Encompass Home and Auto Insurance Company v. Harris, et al
Filing
30
MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 11/19/2013. (aos, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
ENCOMPASS HOME AND AUTO
INSURANCE COMPANY,
:
:
Plaintiff,
:
v.
Civil Action No. GLR-12-2588
:
COREY HARRIS, et al.,
:
Defendants.
:
MEMORANDUM OPINION
THIS MATTER is before the Court on Plaintiff’s, Encompass
Home and Auto Insurance Company (“Encompass”), Motion for Summary
Judgment (ECF No. 19), and Encompass’s Motion in Limine to Exclude
Defendants/Counter-Plaintiffs’, Corey Harris and Nicole Saunders
Harris
(the
“Harrises”),
(ECF No. 20).
Insurance
Expert’s
Testimony
at
Trial
The questions before the Court are whether (1) the
Harrises’ failure to include the purchase price of their property
on their application for a homeowner’s insurance policy was a
material
misrepresentation
that
supports
Encompass
voiding
the
policy ab initio; and (2) the insurance expert’s testimony should
be excluded at trial.
The
necessary.
issues
have
been
fully
briefed
and
See Local Rule 105.6 (D.Md. 2011).
no
hearing
is
For the reasons
given below, Encompass’s Motion in Limine to Exclude the Harrises’
1
Insurance
Expert’s
Testimony
will
be
granted,
and
Encompass’s
Motion for Summary Judgment will be denied.
BACKGROUND1
I.
On August 2, 2011, the Harrises purchased a row home located
at 2700 Classen Avenue, Baltimore, Maryland, (the “Property”) for
$7,500.
The only improvements made to the Property were applying
plywood to the front door and resealing the roof.
In May 2012,
the Harrises contacted Jayne Clark of Donadio Insurance Group to
add the Property to Ms. Harris’s existing policy.2
Based on the
information provided to her by the Harrises, Ms. Clark completed
an application for insurance to make the Property the primary
residence
$180,000.
on
the
policy
with
a
replacement
cost
valued
at
Ms. Harris then reviewed and signed the application
before returning it to Ms. Clark for submission to Encompass.
Encompass’s underwriting guidelines require that the market
value of any property it insures not be less than 70% of the
current replacement value.
omits
the
property
value
The Harrises’ insurance application
and
market
value
of
the
Property.
Nonetheless, Encompass accepted the application and endorsed the
policy to include the Property.
1
Unless otherwise noted, the following facts are taken from
the Complaint and Encompass’s Motion for Summary Judgment, and are
viewed in the light most favorable to the Harrises.
2
Encompass issued an insurance policy to Nicole Saunders,
dated December 5, 2011 to December 5, 2012, which originally
insured her condominium at 3623 Glengyle Avenue plus three
automobiles.
Thereafter, Ms. Saunders married Corey Harris and
legally changed her name to Nicole Harris.
2
Within
occurred.
a
month
after
endorsement
of
the
policy,
a
fire
A subsequent investigation revealed that the Property
was not being used as a primary residence, was not in livable
condition, was purchased for only $7,500, and had been uninsured
since it was purchased in August 2011.
As a result, Encompass
initiated this action on August 29, 2012, seeking a declaratory
judgment
that
the
Policy
is
void
ab
initio
based
on
material
misrepresentations in the application.
In its Complaint, Encompass alleges that, had it known at the
time the application was being reviewed that the Property was (1)
not the Harrises’ owner-occupied primary residence, (2) vacant,
(3) purchased for $7,500, and (4) without insurance since the time
of purchase in August 2011, it would not have issued the Policy.
The Harrises filed an Answer and a Counter-Complaint alleging that
Encompass breached the conditions of the Policy.
13).
(ECF Nos. 10,
Encompass filed an Answer to the Counter-Complaint.
(ECF
No. 14).
On
alleging
April
22,
2013,
Encompass
that
the
material
moved
for
misrepresentation
summary
judgment
by
Harrises
the
concerning the value of the Property compared to its replacement
value entitles it to judgment as a matter of law.3
The Harrises
3
Encompass concedes that
preclude summary judgment with
reasons for voiding the policy,
issue of value of the Property
there are facts in dispute that
respect to its other enumerated
but that summary judgment on the
compared to its replacement value
3
timely opposed Encompass’s motion.
