The recent ruling by the 8th U.S. Circuit Court of Appeals in Pioneer Industries, Inc. v. Hartford Fire Insurance Company is a wake-up call to companies who allow one person to apply for insurance, Rikke Dierssen-Morice told Minnesota Lawyer. According to the ruling, a commercial insurer was not obligated to cover the loss, from embezzlement, to a company where the insurance purchaser was the embezzler, who made material misrepresentations in the applications, increasing the insurer's risk of loss.
Dierssen-Morice recommended that there should be at least two people vetting insurance applications to avoid a potential loss of coverage. She noted that another outcome of the case, the court's denial of reimbursement of an old claim paid out by Hartford, offers at least a glimmer of hope to a business that has made a misrepresentation or mistake in its insurance application. Giving the benefit of ambiguities to the insured – if the insurer at some point informed the insured that the coverage was being cancelled and required a new application and evaluation of the insured in order to issue a new policy – the court said that the policies in effect before the cancellation notice could not be rescinded. (The full article is available to subscribers only.)