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Media Alerts - Colony Insurance Co. v. Petersen, et al. -- Fourth Circuit
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October 30, 2014
  Colony Insurance Co. v. Petersen, et al. -- Fourth Circuit
Headline: Waiver and Estoppel Cause Insurance Company's Material Misrepresentation Claim to Go Up in Smoke

Area of Law: Insurance, Contracts

Issue Presented: Whether, under North Carolina law, waiver and estoppel issues were properly before a jury when the defendants made material misrepresentations to the insurance company on their application for insurance, the company was aware of the misrepresentations, and the company nevertheless granted insurance.

Brief Summary: On May 6, 2010, Colony Insurance Company insured the defendants' headquarters (the 501 building) against loss due to fire damage. The policy included a fire protection safeguard clause requiring the defendants to, among other things, maintain "functioning utilities at the 501 building." The clause explained that Colony would not pay for fire damage if, prior to a fire, the defendants "failed to maintain any protective safeguard" or failed to notify Colony of any failure in a protective safeguard. Colony hired a third party to inspect the 501 building for any issues "related only to insurability" of the premises. Colony received a written inspection report on April 13, 2010 noting that there was no heat at the 501 building, which conflicted with information on Petersen's insurance application stating that heat would remain continuously powered. However, Colony never notified the defendants of any problems that needed to be remedied. On May 18, 2010, the building suffered fire damage. Colony denied coverage after reviewing the inspection report in July.

Colony sought a declaratory judgment regarding its indemnity obligations under the policy. Colony moved for summary judgment, arguing the insured's material misrepresentations on their application rendered the policy void, and the breach of fire protective safeguards endorsement precluded coverage. The case proceeded to trial and a jury found that although a material misrepresentation as to the functioning utilities appeared on the insurance application, and that a condition of fire protective safeguards endorsement requiring functioning utilities to remain on had been breached, Colony waived its right to rescind the policy and was estopped from denying coverage. Following the jury's verdict the district court denied Colony's motion for judgment as a matter of law and entered final judgment against Colony.

On appeal, Colony argued that the district court erred in denying Colony's motion for judgment as a matter of law. The United States Court of Appeals for the Fourth Circuit affirmed. Applying North Carolina law, the Fourth Circuit held that a reasonable jury could have found that Colony waived its fire safeguard provision, or that Colony was estopped from enforcing the conditions of the agreement because it never notified the defendants that they were not in compliance with the policy. Additionally, the court found that while a material misrepresentation on an insurance application may forfeit coverage, waiver and estoppel may overcome a material misrepresentation claim, and such a question is for a jury to resolve.

To read the full opinion please click here.

Panel: Judges King, Wynn, and Floyd.

Argument Date: 05/15/2014

Date of Issued Opinion: 08/25/2014

Docket Number: No. 13-1033

Decided: Affirmed

Case Alert Author: Roy Lyford-Pike

Counsel: Reid C. Adams, Jr., WOMBLE CARLYLE SANDRIDGE & RICE, LLP, Winston-Salem, North Carolina, for Appellant. Patrick Michael Kane, SMITH MOORE LEATHERWOOD LLP, Greensboro, North Carolina; James W. Bryan, NEXSEN PRUET, PLLC, Greensboro, North Carolina; Stephen G. Teague, TEAGUE, ROTENSTREICH, STANALAND, FOX & HOLT, PLLC, Greensboro, North Carolina, for Appellees. ON BRIEF: LT, PLLC, Greensboro, North Carolina, for Appellees. ON BRIEF: James R. Morgan, Jr., Jonathan R. Reich, WOMBLE CARLYLE SANDRIDGE & RICE, LLP, Winston-Salem, North Carolina, for Appellant. M. Jay Devaney, NEXSEN PRUET, PLLC, Greensboro, North Carolina, for Appellee Randolph Bank and Trust Company. Manning A. Connors, SMITH MOORE LEATHERWOOD LLP, Greensboro, North Carolina, for Appellees Evergreen Composite Technology, LLC and Charles A. Peterson. Lyn K. Broom, TEAGUE, ROTENSTREICH, STANALAND, FOX & HOLT, PLLC, Greensboro, North Carolina, for Appellees Edward L. Clayton, Jr. and HPB Insurance Group, Incorporated.

Author: Judge Wynn

Case Alert Circuit Supervisor: Professor Renée M. Hutchins

    Posted By: Renee Hutchins @ 10/30/2014 10:59 AM     4th Circuit  

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