Massachusetts Appeals Court defines risk of loss from misrepresentations in insurance application

Kevin Fitzgerald was injured in a car accident and brought suit against the car's owner, Marcio De Oliveira.  De Oliveira was insured by Commerce.  Commerce denied coverage over the $20,000 compulsory limit. 


Commerce asserted that when he purchased the policy, De Oliveira, who is Brazilian, had supplied materially false information in the form of an altered Brazilian driver's license.  The alterations were to the license's expiration date and to the Brazilian government identification number (equivalent to a social security number in the United States.)


Fitzgerald argued that the alterations to the license were not "material."  He cited Mass. Gen. Laws ch. 175 §186(a), which  provides that insurers may deny coverage based on a misrepresentation in insurance applications only when the misrepresentation was made "with actual intent to deceive" or when "the matter misrepresented . . . increased the risk of loss." 


The trial judge found, after a bench trial, that both criteria were met.  On appeal Fitzgerald argued that the alterations did not increase the risk of loss because De Oliveira had a valid Brazilian driver's license at the time of the application, the license remained valid during the policy period, and his separate license number appeared on the license so that the insurer could gain access to his driving history in Brazil.  Fitzgerald also argued that based on those facts the alterations could not have been made with the intent to deceive. 


In Commerce Ins. Co. v. De Oliveira, 73 Mass. App. Ct. 1001, 2015 WL 1880299 (unpublished), the court held that Fitzgerald's argument was based on too narrow a conception of what it means for an insurance applicant to increase the insurer's risk of loss.  The alterations "were of the sort that would have raised obvious red flags to one considering whether to take on the risks that the applicant presented."  "The concept of 'risk of loss' is not limited to an increase in the actual risk loss, but rather embraces an insurer's generally increase risk of economic loss or exposure."