Expert Testimony to Prove Material Misrepresentation and Rescind Insurance Policy
The Third District Court of Appeal recently issued a decision in Certain Underwriters at Lloyd’s London v. Jimenez, which reinforced an insurer’s right to rescind an insurance policy due to material misrepresentations in the insurance application.
In Certain Underwriters, the insurer (“Lloyd’s”) issued a homeowner’s insurance policy to Mr. and Mrs. Jimenez. During the initial application process, Mr. Jimenez was asked whether his 1985 home had a monitored smoke, temperature or burglar alarm, to which he answered that the home maintained a central station alarm that monitored for smoke, temperature, and burglary.
When the initial policy was set to expire, Mr. Jimenez completed a renewal application that contained a conditional Protection Device Endorsement. The Protection Device Endorsement stated that the policy’s discounted premium was based on the representation that the Jimenezes’ property had a central station alarm and further provided that all alarms/security systems identified in the insurance application were required to be fully operational at all times as a condition of insurance. Failure to comply with this provision would render the policy void.
Following a 2009 kitchen fire at the Jimenezes’ home, Lloyd’s filed a two-count complaint seeking 1) declaratory relief claiming that the policy’s Protection Device Endorsement precluded coverage and 2) rescission of the policy based on the Jimenezes’ material misrepresentation in their renewal application that their home maintained a central station monitored smoke and temperature alarm. The Jimenezes counterclaimed, seeking coverage under the policy.
At trial, Lloyd’s representative, who personally underwrote the policy, testified that the representation that the property had a central station monitored smoke and temperature alarm was material to the risk assumed by Lloyd’s because if the property did not, in fact, have a central monitoring system, the Protection Device Endorsement would preclude coverage. Lloyd’s likewise offered testimony from a corporate representative from Delta Alarm Systems, who testified that although the Jimenezes had a burglar alarm, their home did not have a central station monitored smoke or temperature alarm.
Most importantly, Lloyd’s also offered expert testimony from a Ph.D. in risk management and insurance to prove that the existence of a protection device system was material to the risk assumed by Lloyd’s. Lloyd’s expert explained that the existence of a central protection device system was material to insurers’ risk for two reasons: first, these alarms create a discount in the insurance rating, and second, these devices may serve as an important “cut-off” for insurance related to whether an underwriter would accept the risk of insurance at the outset. As Lloyd’s expert explained, the existence or non-existence of an alarm was material because the Jimenez’s home was close to Lloyd’s 25-year age cutoff for insurance, so the representation that the home maintained a monitored alarm was considered as a positive feature in Lloyd’s determination to accept the risk of insurance.
The Third District Court of Appeal held that the Jimenezes’ misrepresentations that the home contained a central monitored alarm system were material as a matter of law and reversed the trial court, finding recovery under Lloyd’s insurance policy was unwarranted. The Court reiterated that under Florida Statute § 627.409(1), an insurer is entitled as a matter of law to rescind a policy based on misrepresentation where the insurer establishes that an insured’s statement is a misrepresentation, the misrepresentation was material, and the insurer detrimentally relied on the misrepresentation. The Court expressly distinguished the Second District Court of Appeal decision in Mora v. Tower Hill, finding that unlike Mora, where the insurer failed to establish that a misrepresentation occurred or that it was material, Lloyd’s provided sufficient evidence that the misrepresentation was material and explained why Lloyd’s, in good faith, would not have issued the insurance policy had it known of the misrepresentation.
The Certain Underwriters decision is a huge victory for insurers because it demonstrates that an insurer’s right to invoke rescission as a remedy still has a strong basis under Florida Statute § 627.409 where the insurer can demonstrate that it would not have issued a policy had it been told the truth in the policy application. Even more important is that Certain Underwriters provides a framework that insurers may use to sufficiently establish a material misrepresentation exists to void an insurance policy. The Certain Underwriters’ Court’s reference to the “conclusory opinions” offered in Mora underscores the importance of expert testimony and other evidence in establishing a material misrepresentation. Moving forward, insurers seeking to rescind an insurance policy based on a material misrepresentation in an insurance application should offer expert testimony to establish that the misrepresentation was material to the risk assumed by the insurer or that the insurer, in good faith, would not have issued the policy but for the misrepresentation.
 41 Fla. L. Weekly D1431 (Fla. 3d DCA, June 15, 2016).
 Mora v. Tower Hill Prime Ins. Co., 155 So. 3d 1224 (Fla. 2d DCA 2015).