Under Kentucky Law “Misrepresentations, omissions, and incorrect statements” on the application for an insurance policy can preclude recovery if those representations are:

“(1) Fraudulent; or

(2) Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or

(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate, or would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the  insurer  as  required  either  by  the  application  for  the  policy  or  contract  or otherwise. This subsection shall not apply to applications taken for workers’ compensation insurance coverage.”

When the insured applied for cover, misrepresentations were made that “there were no “other business ventures for which the coverage is not requested”” despite the fact that the intention was to have the policy sought be a “catch all” for the applicant’s businesses. 

The relevant insured had been administratively dissolved for its failure to submit its annual report to the state. Under Kentucky Law a dissolved company could continue in existence but “shall not carry on any business” except to wind up its affairs. 

The insurer argued that the omissions in the application “were material both to the acceptance of the risk and the policy’s scope.”

The evidence was that if the insurer had been accurately informed regarding the broadened scope of operations and regarding the additional entities for which coverage was sought, it would either have charged a different premium or would have declined to issue cover outright. 

The insurers evidence was that if it had known that the insured had been administratively dissolved prior to its application of insurance and remained in bad standing it would have declined to issue coverage to the company.

The misrepresentations resulted in the insurer issuing an insurance policy to a non-existent business entity and subjected it to exposure for work outside the representatives scope. Injury was caused to a worker who may have been directed and paid by another business entity that was not disclosed to the insurer. 

Unsurprisingly the court found that the insurer was entitled to a declaration that the policy was void. 

Under South African insurance principles of material non-disclosure and misrepresentation, a similar result would follow.

Read the full judgment here.