Tuesday, August 18, 2009

Massachusetts Appeals Court holds that misrepresentation on bond application that insured had internal auditor does not void coverage

In my last post I began discussing Hanover Ins. Co. v. Treasurer and Receiver General, 74 Mass. App. Ct. 725 (2009), in which the Massachusetts Appeals Court discussed when misrepresentations on a bond application can void coverage.

Hanover argued that coverage was voided because the Massachusetts Treasury Department stated on its application that an internal audit was conducted by the State Auditor, but that in fact there was no internal auditor.

The accounting firm of Deloitte & Touche conducted annual independent audits of the state government departments, and sent its reports to the State Auditor. The State Auditor also conducted reviews of the Department every three or four years. The Deloitte & Touche audits were "external" audits while the audits of the State Auditor were "internal" audits.

Hanover never inquired about the frequency of internal audits and never informed the department that they must be done annually.

The court held that the inaccurate representation that there was an internal auditor was not material.

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