Insurer cancels policy on rental home after fire; avoids payment
Alvin Matheny owned several rental homes in Detroit. His wife insured one of them with Homesite Insurance Company over the phone. In November of 2007, the insurer sent a cancellation notice voiding the policy because the property was a rental. Within days, it was burned immediately after a tenant was evicted. Homesite claimed that when the policy was first issued, Matheny's wife must have lied to the sales representative and told the company that the home was a "secondary residence" rather than a rental. Matheny's wife explained that she did not remember what questions were asked, but claimed that she answered the questions honestly. Homesite refused to pay for the insurance purchased and Matheny filed suit.Matheny argued that a fact question existed with regard to whether his wife lied to the sales representative in procuring insurance. He also argued that Homesite's cancellation notice, which purported to continue the coverage beyond the date of the fire, should estop the company from avoiding payment, since he relied on that date in seeking other coverage.
The Court ruled, rather surprisingly, that there was no material question of fact regarding the claim that Matheny procured his coverage by fraud. Although Homesite could only establish its underwriting procedures through testimony regarding what the sales representative "would have asked as a matter of routine," Matheny's wife was not allowed to counter with the fact that she answered all questions truthfully. Because she could not recall the specific questions asked, her general allegation of truthfulness was not considered.
Even though the notice claimed Matheny's policy was being terminated due to a "substantial change in risk", the Court also held that since the policy was actually being "voided," the Mathenys could not rely upon the insurer's notice that appeared to continue the policy through December 16: it was void from the outset.