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Losing Professional Liability Coverage for Misstatements on Policy Application: Ohio Supreme Court W Losing Professional Liability Coverage for Misstatements on Policy Application: Ohio Supreme Court W

Losing Professional Liability Coverage for Misstatements on Policy Application: Ohio Supreme Court Will Determine When a Policyholder’s Misstatement Voids a Policy

On October 24, 2018, the Ohio Supreme Court accepted a case to determine when an insurer can avoid covering a policyholder’s loss when the policyholder misstates facts in the policy application.  

Professional Liability Applications

Policy applications tend to be the first interaction a policyholder has with an insurer. For architects, engineers, and other professional service firms, the applications can be just as important as the policies themselves. Policyholders need to ensure they fully disclose all that is asked on a policy application. Otherwise, they might be carrying a void policy.

In professional liability policy applications, insurers ask companies about their background, leadership, loss history, and professional services provided. Based on the responses, insurers asses the risk to calculate the premiums and then issue the policies.

What if, after issuing the policy, a loss occurs and the insurer refuses to cover it because it claims that you misstated facts on your policy application? Can you get any coverage?

Imagine you’re filling out a professional liability application. You list your company’s background, leadership, and professional services information. Then, you see a question asking you whether you’re aware of any facts that might “reasonably” give rise to a claim against the company. Generally, no claim comes to mind, but you do recall some design issues that a building owner complained about in your last project. No one specifically mentioned anything about filing a claim, so you assumed it wasn’t an issue and you mark “no” on the policy application.

At the bottom of the application, it states the following:


After completing the application, the insurer issues your policy, which includes the following provision:

REPRESENTATIONS AND WARRANTIES IN THE APPLICATION: The application for this policy is incorporated herein and made a part of this policy…If it is determined that any warranty made by the policyholder is incorrect, this policy may be held void ab initio… (Emphasis added).

A few months later, that building owner acts on his complaints and sues you for the design errors. And to make matters worse, the insurer now claims you misrepresented what you knew about potential claims on the application by marking “no.” It believes you knew about the potential design-error claim the owner could bring. The insurer cites the provision in its policy that says any “such misstatement may void the policy.” As a result, it refuses to provide coverage.

Can an insurer avoid coverage for your misrepresentation in an application when the policy says “a misstatement may void the policy”?

Court of Appeals Rejects Insurer’s Coverage Avoidance Due to Policy Ambiguity

In Nationwide Mutual Fire Ins. Co. v. Barbara Pusser, et al., No 17 MA 0117, 2018-Ohio-2781 (7th Dist. Ct. App. June 29, 2018), the Seventh District Court of Appeals sitting in Mahoning County ruled that an insurer could not void the policy based on such language. Specifically, the court said the policy’s use of the word “may” in the avoidance clause was not a “plain warning” that a policyholder’s misstatement in the application would render the policy void.

The case arose out of a car accident where an auto-insurance policyholder’s roommate hit a pedestrian. Because the policyholder failed to include her roommate’s name in the application where it asked about “all household members of driving age,” the insurer pointed to a clause that expressly incorporated the application into the policy. Like the example above, the policy stated “a misstatement may void the policy.”

The Court of Appeals ruled against the insurer and held that the policy language was not a “plain warning” as required under the Ohio Supreme Court’s ruling in Allstate Ins. Co. v. Boggs. 27 Ohio St.2d 216, 271 N.E.2d 855 (1971). In Boggs, the Court declared that only warranties within the policy—unlike representations in applications not included in the policy—can be void ab initio­—at inception—when a policyholder misrepresents a material fact to the insurer. Unlike warranties, misstating to the insurer a representation—that is, a fact not included in the policy—may “not be used to avoid liability arising under the policy after such liability has been incurred.” Goodman v. Medmarc Ins., 977 N.E.2d 128, 2012-Ohio-4061, ¶ 23 (8th Dist. Ct. App. 2012). Such misrepresentation is, however, voidable against future claims.

This distinction between warranties and representations resulted in the Boggs two-part test for insurance application misrepresentation. Under the test, an application misstatement voids the policy ab initio if: (1) the statement plainly appears on the policy or is plainly incorporated into the policy, and (2) there is a plain warning that a misstatement as to the warranty will render the policy void from its inception. (Emphasis added).

Applying the Boggs two-part test, the Court of Appeals found that the word “may” in the policy’s avoidance clause was ambiguous and was not a “plain warning” that a misstatement by the policyholder will render the policy void from its inception. Instead, the court said that by using “may” instead of a word like “will” or “shall”, the insurer could decide after the loss whether it would cover the loss or not and, thus, was not a “plain warning” of the consequences.


Now, the Ohio Supreme Court will revisit the law under Boggs and determine whether the use of “may” versus “will” or “shall” voids a policy instantly for a policyholder’s misstatement on its application. Although the case discusses an auto-insurance policy, courts have applied the Boggs test to other lines of insurance such as professional liability.

As evident in Nationwide Mutual Fire Ins. Co. v. Barbara Pusser, insurance policy applications are important. In the scenario discussed above, the use of “may” instead of “will” or “shall” in the avoidance clause might save you from losing all coverage. However, policyholders should not rely on this discrepancy when filling out applications. Instead, spending a little extra time or putting a second set of eyes on your new policy or a policy renewal application can reduce significant risk of inadvertently failing to disclose something.

For more information, contact Christian Robertson.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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