The opinion
STATE OF MAINE SUPERIOR COURT
CIVIL ACTION
YO% ss. DOCKET NO. CV-06-018
p ~ rY-C R / 9 1 1 4 1 ~ ~
LIBERTY INSURANCE UNDERWRITERS, INC.,
Plaintiff
ORDERS AND DECISION
ESTATE OF PETER D. FAULKNER, et al.,
Defendants
On July 29, 2003 now deceased attorney Peter D. Faulkner of Sanford signed an
initial application for 1,awyers Professional Liability Insurance. That application asked
the question of whether "After inquiry, has any lawyer to be insured under t h ~ policy:
s
... B. ever been disbarred or been the subject of reprimand, censure, sanction or other
disciplinary action, or been refused admission to the Bar?" The question was
incorrectly answered "no" despite a December, 2002 public reprimand by the Maine
Board of Overseers of the Bar. A one-year policy effective September 18, 2003 was
issued.
On September 3, 2004 Mr. Faulkner signed a briefer form called Lawyers
Professional Liability Insurance Renewal Application. This time he accurately
answered "no" to the narrower question of whether "After inquiry, have any of the
following occurred during your expiring policy: A. Disciplinary action against any
lawyer (including dislbarment reprimand, censure or sanction)?" A policy for a second
-=cxB
year effective September 18,2004 issued.
Mr. Faulkner died on June 21,2005 and several claims have been brought against
his estate whch may ire covered by his professional liability policies with the plaintiff.
The plaintiff has filed an amended complaint against the personal representative of the
estate and possible claimants under the policies. The defendants Gilles Fecteau and
Lorraine Fecteau have filed a motion to dismiss, the plaintiff has filed a motion for
summary judgment and defendant Cooke & Young has filed a cross-motion for
summary judgment.
All of the motions require an examination of what effect Mr. Faulkner's
misrepresentation or incorrect statement has on the coverage during the initial and
renewal year.
The Maine legislature has enacted and amended a statute whch determines
when an insurance company can void a policy for misrepresentations or incorrect
statements. That legslation reads as follows:
All statements and descriptions in any application for insurance or for an
annuity contract, by or in behalf of the insured or annuitant, are deemed
to be representations and not warranties. Misrepresentations, omissions,
concealment of facts and incorrect statements may 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, such tlhat the insurer in good faith would either not have issued
the insurance or contract, or would not have issued it at the same
premium rate, or would not have issued insurance in as large an amount,
or would not h.ave 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.
3. Deleted. To prevent a recovery under this section for any application
for life, credit life, disability, long-term care, accidental injury, specified
disease, hospital indemnity or credit or accident insurance, an insurer
need only prove one of the acts described in this section, not an act under
subsections 1and 2.
See 24-A M.R.S.A. 52411.
Some of the issu.es raised by the parties are easily resolved. Since the application
and reapplication were for professional liability coverage and not one of the listed
forms of insurance in {helast sentence of Section 2411, the plaintiff must establish that
the misrepresentation or incorrect statement was fraudulent and material to the
acceptance of the risk. It is insufficient that only one be established. See American Home
Assurance Company v. jrngeneri, 479 A.2d 897, 901, (Me. 1984) and York Mutual insurance
Company v. Bowman, 2000 ME 27, q[6,746 A.2d 906,908. While the plaintiff in retrospect,
and perhaps as part of its normal underwriting, would have been well advised to check
whether Mr. Faulkner's representations regarding his disciplinary record were correct
the plaintiff may justifiably rely on the representations, without investigating their truth
or falsity, unless the plaintiff knew the representations were false or their falsity was
obvious. Letellier v. Small, 400 A.2d 371, 376 (Me. 1979), Ferrell v. Cox, 617 A.2d 1003,
1006 (Me. 1992) and Justice Alexandeis Maine Jury Instruction Manual 57-30.
The two policy years must be separated as the second year poses an extra and
important issue.
The Legislature in 1999 rewrote 52411 to blend three requirements into what are
now contained under two headings. There is no dispute that the initial application
contains a misrepresentation or incorrect statement.