(ECF No. 21).
They argue that
Encompass should not be permitted to avoid its responsibilities
under the contract because (1) they did not represent to Encompass
a purchase price different from what was actually paid but merely
omitted the purchase price from the application; (2) the condition
of the Property and their intentions with respect to the Property
are imputed to Encompass through the insurance agent, Ms. Clark;
and
(3)
Encompass
waived
its
right
to
rescind
the
policy.
Encompass filed a timely reply. (ECF No. 22).
On
April
regarding
the
24,
2013,
testimony
Encompass
of
Michael
filed
a
Gardner,
Motion
whom
intend to designate as their insurance expert.
response was due by May 13, 2013.
record
of
a
response
being
in
the
Limine
Harrises
The Harrises’
To date, the Court has no
filed.
The
Motion
is
ripe
for
disposition.
II. DISCUSSION
A.
Motion in Limine
Although Mr. Gardner’s expected testimony has no bearing on
Encompass’s Motion for Summary Judgment, the Court will address
the Motion in Limine first.
Having reviewed the record in this
case, Encompass’s Motion will be granted.
Federal Rule of Civil Procedure 26(a)(2)(A) requires parties
to disclose the identity of any witness who may be used at trial.
is ripe for review and sufficient to render judgment as a matter
of law. (See Pl.’s Mot. Summ. J. at 4 n.2, ECF No. 19).
4
More specifically, the disclosure of a witness expected to provide
expert
testimony
must
person
offering
the
26(a)(2)(B).
include
expert
a
written
witness
report
signed
testimony.
by
the
Fed.R.Civ.P.
These disclosures shall be made “at the times and in
the sequence” directed by the court.
Fed.R.Civ.P. 26(a)(2)(D).
Pursuant to the initial Scheduling Order in this case (ECF
No.
11),
the
Harrises
Anthony Jones as experts.
timely
designated
Andrew
Gorelick
and
The Harrises then failed to provide any
Rule 26(a)(2) supplemental disclosures by the February 26, 2013
deadline ordered by the Court.
25,
2013,
wherein
the
they
Harrises
identified
(See id.).
forwarded
Michael
Thereafter, on March
Answers
Gardner
to
as
Interrogatories
an
expert.
The
Harrises expect Mr. Gardner to testify about the practices and
policies of an insurance agent and/or agency in accordance with
industry standards.
(Pl.’s Mot. Limine to Exclude Expert Test.
Ex. 3, at 3, ECF No. 20-3).
Further, to date, the Harrises have
not provided Encompass any written report as required by Rule
26(a)(2)(B).
requesting
As a result, Encompass filed the instant Motion,
that
the
Court
exclude
Mr.
Gardner’s
testimony
at
trial.
The Court has discretion whether to exclude expert testimony.
Fed.R.Civ.P.
failure
37(c)(1).
Rule
37(c)(1)
the
disclosure
to
comply
with
26(a)(2)(B)
should
automatically
5
exclude
states,
however,
requirements
the
of
testimony
that
Rule
unless
there
was
substantial
justification
for
the
failure
to
make
complete disclosure or that the failure to disclose is harmless.
See Hoyle v. Freightliner, LLC, 650 F.3d 321, 329 (4th Cir. 2011)
(citing Fed.R.Civ.P. 37(c)(1)).
In applying this test, the Court
should consider five factors:
(1) the surprise to the party against whom the evidence
would be offered; (2) the ability of that party to cure
the surprise; (3) the extent to which allowing the
evidence would disrupt the trial; (4) the importance of
the
evidence;
and
(5)
the
nondisclosing
party’s
explanation for its failure to disclose the evidence.
S. States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d
592, 597 (4th Cir. 2003).
Here,
the
importance
of
the
excluded
testimony
and
the
Harrises’ explanation for its failure to comply with the required
disclosure
cannot
unopposed.
The
be
considered
absence
of
any
because
Encompass’s
support
for
these
Motion
two
is
factors
weighs heavily against the Harrises and supports exclusion of the
expert
testimony.
Additionally,
to
cure
any
“prejudice”
or
“surprise” to Encompass would prolong discovery, necessitate the
expenditure
of
additional
resources,
ultimate resolution of this case.
and
further
delay
the
Considering all of the relevant
factors, Encompass’s Motion in Limine to Exclude the Harrises’
Insurance Expert's Testimony at Trial will, therefore, be granted.
