Insurance Declination Letters; Do It Right Or It May Not Be Effective
A material misrepresentation made to an insurance company can provide the basis for a policy’s recission. A real estate investor/insured purchased a duplex in Detroit in 2021 with the intent of renting the first-floor unit to his ex-girlfriend. The investor/insured purchased homeowners’ insurance for the property.
On December 8, 2022, a fire broke out and burned down the home. The investor/insured filed a claim for $424,479.29 with his insurer. The insurer determined that the investor/insured had concealed and misrepresented material information during the application process; the investor/insured had told the insurer that he was living in the house when, in fact, it was being rented. The insurer asserted that this rendered the homeowner’s insurance policy void. The insurer refused to pay the claim because the house was being used as a rental property. The investor/insured should have purchased a commercial “Landlord’s Risk” type of insurance.
During the ensuing litigation, the insured/investor argued that the insurer did not expressly assert the correct affirmative defense in its denial letter and was thus barred from using that affirmative defense. Under Michigan law, an insurer waives its right to assert an affirmative defense which was not stated in its denial-of-coverage letter. Bartlett Invs., Inc v Certain Underwriters at Lloyd’s London, 899 N.W.2d 761., 763 (2017). The exception to this rule derives from the case of Ruddock v Detroit Life Ins. Co., 177 NW2d 242, 248 (Mich 1920). Known as the “Ruddock Rule,” an insurer’s failure to disclose an affirmative defense in a declination letter may not be considered if doing so would require the insurer “to protect against risks that were not included in the policy.”
The insurer was saved from its defective declination letter by the Ruddock Rule. The policy only covered “the [insured’s] primary residence.” The policy defined “residence” as “where you [insured] reside….” The Court held that the insurer could not be forced to cover a loss that its homeowner’s insurance policy did not contemplate.
This case highlights the importance of drafting declination letters which include all legal, contractual and factual reasons for declining coverage.
Read entire case at:
Gordon v State Farm Fire and Casualty Company
milawyersweekly.com/wp-content/blogs.dir/1/files/2024/11/MiED-Gordon.pdf
About Alexander & Angelas, P.C.
Attorney Peter A. Angelas represents defendants in civil liability litigation across Michigan and Northern Ohio. His practice areas include insurance defense litigation, premises liability, motor carrier (trucking) defense, corporate and commercial litigation, construction defect litigation, auto negligence, insurance coverage disputes, emergency casualty response services, alternative dispute resolution, subrogation claims, workers’ compensation, employment law, and liquor liability.
Mr. Angelas practices in all state and federal courts in Michigan, including Wayne County (Detroit), Macomb County (Mount Clemens), Oakland County (Pontiac), Washtenaw County (Ann Arbor), and Genesee County (Flint). Legal services are also provided in Northern Ohio.
A 24/7 Emergency Hotline is available (800-219-0007) for trucking and insurance company clients. When an accident requires an immediate response to protect evidence, members of the firm quickly launch an investigation with the assistance of well-qualified accident investigators, crash re-constructionists, mechanical engineers, civil evidence photographers, and independent adjusters positioned throughout Michigan and Northern Ohio.
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