Can Your Insurance Company Refuse To Provide You With Insurance Coverage If You Lie To Them Concerning The Occurrence Of An Accident Or In Your Application For Insurance?

New Jersey case law makes clear that policies of insurance may be voided ab initio if misrepresentations are made to the insurance company by the insured either in the application process or in the reporting of a claim. Allstate Ins. Co. v. Meloni, 98 N.J. Super. 154 (App. Div. 1967); Merchants Indemnity Corp. of N.Y. v. Eggleston, 68 N.J. Super. 235, 244 (App. Div. 1961), affirmed N.J. 114 (1962); Palisades Safety and Ins. Ass’n v. Bastien, 344 N.J. Super. 319 (App. Div. 2001). However, it is also well settled that in order to justify cancellation or rescission of a policy for a is representation, the misrepresentation must be “material to the risk”. Meloni 98 N.J. Super at 160; Bastien 344 N.J. Super. at 321. Furthermore, the insurer seeking to disclaim coverage based on such a material misrepresentation carries the burden of proof in showing that, in issuing the policy, the carrier relied upon the misrepresentation and that the circumstances were such that its reliance upon the misrepresentation was reasonable. Id.

Importantly, case law has defined a “material misrepresentation” as a misrepresentation made to an insurance company which, if the truth were known, would affect the premium charge or change the exposure of the company to the risks of providing said coverage. Bastien 344 N.J. Super. at 322; citing Mass. Mutual Life Ins. Co. v. Manzo, 122 N.J. 104, 111 (1991). “An insured’s misstatement is material if when made a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action.” Bastien 344 N.J. Super. At 323 quoting Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 542 (1990). Thus, it is clear that in order for an insurance company to avoid coverage under a policy based on a misrepresentation of fact by an insured, the misrepresented fact must be inherent to the risk and the insurance company must establish that they would have had a different course of action had that fact not been misrepresented.

Additionally, an insured has a duty to notify the insurer of “newly discovered matters” after the issuance of the insurance policy. Weir v. City Title Ins. Co., 125 N.J. Super. 23, 30 (App. Div. 1973) citing 9 Couch on Insurance 2d (1962), s 38, 21 at 346-347. An insured should inform the insurer of “known changes in conditions material to the risk.” Id. Thus, in order to avoid the risk of having an insurance company deny you coverage, it is important to inform the insurer of any material changes regarding their insurance policy coverage, both before and after a claim is made.