6
B.
Summary Judgment
1.
Standard of Review
Under Federal Rule of Civil Procedure 56, the Court must
grant summary judgment if the moving party demonstrates that there
is no genuine issue as to any material fact, and the moving party
is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(a).
In reviewing a motion for summary judgment, the Court views the
facts in a light most favorable to the non-moving party.
v.
Liberty
omitted).
Lobby,
Inc.,
477
U.S.
242,
255
(1986)
Anderson
(citation
Once a motion for summary judgment is properly made and
supported, the opposing party has the burden of showing that a
genuine dispute exists.
Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87 (1986).
of
some
defeat
alleged
an
factual
otherwise
dispute
properly
between
“[T]he mere existence
the
supported
parties
motion
for
will
not
summary
judgment; the requirement is that there be no genuine issue of
material fact.”
Anderson, 477 U.S. at 247-48.
A “material fact” is a fact that might affect the outcome of
a party’s case.
Id. at 248; JKC Holding Co. v. Wash. Sports
Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001).
Whether a fact
is considered to be “material” is determined by the substantive
law, and “[o]nly disputes over facts that might affect the outcome
of the suit under the governing law will properly preclude the
7
entry of summary judgment.”
Anderson, 477 U.S. at 248; Hooven-
Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001).
A “genuine” issue concerning a “material” fact arises when
the evidence is sufficient to allow a reasonable jury to return a
verdict in the nonmoving party’s favor.
248.
Anderson, 477 U.S. at
Rule 56(c) requires the nonmoving party to go beyond the
pleadings
answers
and
to
by
its
own
interrogatories,
affidavits,
and
or
admissions
by
the
on
depositions,
file,
designate
specific facts showing that there is a genuine issue for trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
The nonmoving
party “cannot create a genuine issue of material fact through mere
speculation or the building of one inference upon another.”
Beale
v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985).
Because
this
case
arises
under
the
Court’s
diversity
jurisdiction, the substantive law to be considered is that of the
state in which the action arose.
Estrin v. Natural Answers, Inc.,
103 F.App’x 702, 704 (4th Cir. 2004).
In this case, Maryland law
applies.
2.
Analysis
Insurance policies may be voided ab initio when an insurer
issues a policy in reliance on a material misrepresentation in the
application.
Inc.,
No.
Scottsdale Ins. Co. v. Nat’l Ctr. on Insts. & Alts.,
WDQ-04-2356,
2005
WL
1367079,
at
*2
2005), aff’d, 169 F.App’x 176 (4th Cir. 2006).
8
(D.Md.
June
7,
In determining
whether an insurer may validly rescind a policy, the Court must
first
decide
whether
a
misrepresentation
occurred,
and
if
so,
whether the misrepresentation is material to the risk assumed by
the insurer.
Id. at *2-3; see also Fitzgerald v. Franklin Life
Ins. Co., 465 F.Supp. 527, 534-35 (D.Md. 1979), aff’d sub nom.
Judith M. Fitzgerald v. Franklin Life Ins. Co., 634 F.2d 622 (4th
Cir.
1980)
determine
(“A
court
whether
must
the
engage
insurer
in
may
a
two-pronged
validly
rescind
inquiry
the
to
policy.
First, the Court must decide whether a misrepresentation occurred.
.
.
.
[Next]
misrepresentation
the
was
Court
must
material
to
the
determine
risk
whether
assumed
the
by
the
insurer.”); Clemons v. Am. Cas. Co., 841 F.Supp. 160, 165 (D.Md.
1993) (noting that the Court must “first determin[e] if there was
an
actual
misrepresentation
and
then
inquir[e]
whether
this
misrepresentation was material”).
With respect to the existence of a misrepresentation, the
Harrises first argue, because they did not represent to Encompass
a purchase price different from what was actually paid but merely
omitted the purchase price from the application, they made no
misrepresentation at all.
(Defs.’ Mem. Opp’n Pl.’s Mot. Summ. J.
(“Defs.’ Opp’n”) at 4-5, ECF No. 21-1).
This argument is without
merit.
The
existence
of
a
misrepresentation
by
omission
in
an
application for the issuance of an insurance policy is codified in
9
Section 12-207(b) of Maryland’s Insurance Article.
