The U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment for Nationwide Mutual Insurance Company (Nationwide) in the case of Nationwide Mut. Ins. Co. v. Baptist, 762 F.3d 447 (5th Cir. Miss. 2014). Multiple fires occurred at the Baptists’ residence between December 27 and 28, 2011. The residence was insured by Nationwide and the Baptists were living in the home at the time. However, they lost title at a foreclosure sale in 2008.
The Baptists renewed their existing policy with Nationwide multiple times after the foreclosure. Their renewal applications indicated that the property was owner-occupied. At the time the claims were made the Baptists were actively defending against eviction proceedings. Mississippi law did not afford them a right of redemption after the foreclosure. The Baptists submitted two other homeowner’s claims to Nationwide in 2010. At no time did the Baptists mention the foreclosure or subsequent legal proceedings during the claim investigations. Nationwide did not discover the foreclosure during the resolution of the 2010 claims.
Nationwide first discovered the foreclosure during its investigation of the 2011 fires. It then filed a lawsuit in federal court seeking a declaratory judgment. Nationwide argued that the policy renewals represented the property as owner-occupied, which it was not. Nationwide asked the court to find that the renewals after the 2008 foreclosure were therefore void. Nationwide also sought to recover its payments to the Baptists for the 2010 claims. The Baptists countered by arguing that they were at least entitled to coverage for their contents loss resulting from the 2011 fires.
The federal District Court granted Nationwide’s summary judgment motion. The policy renewal applications indicated that the property was owner-occupied when it was clearly not. The court held that the statement was a misrepresentation. The court held that the renewal policies issued after the foreclosure were void and ordered the Baptists to reimburse Nationwide for the 2010 claim payments.
The Court of Appeals affirmed this ruling for Nationwide. It found that the Baptists’ renewal misstated their interest at the time of the application, so Nationwide could rescind its policy under Mississippi law. The appellate court distinguished the Baptists’ case from other cases where circumstances change after a policy was issued.
This decision demonstrates the importance of the renewal process and that it cannot be used to merely “rubberstamp” the coverage in the prior policies. Here, the Fifth Circuit was not concerned with the insurable interest at the time of the loss and disregarded the Baptists’ argument that they had an insurable interest in the property. Insurable interest is important only if there is a policy in force which covers the property at issue. The Fifth Circuit found that the untruthful information provided by the Baptists during the renewal process was material enough to make the policies void. This decision makes clear that the renewal process should be used by the prospective insured to disclose any changes related to the property and should be used by the insurer to determine if any changes impact the risk.