Strategies, Challenges, and Answers

Avoiding Insurance Coverage Based On Misrepresentation Or Fraud In The Application

This is a previously published Mills & Associates Newsletter. 


For more information on this or other Nevada Coverage Law subjects, please contact Mr. Mills by e-mail at mike@mcmillslaw.comor by phone at 702-240-6060.


Courts always struggle when they are asked to deny insurance coverage. The reason for the struggle is simple. Carriers argue that they should not have to insure a loss where the insured provided misleading facts in the application. However, the insureds point out that insurance carriers have accepted their premiums and the insureds have operated under the impression that the coverage sought had been provided.


Misrepresentations or fraud in the application can be the basis for avoiding coverage. However, Nevada statutes and case law require that the carrier prove that knowledge of the misstated facts would have effected the underwriting decision. In addition, the carrier must be careful to avoid waiving its rights to claim the defense of misstatements or fraud.




The Nevada Supreme Court’s decisions reflect an attempt to strike a balance between the interests of the carrier and the interests of the insured.


The earliest Nevada Supreme Court case dealing with this issue is Smith v. North American Accident Insurance, 46 Nev. 30, 205 P. 801 (1922) which deals with an accident policy. Shortly after entering into the contract, the insured died following an accidental injury that necessitated the amputation of his legs. The carrier sought to avoid the contract stating that the insured failed to disclose in response to questions in the application a number of serious health problems, including tuberculosis. The jury verdict was to enforce the contract. The Nevada Supreme Court overturned the jury verdict stating that it was the province of the judge, not the jury, to determine whether the questions in the application were material to an analysis of whether the coverage would be enforced.


In Poe v. La Metropolitana Compania Nacional De Seguros, 76 Nev. 306, 353 P.2d 454 (1960), the claimant sought recovery for a fire loss of a truck. The jury found against Poe. The distinguishing factor was that the titled owner, Poe, did not appear to be the actual operator and possessor of the truck. In fact, the operator was Poe’s father-in-law, Manke, who had been previously convicted of arson and whose insurance had been cancelled for that reason. The evidence seemed to portray Poe as a business shill for his father-in-law. The Nevada Supreme Court refused to overturn the jury verdict in favor of the carrier.


Two cases were decided by the Nevada Supreme Court in 1965. The first was Universal Underwriters Insurance Company v. Snyder, 81 Nev. 315, 402 P.2d 483 (1965). In that case, the court refused to view the insurance application as part of the insurance contract and allowed the coverage to stand even though there were allegedly misstatements and errors made in the application itself.


The second case is Violin v. Fireman’s Fund Insurance Company, 81 Nev. 456, 406 P.2d 287 (1965). In that case, there were misstatements made in the insurance application regarding coverage on a violin. Again, the court enforced the contract and ordered coverage. The court said that Fireman’s Fund Insurance Company knew of other insurance coverage denials and cancellations but issued the policy anyway. The court said that Fireman’s Fund knew or should have known of the denials because the company itself refused this particular insured coverage on at least one prior occasion. II.




In 1971, the Nevada Legislature jumped into the fray and drafted a statute that deals particularly with the issue of fraud or misstatements in the application. That statute is found at N.R.S. §687B.110 and it provides as follows:

§ 687B.110. Representations in applications.


All statements and descriptions in any application for an insurance policy or annuity contract, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy or contract unless either:


1. Fraudulent; or


2. Material either to the acceptance of the risk, or to the hazard assumed by the insurer; or


3. The insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate, or would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.



There have been two cases that interpret the statute. First is the case of Schiender v. Continental Assurance Company, 110 Nev. 1270, 85 P.2d 572 (1994). In that case there was information incorrectly stated in the application. The insurance company sought summary judgment relative to the issue of coverage. The court determined that the defense of waiver, which was raised in the Violin case, cited above, was still a viable defense in spite of the passage of the statute. The court said that because the defense of waiver had been pled, the court would not affirm the summary judgment granted by the District Court. Instead, the Supreme Court reversed and sent the case back to the lower court for trial on the fact issue of waiver. Therefore, waiver is still a viable defense.


The second case interpreting the statute is Randono v. Cuna Metropolitan Insurance Group, 106 Nev. 371, 793 P.2d 1324 (1990). The court examined subsection 3 of the statute. The court explained:


The introductory language of NRS 687B.110 offers hope to consumers that insurance contracts will not be made voidable by inaccuracies and omissions in their applications, but the exceptions, especially the one contained in NRS 687B.110(3), largely consume the rule. The exceptions would appear to deny, in most situations, the protection and relief that the statute may have been attempting to grant. Given the facts in the record and the language of NRS 687B.110, it can be said as a matter of law that Mr. Randono’s failure to disclose his history of hypertension on his insurance application is sufficient to prevent recovery of the insurance proceeds.


Although reluctantly, the court determined that the insurance applicant’s failure to disclose high blood pressure was sufficient to avoid payment of a $50,000 benefit under a term life insurance policy.




If a question of misrepresentation or fraud in the application arises, the insurance company should quickly turn to its underwriters to determine whether, if the misrepresented facts had been known, the company would have denied the policy or would have issued the policy for a smaller amount. If underwriters say that the policy would not have been issued or would have been limited, the insurance company could in good faith deny coverage for that particular loss. In taking such a position, the court may require the carrier to reimburse the premium. Therefore, an economic analysis may need to be made.


On the other hand, the insured will look for facts to establish that the carrier waived the defense. In particular, the insured will try to learn if the carrier investigated before issuing the policy.


Every case is going be fact specific. The carrier will put itself in best stead if it adopts a policy that does at least a minimum amount of investigation in determining whether the facts stated in the policy application are correct. The carrier could then argue that any further investigation would have been cost prohibitive. But even a minimum of an investigation of the application would be better than none, where a carrier wants to successfully avoid a claim of waiver.


Hopefully this information will help in evaluating questions of fraud or misstatements in applications as to whether coverage should be allowed in a particular case.


Prepared by Michael C. Mills, Esq. Mr. Mills is a trial attorney with the firm, Mills & Associates. His practice focuses on defense of civil litigants. He can be reached at (702) 240-6060.