Continental Insurance Co. v. Kingston
2005 UT App 233, 114 P.3d 1158, 526 Utah Adv. Rep. 24 (2005)
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Rule of Law:
An insurer waives its right to rescind an insurance policy based on a material misrepresentation if, after acquiring knowledge of the facts that would justify rescission, it engages in conduct that recognizes the continued validity of the policy, such as covering losses or accepting premiums.
Facts:
- Joseph O. Kingston purchased a home built in the 1800s from D.U. Company, Inc.
- Kingston obtained a homeowner's insurance policy from Continental Insurance Company; the application, prepared with the help of Continental's agent, incorrectly listed the home's construction year as 1990.
- Kingston timely paid all premiums on the policy for over three years.
- On July 4, 1997, a fire caused substantial damage to Kingston's home.
- One week after the fire, an investigator hired by Continental informed the company that the home was over one hundred years old.
- After learning the home's true age, Continental assured Kingston the loss was covered, paid for his temporary living expenses, paid for demolition work, and authorized restorative work on the home.
- In January 1998, Continental formally discovered the discrepancy on the original application during its claims investigation.
- In February 1998, after discovering the discrepancy, Continental accepted another premium payment from Kingston for the policy.
Procedural Posture:
- Continental Insurance Company filed a complaint against Kingston and D.U. Company in the Third District Court (trial court), seeking to rescind the insurance policy.
- Kingston and D.U. Company filed a counterclaim for breach of contract.
- The trial court initially denied cross-motions for summary judgment from both parties.
- After additional discovery, Continental renewed its motion for summary judgment.
- The trial court granted Continental's renewed motion for summary judgment, ruling that Continental had the right to rescind the policy and dismissing Kingston's counterclaims.
- Kingston and D.U. Company (appellants) appealed the trial court's grant of summary judgment to the Utah Court of Appeals, with Continental (appellee) defending the judgment.
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Issue:
Does an insurer waive its right to rescind an insurance policy based on a misrepresentation in the application when, after learning facts that would justify rescission, it acts in a manner that recognizes the policy as valid and in force?
Opinions:
Majority - Orme, Judge
Yes. An insurer waives its right to rescind an insurance policy if its course of conduct after discovering grounds for rescission demonstrates an intent to relinquish that right. Waiver is the intentional relinquishment of a known right and may be implied from a party's actions or inaction. Here, Continental learned the true age of the home one week after the fire but proceeded to act as if the policy was valid by paying for Kingston's living expenses, authorizing demolition and repairs, and stating the loss was covered. These actions, viewed under the totality of the circumstances, demonstrated a distinct intent to continue the policy despite the home's age. Furthermore, Continental's acceptance of a premium payment in February 1998, after it had full knowledge of the misrepresentation on the application, provided additional evidence of its intent to waive rescission. The reservation of rights letter sent in March 1998 was untimely and could not reverse the waiver that had already occurred through Continental's prior conduct.
Analysis:
This decision reinforces the doctrine of implied waiver in the insurance context, establishing that an insurer's post-loss conduct can forfeit its right to rescind a policy. It serves as a significant precedent requiring insurers to act with reasonable promptness upon discovering a misrepresentation; they cannot treat a policy as valid to investigate a claim and then later rely on the same known facts to rescind it. The case underscores that actions like paying benefits and accepting premiums after gaining knowledge of a policy defense are powerful evidence of waiver. This holding protects insureds from being misled by an insurer's conduct and forces insurers to make timely decisions about policy validity.
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