Cooke & Young and other defendants have argued that it is not sufficiently clear
that the misrepresentiation or incorrect statements were fraudulent and material such
that the insured in good faith would not have issued the policy, would not have issued
it for the same premium or would not have provided as much coverage had the true
facts been known.
To prove fraud the plaintiff must establish by clear and convincing evidence, that
it is hghly probable, that Mr. Faulkner (1)made a false representation (2) of a material
fact (3) with knowledge of its falsity or in reckless disregard of whether it was true or
false (4) for the purpose of inducing another to act in reliance upon it and (5) the
plaintiff justifiably relied upon it. See Letellier at 376. Requirements (I), (2), (4) and (5)
have been met. The incorrect information was material to the decision whether to
insure Mr. Faulkner at all or at what premium or coverage. See Bowman at 909, q[9.
Cooke & Young has noted that Mr. Faulkner incorrectly listed the year he started
h s firm. It argues that it is possible that the false representation regarding Qsciplinary
action was not made with knowledge of its falsity and was simply a careless error.
However likely or unllikely that possibility is I cannot find that fraud has been proven
under summary judgment standards.
The false statement is certainly material to the acceptance of the risk. The further
requirement that the material misrepresentation would have caused the insurer in good
faith to decline coverage or modify coverage or premiums, if the truth was known, is
disputed and will require a trial to resolve.
For the first year fraud and materiality must still be proven. Fraud has not been
established because of the requirement that the false representation be made with
knowledge of its falsity. The false statement is material but the remainder of 24-A
§2411(2) needs to be established.
A more difficult issue, whch remains undecided, See Ingeneri, n.2 at 899, is
whether the second year is sufficiently separate from the first policy year. There was a
misrepresentation or incorrect statement in the initial application while there was not in
the briefer renewal application. There is nothing in the documents that I have received
whch directly incorporates the initial application in to the renewal application. It
would certainly be plossible for the plaintiff to have asked all of the initial questions
again or explicitly stlated that the initial application formed a basis for the renewal
decision or asked a brief question to the effect of was everyhng that you have told us
before accurate.
A narrow reading of the statute at 24-A M.R.S.A. 52411 has been ably advocated
by defendant John Bsl~ara.The section states that "Misrepresentation .. . and incorrect
statements may not prevent a recovery under the policy or contract unless ...". Mr.
Bshara has argued that the second year was a second policy and that all statements in
the renewal application were accurate. Therefore, the policy remains in effect. This
valiant argument ignores the fact that the initial application which led to the initial
policy contained a misrepresentation or incorrect statement. The initial decision to
provide coverage was based on false information and effects decisions to renew. The
initial coverage norm,ally leads to a second year of coverage absent new information.
The renewal application understandably focused on the first year's experience not the
pre-coverage experience. An insured should not escape the consequences of a material
misrepresentation, particularly because he fortuitously remains claim and discipline
free for a year.
I have read the Lexis 50 page version of In re Healthsouth Corporation Insurance
Litigation, 308 F.Supp. 2d 1253 (N.D. Ala., 2004), 2004 U.S. Dist. Lexis 4454 and found
that Maine precedents and an analysis of the Maine statute, which varies slightly, were
more helpful.
All motions will1 be denied.
The entries are:
The motion to dismiss amended complaint filed by Gilles Fecteau and
Lorraine Fectea.~is denied.
Plaintiff's motion for summary judgment is denied.
Cross-motion for summary judgment of defendant Cooke & Young is
denied.
Dated: September I?, 2006
I /
Paul A. Fritzsche
Justice, Superior Court
Martica S. Douglas, Esq. - PL
Gilles L. & Lorraine A. Fecteau - DEFS - PRO SE
Denise M. Bass - DEF - PRO SE
Claire M. Hussey - DEF -- PRO SE
William H. Leete, Jr., Esq. - DEFS - Karl & Robin Hoose
James F. Cloutier, Esq. - DEFS - Alan & Debra Russell
John H. Rich, Esq. - DEF - William Howison, PR Estate of Peter Faulkner
Robert MIttel, Esq. - DEF - Blethen Maine Newspaper, Inc.
Thomas Van Houten, Esq. - DEF - John Bshara, Jr.
James J. Shirley, Esq. - DEF - Cooke & Young Development, LLC