Auto Owners can void coverage for application errors; cannot keep premiums collected
Although it won the important battle this week, Auto Owners was not allowed to "have its cake and eat it, too." It wrote insurance on "M & S Quick Stop" based on an application that was clearly inaccurate. The application failed to disclose that the owners had previously been canceled by Auto Owners and had previously filed a claim with Westfield--who had also canceled its coverage.
About two months later, Auto Owners discovered that it had already canceled the pertinent insured's previous policy and wrote the insured that it would cancel the policy on October 6. Two weeks prior to the cancellation, the business was destroyed by fire. Auto Owners then took the position that it should be able to void the policy even earlier--before the fire--because it would not have written the policy if it knew all of the pertinent facts that should have been disclosed in the application. The insureds argued that it should be estopped from walking away from the confirmation of coverage through October 6. They also argued that in any event Auto Owners should be compelled to return the premiums it kept. Auto Owners argued that because it "voided" the policy, rather than "rescinding" it, it should be allowed to keep the premiums.
The Court of Appeals allowed Auto Owners to void the policy from the start, thereby allowing it to avoid providing coverage for the fire that occurred during the insured period. It did hold, however, that having voided any coverage, Auto Owners could not keep the premiums it collected.