Misrepresentation By Insured

Dallas insurance lawyers know that ruling from other states are sometimes looked at by courts in Texas. One example is a 2014, opinion by the US 5th Circuit Court of Appeals. This court hears Texas cases, so knowing how they look at cases is important. The opinion is styled, Nationwide v. Baptist.
The district court held that the Baptists initially purchased a valid homeowner’s insurance policy from Nationwide, but that subsequent renewals of that policy were void ab initio because they occurred after the Baptists lost ownership of their home to foreclosure.
The parties do not dispute the relevant facts. The Baptists purchased the Nationwide policy in October 2006. Just over two years later, in November 2008, they lost their home to foreclosure. They did not inform Nationwide of the foreclosure sale, however, and they continued to occupy in the home. The Bank of New York, which had purchased the home at the foreclosure sale, sought and obtained a judgment evicting the Baptists on December 9, 2011. That should have caused the Baptists to vacate the home by January 13, 2012, but it was seriously damaged by a fire or fires on December 27 and 28, 2011. It was in conducting a post-loss investigation of the Baptists’ claims arising from these fires that Nationwide first discovered that they no longer held title to the property.
After losing their home to foreclosure, but prior to Nationwide’s discovery of that fact more than two years later, the Baptists twice renewed their homeowner’s insurance policy, first for 2009-2010, and again for 2010-2011, by sending Nationwide checks to cover each annual premium. In addition to the claims relating to the December 2011 fires, the Baptists also filed post-foreclosure claims relating to wind or hail damage, and to an unrelated fire, in April and May of 2010, respectively.
Nationwide filed suit in the United States District Court for the Northern District of Mississippi seeking
(1) a declaratory judgment that the policies issued after the foreclosure sale were void and
(2) recovery of payments it made on the Baptists’ claims filed in 2010 and 2011.
Seeking summary judgment, Nationwide insisted, inter alia, that the Baptists’ failure to inform Nationwide of the foreclosure sale was a material misrepresentation sufficient to void coverage. The District Court held that the Baptists –
“had no insurable interest in the subject property at the time the renewal policies were issued; the Baptists were therefore ineligible for such renewal policies; and, consequently, the renewal policies are void.”
The district court’s judgment ordered the Baptists to reimburse Nationwide for all payments it made on claims arising during the post-foreclosure renewal periods.
Although the parties devoted much of their briefing to whether the Baptists maintained an insurable interest in the property sufficient to sustain their policy’s effectiveness after the foreclosure, the court did not address this issue to conclude that the district court’s judgment must be affirmed. The court’s de novo review satisfied them that the district court’s ultimate conclusion was correct because, even assuming arguendo that the Baptists maintained an insurable interest sufficient to sustain their policy–in their personal property, contemplated as “contents,” for example–their renewals of their policy constituted their affirmations to Nationwide of their initial application for insurance, material portions of which were no longer true. The Baptists’ application reflected that the home would be owner occupied, and includes both the Baptists’ declaration that the facts stated on the application are true and their request that Nationwide issue “the insurance and any renewals thereof in reliance thereon.” By renewing their homeowner’s policy when they no longer owned their home, the Baptists made a misstatement of material fact that entitled Nationwide to rescind the policy.