judge Maureen A. Sweeney

Seventh District Panel (reversed)

Opinion authored by Judge Gene Donofrio joined by Judges Cheryl L. Waite and Carol Ann Robb.

Concluding Observations

Both student contributor Madeline Pinto and I correctly called this for Nationwide. I’m still not sure the distinction between representations and warranties is so clear, but maybe that is the fault of Boggs as Justice Donnelly suggests in footnote 2 of the opinion. But I also still think if an insurance company means “shall” it should say so. And as I predicted, accepting the second proposition of law was a no-brainer.  This is a sad case. Lapaze was diagnosed with dementia about a year after she bought the policy, Pusser was intoxicated at the time of the accident, and a totally innocent pedestrian was killed.