The Massachusetts Appeals Court has upheld a lower-court judgment severely limiting the amount of coverage available to a motor vehicle policyholder, writing that the policyholder’s failure to control who operated the car constituted a misrepresentation that invalidated coverage even in the absence of an intent to deceive. The case is important beyond the motor vehicle context because it reaffirms Massachusetts law holding that a material inaccuracy in a representation made to an insurer will relieve the carrier of its coverage obligations. The decision in Commerce Insurance Company v. Gentile
, No. 12-P-1169 (Mass. App. Mar. 13, 2014), is available through the court’s search utility here
Commerce Insurance Company issued a standard Massachusetts motor vehicle insurance policy to Vittorio and Lydia Gentile. The policy had an operator exclusion, which provided that the policyholders’ grandson, Vittorio Gentile, Jr. (“Junior”), would not drive any vehicle covered by the grandparents’ policy “under any circumstances whatsoever.” Junior had a poor driving history; had he not been excluded, the Gentiles’ annual policy premiums would have been over $900 higher. Junior signed the operator exclusion form as the “excluded operator.” The policy issued in late 2004 and renewed each year on April 22.
On December 10, 2006, Junior negligently operated his grandparents’ 1999 Lexus, causing catastrophic injuries to the occupants of the car he hit. A Massachusetts Superior Court jury awarded damages against Junior and his grandparents, jointly and severally, in the amount of $12,000,000. In response to special interrogatories, the jury found Junior liable for negligent operation; and it found his grandparents liable for negligent entrustment of the automobile, as agency principals of Junior, and for negligent failure to secure the Lexus from Junior’s “incompetence or unfitness.” The accident victims recovered $300,000 under their own insurance policy’s UIM coverage.
Commerce acknowledged its liability for the compulsory bodily injury limits of $40,000, but refused to pay the optional bodily injury coverage limit of $500,000 per accident that the Gentiles had purchased. It filed an action for declaratory relief, and won a judgment declaring that Junior’s operation of the Lexus was a material misrepresentation underlying the issuance of the policy, and that Commerce was therefore relieved of its duty to provide the additional optional coverage. The judgment-creditors appealed.
The Appeals Court began its analysis by noting that the operator exclusion contained the following language: “I am aware that under the terms of my Massachusetts Automobile Insurance Policy, if I or someone on my behalf provides false, deception, misleading or incomplete information in any application or policy change request, and if such false, deceptive, misleading or incomplete information increases the company’s risk of loss, the company may refuse to pay claims under any or all of the Optional Insurance Parts of this policy.” Lydia Gentile had signed the form as the policyholder. The main policy form included a similar statement, and this addendum: “Such information includes…the names of all household members and customary operators required to be listed and the answers given for all listed operators.”
The Court first noted that Commerce’s exclusion of Junior was a “continuous material term” of the policy. Had Junior’s pattern of operating his grandparents’ Lexus been known to the underwriter, the Court reasoned that it would have influenced Commerce’s decision to enter into the contract at all, or changed its evaluation of the character and degree of risk involved as well as its calculation of the premium. Noting that the Gentiles received significantly lower premiums than they would have if Junior had not been excluded, the Court concluded that the Gentiles failed to uphold their promise to keep Junior from driving the Lexus in all circumstances. Even though there was no intent to deceive at the formation of the contract, the Court held, the Gentiles’ breach of their promise ripened into a misrepresentation that relieved Commerce of coverage obligations.
The Court went on to note, too, that a “realistic characterization” of the operator exclusion represented a bargained-for promise: the Gentiles got coverage at a reduced premium for agreeing to keep Junior from driving their cars. The policyholders subsequently breached that promise, which excused Commerce from its coverage obligations “as a matter of elemental contract law.” The Court was unpersuaded that renewals subsequent to the application for the initial policy should change its finding of materiality, noting that the Gentiles continued to benefit from the lower premium resulting from Junior’s exclusion and were plainly on notice of the exclusion’s materiality given Commerce’s continued listing of Junior as an excluded operator on each renewal policy’s declarations page.