See Md. Code
Ann., Ins. § 12-207 (West 2013) (indicating that an omission or
concealment of fact may prevent recovery under an insurance policy
or
contract).
existence
of
omission.
Further,
a
See
this
Court
misrepresentation
Clemons,
has
previously
an
insurance
F.Supp.
841
in
at
165
found
the
contract
by
(finding
that
the
misrepresentation was clear where the mortgagee failed to list a
second
lienholder
Fitzgerald,
465
on
the
F.Supp.
application
at
537
for
(“Since
insurance);
the
see
insurer’s
also
question
plainly requested such information and [the applicant] failed to
provide it, this Court concludes that the nondisclosure of these
medical visits was a misrepresentation.”).
The Harrises argue that John Hancock Mut. Life Ins. Co. of
Boston,
Mass.
v.
Adams,
107
A.2d
111
(Md.
1954),
defines
a
“misrepresentation” as a “statement of something as a fact which
is
untrue
company.”
in
fact,
with
the
intent
(Defs.’ Opp’n at 2, 4-5).
Hancock
arose
out
of
an
to
deceive
the
insurance
The Court disagrees.
insured’s
answers
to
several
questions in the medical portion of an application for a life
insurance policy, not omissions.
111 (Md. 1954).
be
an
actual
material
See generally Hancock, 107 A.2d
Hancock does not require that a misrepresentation
statement.
misrepresentation
Further,
Hancock
made
an
by
recognizes
applicant
may
that
void
a
an
insurance policy “whether it be made intentionally, or through
10
mistake and in good faith.”
Hancock 107 A.2d at 221 (citation
omitted); see also Fitzgerald, 465 F.Supp. at 534 (“The insurer
may
avoid
the
policy
regardless
of
whether
the
material
misrepresentation is made intentionally, or through mistake and in
good
faith.”);
Scottsdale
Ins.
Co.,
2005
WL
1367079,
at
*3;
Hofmann v. John Hancock Mut. Life Ins. Co., 400 F.Supp. 827, 829
(D.Md.
1975)
application
(“[A]
material
invalidates
a
misrepresentation
policy
issued
on
the
.
.
basis
.
in
of
an
such
application . . . without inquiry into the presence of a conscious
design to defraud.”).
Other jurisdictions support the proposition that a fraudulent
misrepresentation must be accompanied by intent to deceive.
See
In
914
re
MI
Windows
&
Doors,
Inc.
Products
Liab.
Litig.,
F.Supp.2d 744, 752 (D.S.C. 2012) (noting that, under Kansas law,
“the elements of a claim for fraudulent misrepresentation include
an untrue statement of fact known to be untrue by the party making
it made with the intent to deceive . . .”) (citation and internal
quotation marks omitted);
Peterson v. First Health Life & Health
Ins. Co., No. 2:09-CV-00029-PMD, 2010 WL 2723113, at *4 (D.S.C.
July
9,
fraudulent
2010)
(explaining
misrepresentation
that,
must
intent to deceive and defraud).
an
insurance
company’s
under
be
South
untrue
and
Carolina
made
with
law,
the
“In the Fourth Circuit, however,
ability
to
rescind
coverage
for
misrepresentations in an application is limited by state law.”
11
Peterson 2010 WL 2723113, at *8.
Thus, the Harrises’ argument
that their failure to include the purchase price of the Property
from
the
application
was
merely
an
omission
and
not
a
misrepresentation fails.
Next, the Harrises argue, because Ms. Clark was aware of both
the
condition
of
the
Property
and
their
intentions
with
the
Property, that knowledge must be imputed to Encompass through the
agency relationship.
This argument fails for two reasons.
First,
after a review of the record, the Court concludes that the emails
provided by the Harrises do not support their contention that Ms.
Clark was aware of the purchase price of the Property when she
completed the application.
Second, even assuming Ms. Clark was
aware of the purchase price of the Property, under Maryland law,
the
Harrises
maintained
the
ultimate
responsibility
to
provide
complete and accurate information on the application.
Where an applicant to an insurance policy,
having made all the disclosure demanded of him, has
relied entirely on the agent to inform the insurer of
the facts, the knowledge of those facts may be imputed
to the insurer, and it may not be permitted to defend on
the ground of the agent’s fraud, unless there has been
participation in it by the applicant.
