Insurer Can’t Deny Coverage Despite Misinformation on Policy Application

An insurer that extended its workers’ compensation coverage for 90 days after discovering the employer had violated the terms of its policy could not then deny coverage for a claim on the grounds that those terms had been violated, the Georgia Court of Appeals, Fourth District ruled.

The appellate court affirmed a ruling by the State Board of Workers’ Compensation that an insurer was liable for a claim filed by an employee its policyholder. The insurer argued that the policy was void because the owner had misrepresented on his insurance application that he did not perform work outside of Georgia and his employees did not work at elevations greater than 15 feet.

“Here, the insurer waived a void policy defense when, upon discovery of the inaccurate information on the application, it informed the employer that its coverage would continue for 90 days,” the appellate panel said in its published opinion, issued Wednesday. “If the insurer believed that the policy was void based on fraud, it should have immediately rescinded it.”

The case is Grange Mutual Casualty Co. v. Bennett.

The dispute stems from a workers’ compensation claim filed by an employee of McCormick Enterprises, a small construction company that does greenhouse repair and maintenance. When its workers’ compensation policy with Liberty Mutual came up for renewal in 2014, the employer contacted its insurance agent and asked if he could find cheaper coverage.

The agent completed an insurance application that indicated the company did not work outside of Georgia. The agent testified that he was not aware that the company worked outside of the state, even though a previous insurance application indicated that it did.

The agent also classified the company as janitorial work on the application. The owner signed the application, but he stated that he had signed a blank copy and the agent filled out the form.

Its authorship is in dispute, but the court said the application submitted to Liberty Mutual stated McCormick provided janitorial services, its employees did not work out of state and did not perform work above 15 feet.

In fact, a Liberty Mutual investigation revealed that McCormick Enterprises does business in 30 states. The owner testified that he and gets 85% of its business from outside of Georgia. What’s more, his employees frequently clean windows at heights greater than 15 feet.

Liberty Mutual’s general counsel had decided that the carrier could not simply void the policy when it discovered the employer was not complying with its terms. Instead, the carrier sent a cancellation notice to the employer on Dec. 18, 2014, stating that coverage would cease on March 8, 2015.

On March 7, 2015, McCormick employee Adam Bennett was involved in an accident while driving as a passenger in a truck owned by the company, on his way to a snow-removal job in New York. He suffered extensive injuries to his skull and back.

Liberty Mutual argued that the policy did not cover out-of-state injuries. But an administrative law judge for the State Board of Workers’ Compensation said that if the carrier wanted to exclude other states from coverage, it was required to attach an endorsement to the policy stating that out-of-state injuries were not covered.

The insurer appealed to the full board, but the ALJ’s ruling was affirmed by both the board and the superior court.

The appellate panel cited several prior court decisions that held if a party wants to void a contract because of fraud or a mistake, it must immediately state its intentions and rescind the policy.

“Despite its contention now that the policy was void ab initio, the Insurer told the employer that it would continue to honor the whole policy for a period of 90 days,” the court said. “Because it extended coverage for 90 days, the Insurer therefore remained obligated to pay any valid claims arising under the policy terms within that time period.”