Read Your Application

How Reading the Application for Homeowner’s Insurance Could Save You Hundreds of Thousands of Dollars: A Case Study of Moustafa v. Omega Insurance Company

By Daniel F. Lopez / Published December 2019

Imagine finding your dream home, going through the lengthy process of securing financing, jumping through all the hurdles of paperwork requests and re-requests, and finally securing a homeowner’s insurance policy. Now you’ve moved in, and everything seems to be settled until you have a huge loss in the house, a plumbing backup requiring a total re-pipe of the plumbing system or, even worse, a fire causing hundreds of thousands of dollars in property damage. “I have property insurance coverage,” you say to yourself. “It will be fine.” The claim is submitted, and the policy is swiftly rescinded. What gives? The reason might be hidden in the details—the ones you’ve put on your application, that is. 

     It turns out carriers aren’t asking about your birthdate on insurance applications so they can send you a birthday card later on. They actually utilize that fact and many others about you and your home in order to calculate an optimal premium. Ins-urance companies are in the risk management business, and they do their best to reduce the potential risk to them (i.e., paying out on insurance claims) using sophisticated algorithms in order to charge what they deem is an appropriate premium based on the answers to the questions in their application.

     Bending the truth or leaving out certain details can put you at risk of having your policy rescinded, especially when you might need it the most. This is because most carriers go through the underwriting process where they check to ensure what you’ve said on your application is true. They also take serious measures to check the facts before deciding on paying out your claims. 

     Take homeowner Hesham Moustafa, for example, who in October and December of 2007 made the inexcusable mistake of submitting an application with false information. The insurance application asked Moustafa if he had any losses at this or any other location in the last three years, whether paid by insurance or not. To this, Moustafa answered “no,” when the truth of the matter was that he filed claims earlier that year and in 2005. The homeowner was also asked if he had previous water damage at the insured location. Once again, Moustafa said “no,” despite the fact both previous claims related to water damage. This was a big mistake. 

     These misstatements later came back to haunt him when he filed a claim in 2011 and was asked to submit an examination under oath. An examination under oath, or EUO (similar to a deposition), is often used by insurance companies to question homeowners in order to gain information to decide whether to cover a loss being claimed. The homeowner’s insurance company has the right to demand this proceeding under the policy. 

     During Moustafa’s EUO, he admitted that he had entered inaccurate information on his application for insurance. As a result, the insurance company rescinded his policy entirely. When Moustafa later filed a lawsuit against the company, his case was dismissed because the insurance company had rightfully rescinded the policy. Had the insurer known about his claims history, there would not have been a policy issued at all. The carrier needs to prove the misstatement or lie is a “material misrepresentation,” meaning first, untrue; and second, that as a consequence of this untrue fact, the carrier would have charged more for the policy or not issued one at all. 

     The consequences of lying intentionally or even misstating a fact on an application doesn’t end at getting your claim denied and policy rescinded. It could be very difficult for a homeowner after a situation like this to find another company willing to offer a policy, especially at an affordable rate. 

     If you’re looking to purchase a homeowner’s insurance policy soon, here are a few hard questions that some carriers ask and that you should always answer truthfully:

• Have you had a recent bankruptcy?
• Have you had a recent foreclosure?
• Do you have any felony convictions?
• Have you previously sued a home or auto insurance company?
• Have you had a policy canceled due to insurance fraud?
• Have you ever been convicted of arson?
• Have you ever been denied coverage?

     The best way to ensure that you’re covered and that your claim in an unfortunate event is paid is by keeping it honest. Always review your applications for insurance and check for any mistakes. Many times the policy application is prepared by an insurance agent, so make sure you spend that extra 10 or 15 minutes to go over all the questions with your agent to check for inaccuracies. A small lie might get you a policy today, but it can come back to haunt you tomorrow.

Daniel Frank Lopez

Managing Partner, The Morgan Law Group

     Born and raised in Miami, Florida, Daniel Frank Lopez is a managing partner at The Morgan Law Group, whose primary practice focuses on first-party insurance litigation. While at The Morgan Law Group, Mr. Lopez has overseen and litigated a wide variety of matters, including complex commercial litigation, construction litigation, and insurance and professional liability matters. Since 2012, Mr. Lopez has been with The Morgan Law Group focusing on his first-party insurance practice, which ranges in matters from a typical homeowner insurance dispute to multimillion-dollar commercial property claims.
     For more information, visit www.policyadvocate.com.