Insured Is Under No Duty To Notify Insurer of Material Changes In Coverage Risk

A Massachusetts Appeals Court recently issued an opinion that highlights the importance of policy provisions and renewal application questions requiring insureds to update the insurer concerning changes in circumstances.  In Quincy Mutual Fire Insurance Co. v. Quisset Properties, Inc., C.A. No. 06-P-735 (Mass. App. Ct. May 25, 2007), the insured had obtained a commercial automobile insurance policy for his property management business in 1993.  The policy was renewed annually for nine years, with the insurer never sending the insured a renewal application or questionnaire.  In 1996, the individual insured stopped conducting his property management business through the corporate entity, Quisset, and began to operate the business personally.  The insured never informed the insurer of this change, which the insurer argued significantly increased the risk under the policy.  In or about 2003, the individual insured’s son was added to the policy and was then involved in an accident that resulted in catastrophic injuries to a Massachusetts State Police Trooper.

After the accident, the insurer brought a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify the insureds as a result of their failure to notify the insurer of a material change in circumstances.  The trial court granted the insurer summary judgment.  The Appeals Court reversed the lower court decision and held that “unless a provision in the insurance policy or a renewal application requires the insured to notify the insurer of particular changes, the insured is under no duty to identify changes that are material and notify the insurer of such changes.  Absent such a duty, the insured’s silence, even if it increases a risk of loss to the insurer, is not a ‘misrepresentation’ . . . .”  To hold otherwise, the Court opined, would “make insureds de facto underwriters who risk forfeiture of coverage for failing to identify and volunteer changed circumstances that might increase the risk of loss to the insurer.”   Counsel for the insurer has indicated that it intends to appeal.