In Certain Underwriter’s at Lloyd’s London v. Wojdalski, defendant Wojdalski, the owner and operator of a construction and remodeling outfit, sought a commercial liability insurance policy with business insurer, Lloyd’s of London.
Shortly after, the insured was installing a new roof atop a Philadelphia building when a roofer’s torch caused a fire destroying the entire building. The building’s insurer covered the building’s losses and then brought a subrogation suit against Wojdalski’s construction company to recover the funds it paid to satisfy the building owner’s claims. Lloyd’s filed for a declaratory judgment, seeking a determination that the policy was void on account of Wojdalski misrepresenting the nature and extent of the risk that was being insured.
Philadelphia’s Commerce ultimately held for Lloyd’s, finding that Wojdalski had materially, and in bad faith, misrepresented the danger involved in his company’s work, thereby voiding the policy.
Lloyd’s acceptance of the insured’s commercial liability insurance application was conditioned upon assurances that the insured would not engage in roofing operations or work with liquid propane gas. After the agreement was reached, Lloyd’s sent the insured a binder outlining the specific activities which were and were not covered, mentioning once more that roofing work was outside the scope of coverage. So when the subrogee insurer sought indemnification from Lloyd’s, Lloyd’s sought a declaratory judgment to void the policy in its entirety, arguing that the entire policy was obtained based upon the false representation that the insured would no longer engage in roofing work (or at least would not seek coverage for liability stemming from such work).
The building’s insurer (the plaintiff in the underlying subrogation action and a defendant in Lloyd’s declaratory judgment action) and Wojdalski argued not just that the policy was valid but that it called for coverage of the underlying incident on the ground that the insured had not made false statements in his application. However, the court found that argument to be fallacious, recognizing that Wodjalski effectively asserted in the application that throughout the term of insurance, the nature of his business would not involve certain operations such as roofing and that he did, in fact, misrepresent himself because he did engage in such business activities as evidenced by the events which led to the underlying subrogation action (i.e. the fire started by a roofing torch).
Thus, because the insured did misrepresent the nature of his business and but for that misrepresentation Lloyd’s would likely not have insured Wodjalski, the misrepresentation was material.
Finally, the court found Wodjalski to have acted in bad faith because he obtained the insurance policy by assuring Lloyd’s that he would refrain from the very activities which he intended to, and did in fact, continue. With that, all three elements to void an insurance contract based on misrepresentation had been met: misrepresentation, materiality and bad faith. Accordingly, the court declared the insurance policy void.
Date of Decision: May 20, 2011