Commercial Cas. Ins. Co. v. Schmidt, 171 A. 725, 728 (Md. 1934).
Under Maryland law, however, insurance applicants carry a heavy
burden to provide the correct information in their applications.
Clemons, 841 F.Supp. at 167; see also Fitzgerald, 465 F.Supp. at
535 (“Maryland law still imposes a heavy burden on the applicant
12
to be responsible for all statements in or omissions from the
application submitted by him.”).
And where the insured has the
means to discover the falsity in the representation, but fails to
correct
the
falsehood,
misrepresentation
upon
he
which
will
the
be
charged
policy
was
with
the
procured.
See
Commercial Cas. Ins. Co., 171 A. at 729 (“And so, where false
answers have been written by the agent without the knowledge of
the
assured
[sic],
but
the
latter
has
the
means
at
hand
to
discover the falsehood and negligently omits to use them, he will
be regarded as an instrument in the perpetration of the fraud, and
no recovery could be had upon the policy.” (citation omitted));
Serdenes
v.
Aetna
Life
Ins.
Co.,
319
A.2d
858,
863
(Md.Ct.Spec.App. 1974) (“It is immaterial that it is the agent who
inserts false statements about material matters in an application
for
insurance,
because
if
the
assured
[sic]
has
the
means
to
ascertain that the application contains false statements, he is
charged
with
the
misrepresentations
just
as
if
he
had
actual
knowledge of them and was a participant therein.”).
Here,
Ms.
Harris
testified
that
she
application and reviewed it before signing.
Ex. 3, at 4, ECF No. 19-4).
signed
the
insurance
(Pl.’s Mot. Summ. J.
She swore in the application that the
information contained therein was true, complete, and correct.4
4
The applicant’s statement in the insurance application
states: “I have read the above application and any attachments. I
declare that the information in them is true, complete, and
13
Thus, because Ms. Harris had the means to discover the omission,
she is charged with the misrepresentation.
Finally, the Harrises argue Encompass should be charged with
knowledge of the purchase price of the property because it could
have discovered the omitted information by conducting a simple
check of the Maryland State Department of Assessments and Taxation
database.
Generally,
an
insurer
has
no
duty
to
investigate
applicants’ claims, unless extraordinary circumstances exist.
N.
Am. Specialty Ins. Co., 977 F.Supp. at 731 (explaining that an
insurer’s
duty
situations”).
to
investigate
“only
exists
in
extraordinary
Extraordinary circumstances exist when the insurer
is “on notice that some type of investigation is necessary.”
(quoting Clemons, 841 F.Supp. at 167).
Id.
Where such a duty exists,
the insurer can be charged with notice, and can be found to have
waived its right to rescind the policy.
N. Am. Specialty Ins.
Co., 977 F.Supp. at 731 (explaining that where the “insurer has a
duty to investigate [it] can be charged with notice”); Clemons,
841
F.Supp.
actual
at
167
knowledge
(“[T]he
of
a
insurer
had
considerable
notice
amount
because
of
it
had
suspicious
information.”).
correct to the best of my knowledge and belief. This information
is being offered to the company as an inducement to issue the
police for which I am applying.” (Pl.’s Mot. Summ. J. Ex. 1, at
4, ECF No. 19-2).
14
The Court finds that where there is a misrepresentation by
omission,
and
the
insurer
claims
the
omitted
information
was
material to its decision to issue the policy, a complete failure
to provide the required information may impose upon the insurer
the
duty
to
investigate.
Thus,
whether
extraordinary
circumstances exist in this case is a question of fact for the
jury to decide.
Accordingly, there is a genuine issue of material
fact and Encompass is not entitled to summary judgment.5
III. CONCLUSION
For
Order,
the
foregoing
GRANT
Plaintiff’s
Defendants/Counter
Trial
(ECF
No.
reasons,
Motion
Plaintiffs’
20),
and
this
DENY
Court
in
Insurance
will,
Limine
Expert's
Plaintiff’s
Motion
by
separate
to
Exclude
Testimony
for
at
Summary
Judgment (ECF No. 19).
Entered this 19th day of November, 2013
/s/
_____________________________
George L. Russell, III
United States District Judge
5
Having determined a genuine issue of material fact exists
with respect to whether a misrepresentation was made, the Court
will dispense with analysis as to whether the misrepresentation
was material.
15
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