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Republic Franklin Ins. Co. v. Quiroz

United States District Court, D. Connecticut

September 30, 2017

Republic Franklin Ins. Co., Plaintiff,
Rafael Quiroz, New Penn Financial, LLC d/b/a Shellpoint Mortgage Servicing, Defendants.


          Robert N. Chatigny United States District Judge.

         Plaintiff Republic Franklin Insurance Company (“Republic Franklin”) brings this diversity case seeking a declaration that it owes no coverage to defendants Raphael Quiroz and his mortgagee, New Penn Financial, LLC, d/b/a Shellpoint Mortgage Servicing (“Shellpoint”), under a homeowner's policy covering residential property owned by Mr. Quiroz in East Hartford (“the property”), which has been damaged by fire. Republic Franklin contends that the policy has been properly rescinded based on a material misrepresentation in the policy application attributable to either Mr. Quiros or his agent, and that language in an endorsement to the policy is properly construed as an open mortgage clause such that Shellpoint has no greater right to coverage than the insured. In response to the complaint, Mr. Quiroz has filed counterclaims for breach of contract, reformation and negligence. Plaintiff and Shellpoint have moved for summary judgment (ECF Nos. 53, 55). After considering the parties' submissions, I conclude that genuine issues of material fact are presented with regard to whether the misrepresentation in the policy application was knowingly made. I also conclude that Shellpoint has failed to demonstrate that it is entitled to judgment as a matter of law. Accordingly, both motions are denied.


         The materials submitted by the parties establish the following facts for purposes of deciding the motions for summary judgment. Mr. Quiroz bought the property some time prior to 2010. At various times prior to 2014, he obtained homeowner's insurance policies for the property using Antonio Jimenez as his insurance agent. Mr. Jiminez used other agents who had binding authority with insurance companies to assist him in placing coverage for his customers.

         In October 2014, Mr. Quiroz approached Mr. Jimenez about applying for a policy for the property. Mr. Jimenez contacted Angel Rivera, who had an agency relationship with the plaintiff. Mr. Jimenez prepared an application for Mr. Quiroz to obtain coverage for the property through the plaintiff and forwarded it to Mr. Rivera. The application was not signed.

         The insurance policy application was uploaded to the plaintiff's server, which checks information in an application to determine whether a risk meets underwriting guidelines. The application submitted by Mr. Jiminez on behalf of Mr. Quiroz stated that the property was owner occupied. In fact, Mr. Quiroz did not reside at the property and rented the property to a tenant.

         The application made it appear that the property qualified for homeowner's insurance coverage as an owner-occupied residence and plaintiff issued the policy on that basis. Plaintiff was unaware that the property was not owner occupied. Had it known, it would not have issued the policy. After the fire loss occurred at the property, Mr. Jiminez prevailed upon Mr. Quiroz to sign the policy application. Following an investigation, plaintiff rescinded the policy based on the misrepresentation in the application regarding owner occupancy.


         In Connecticut, to rescind an insurance policy on the basis of a misrepresentation, an insurer must prove: “(1) a misrepresentation (or untrue statement) by the plaintiff which was (2) knowingly made and (3) material to defendant's decision whether to insure.” Pinette v. Assurance Co. of Am., 52 F.3d 407, 409 (2d Cir. 1995) (citing State Bank & Trust Co. v. Connecticut Gen. Life Ins. Co., 145 A. 565, 567 (Conn. 1929)).[1] Here, all three elements are contested by Quiroz and Shellpoint. I think only the second is subject to a genuine dispute.

         Shellpoint argues that Republic Franklin's failure to obtain the insured's signature on the application before issuing coverage precludes it from rescinding on the basis of the alleged misrepresentation. In the absence of a signature, Shellpoint argues, there was no misrepresentation. That Quiroz did not sign the application before coverage issued might bar Republic Franklin from claiming reliance on the form. See 6 Couch on Ins. § 85:60 (“False answers stated without the insured's knowledge or consent, in an unsigned application filled out by the insurer's agent, do not bind the insured unless he or she is charged with knowledge thereof.”). In Bristol v. Comm. Union Life Ins. Co. of America, the Connecticut Supreme Court held that an insurer could not rescind a policy based on a misrepresentation in an application form that was filled out by the insurer's agent, where the insured “never independently ratified or adopted” the statements in the form. 560 A.2d 460, 464 (Conn. 1989). Here, unlike in Bristol, Mr. Quiroz can be said to have made a misrepresentation because his agent submitted the application.

         It is undisputed that Mr. Quiroz was “using the services” of Mr. Jimenez to “procure insurance” for the insured property. Quiroz's R. 56(a)(2) Statement ¶ A3, ECF No. 58. Jimenez contacted Rivera, who “had an agency relationship with” Republic Franklin. Id. at ¶ A10. Under these facts, Jimenez was Quiroz's agent. In Georgia Cas. & Sur. Co. v. Valley Wood, Inc., a Georgia appellate court held that when an agent is “authorized to procure insurance on behalf” of the insured, the insured can be bound by misrepresentations contained in an unsigned application form. 783 S.E.2d 441, 443 (Ga.Ct.App. 2016), reconsideration denied (Apr. 14, 2016), cert. denied (Oct. 31, 2016). This is consistent with Connecticut law. Cf. New York Life Ins. Co. v. Rigas, 168 A. 22, 23 (Conn. 1933) (holding that, under New York law, insured was estopped from claiming he never signed insurance application when he accepted policy, paid premiums and application was “attached to and made a part of the policy”). Quiroz's agent submitted an application on his behalf, Republic Franklin accepted the application and Quiroz (presumably) began paying premiums. See Quiroz's R. 56(a)(2) Statement ¶¶ A11, A14, A15, ECF No. 58. Under these facts, Quiroz “independently ratified or adopted” the application form through his agent.


         Because Quiroz can be said to have “made” a misrepresentation, Republic Franklin can validly rescind on that basis but only if the misrepresentation was “known by the assured [or his agent] to be untrue when made.” Middlesex Mut. Assurance Co., 52 F.3d at 691. In Connecticut, “‘[i]nnocent' misrepresentations - those made because of ignorance, mistake, or negligence - are not sufficient grounds for rescission.” Pinette, 52 F.3d at 408 (citing Middlesex Mut. Assurance Co., 590 A.2d at 963). An individual's misrepresentation can be “innocent” when he “does not know that the information he is providing is false” or he is “justifiably unaware of the answer's falsity and had no actual or implied knowledge of its existence.” Cont'l Cas. Co. v. Morris I. Olmer, LLC, No. 3:08-CV-805 CFD, 2010 WL 3257673, at *4 (D. Conn. Aug. 10, 2010) (citations omitted).

         Knowledge is imputed when an insured signs the application form. See Pinette, 52 F.3d at 410 (“[A] person may not claim that a misrepresentation is ‘innocent' solely because the person failed to read the application before signing it.”). But in this case, the application form was not signed. Republic Franklin's Rule 56(a)(2) Statement ¶ A18, ECF No. 62. Republic Franklin must therefore show that ...

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