The U.S. Court of Appeals for the Eighth Circuit has affirmed a lower court’s decision to void an insurance policy *ab initio* (from the beginning) for a Hot Springs, Arkansas home destroyed by fire, concluding the homeowner, Suzan E. Taylor, made a material misrepresentation on her initial application. The ruling ends a complex, multi-year legal battle between Taylor and the insurer, Hiscox Dedicated Corporate Member, Limited.
The appellate court found that Taylor failed to disclose the foreclosure of a separate property she owned, the Fairfield Bay Property, which was deemed a material omission under Arkansas insurance law. This failure, the court ruled, gave Hiscox the right to rescind the policy and deny coverage for the 2018 fire loss.
The Path to the Policy Application
The dispute centers on a high-value homeowners insurance policy issued in February 2018 by Hiscox Syndicate 33 underwriters, facilitated through Burns & Wilcox, Ltd. (B&W), an authorized “coverholder” in Arkansas.
Seeking coverage for her Hot Springs residence, Taylor filled out a standard ACORD application form provided by her agent. The application included several standard questions about the applicant’s financial history, including: “Has applicant had a foreclosure, repossession, bankruptcy or filed for bankruptcy during the past five (5) years? No.”
Taylor signed the application, affirming the information was “true, complete and correct to the best of my knowledge and belief.” Shortly thereafter, a fire destroyed the home.
The Insurer Rescinds and Litigation Begins
Following the fire in August 2018, Hiscox investigated and ultimately decided to rescind the policy, returning the premium to Taylor. Hiscox claimed Taylor had made several material misrepresentations on the application. When Taylor sued for breach of contract and bad faith, Hiscox counter-sued, seeking a declaratory judgment that the rescission was proper.
The initial district court ruling in 2021 sided with Hiscox, focusing on a foreclosure proceeding pending against the Hot Springs Property itself just before the application. However, Taylor appealed that decision.
In 2022, the Eighth Circuit reversed that initial ruling (Hiscox I), finding the term “foreclosure” in the context of the Hot Springs Property question was ambiguous under Arkansas law. Because the ambiguity could be read favorably to the insured (meaning the sale hadn’t finalized), the court sent the case back to the district court to examine other alleged misrepresentations.
The Fairfield Bay Property Becomes the Focus
On remand, the case shifted focus to Taylor’s failure to disclose the history of her Fairfield Bay Property. The district court ultimately granted summary judgment to Hiscox in August 2023, concentrating on this specific omission.
The district court determined that Taylor should have disclosed that foreclosure proceedings began on the Fairfield Bay Property in 2014, and the property was eventually sold in a foreclosure sale in 2016—both events falling within the five-year window questioned on the application.
The court found that under either interpretation of “foreclosure” favored in the first appeal (either the initiation of proceedings or the final sale), Taylor’s answer of “No” was factually incorrect regarding the Fairfield Bay Property.
Materiality and Agency Knowledge Debates
Taylor’s primary defense on appeal centered on two issues: whether the misrepresentation was *material* and whether Hiscox’s agent, B&W, already knew about the foreclosure, thereby waiving the right to rescind.
Materiality: Under Arkansas law, a misrepresentation is material if the insurer would not have issued the policy had the truth been known. The Eighth Circuit noted that underwriters from both B&W and Hiscox provided “uncontradicted testimony” that they would have declined coverage outright had Taylor disclosed the Fairfield Bay foreclosure. One underwriter stated it would have been a “straight decline,” citing concerns that a foreclosure indicates the insured is in a “weak financial position” and might be more likely to file claims or even commit arson. The appellate court found no evidence contradicting this testimony, establishing materiality as a matter of law.
Agency Knowledge: Taylor argued that B&W, acting as Hiscox’s general agent, had knowledge of the Fairfield Bay foreclosure dating back to 2014 (when B&W handled a policy for a different insurer for Taylor) and that this knowledge should be imputed to Hiscox. The district court rejected this, noting that under Arkansas agency law, an agent’s knowledge is only imputed to the principal (Hiscox) if acquired while acting within the scope of that specific agency relationship. Since the 2014 knowledge was gained concerning a policy for a different syndicate, it could not be imputed to Hiscox in 2018. The Eighth Circuit agreed, noting that Taylor waived arguments suggesting a different standard of agency law should apply in this context.
The Concealment or Fraud Clause
Even if the policy wasn’t voided by misrepresentation, the district court found an alternative basis for denying coverage: the policy’s own “Concealment or Fraud” clause. This clause stated there would be no coverage if the insured “Made false statements; relating to this insurance.”
Taylor argued this clause required an *intentional* false statement to be triggered. The Eighth Circuit disagreed, affirming the district court’s interpretation that the language was unambiguous and did not require intent. Because Taylor made a false statement by omitting the Fairfield Bay foreclosure, the clause independently barred coverage for the fire loss.
Conclusion on Counterclaims
Because the Eighth Circuit affirmed the district court’s finding that Hiscox properly rescinded the policy *ab initio*, Taylor’s counterclaims for breach of contract and bad faith necessarily failed. When a policy is voided from the start, no enforceable contract exists to breach, and there can be no bad faith in denying a claim under a non-existent contract.
The Eighth Circuit affirmed the judgment in favor of Hiscox.