§ 14.1 Conditions Voiding Coverage
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§ 14.1-1 Misrepresentation in the Application
Oregon law prevents recovery under almost all types of insurance policies for misrepresentations or omissions in the insurance application, provided certain statutory requirements are met. ORS 742.013; Brock v. State Farm Mut. Auto. Ins. Co., 195 Or App 519, 526, 98 P3d 759 (2004). By its terms, ORS 742.013 does not apply to surety insurance. ORS 742.013(2). But see ORS 742.001 (provisions in ORS chapter 742 apply to all Oregon insurance policies other than reinsurrance, wet marine and transportation insurance, and surplus-lines insurance policies).
Misrepresentations, omissions, concealments of facts, and incorrect statements prevent recovery if they are contained in a written application for the policy, a copy of which is "indorsed upon or attached to the insurance policy when issued." ORS 742.013(1)(a). In addition, the insurer must show that the statements were material, that the insurer relied on them, and that they were either fraudulent or material "to the acceptance of the risk or to the hazard assumed by the insurer." ORS 742.013(1)(b)-(c).
Generally, when the application is not indorsed nor attached to the policy, it is not included as part of the policy. The term indorsed upon requires an insurer to reproduce information concurrently with the issuance of the policy to allow the policyholder to be fully apprised of the information the insurer relied on in issuing the policy. See Brock, 195 Or App at 526. Prior to the advent of the Internet, determining whether a policy was indorsed upon was relatively simple. In Progressive Ins. v. Nat'l Am. Ins. Co. of California, 201 Or App 301, 118 P3d 836 (2005), an application for motor vehicle liability insurance was not admissible in a coverage dispute because the application was not delivered to the insured with the policy and thus was not part of policy.
However, in an age where insurance policies are procured entirely online, determining whether an application is properly indorsed upon or attached to a policy becomes more difficult.
Although Oregon courts have not addressed electronic attachment in the context of ORS 742.013, other jurisdictions have upheld the practice of linking documents digitally through a hyperlink, which has been an acceptable form of attaching linked documents such that the linked documents form the entire contract when the hyperlinks are conspicuous. PDC Labs., Inc. v. Hach Co., No 09-1110, 2009 WL 2605270 at *2-3 (CD Ill Aug 25, 2009). But see Nguyen v. Barnes & Noble, Inc., 763 F3d 1171, 1178 (9th Cir 2014) (distinguishing PDC Labs).
Fraud or misrepresentation by an insured need only be shown by a preponderance of the evidence, rather than by clear and convincing evidence. Mut. of Enumclaw Inc. Co. v. McBride, 295 Or 398, 667 P2d 494 (1983) (construing former ORS 743.612 (1967), renumbered as ORS 742.208 (1989)). The standard for the element of scienter under ORS 742.013(1) is knowledge that a statement is false or reckless indifference as to whether it was true or false, the same standard required to establish scienter for common-law fraud. Kentner v. Gulf Ins. Co., 297 Or 470, 476, 686 P2d 339, modified on other grounds on reh'g, 298 Or 69, 689 P2d 955 (1984) (construing former ORS 743.042(1) (1967), renumbered as ORS 742.013(1) (1989)).
Pursuant to ORS 742.013, an insurer generally does not have a duty to investigate possible misrepresentations or omissions on the insured's application for insurance when the application is "incomplete on its face." Kraus v. Prudential Ins. Co. of Am., 799 F2d 502, 505 (9th Cir 1986) (applying Oregon law). However, there is a duty to investigate when "the omissions are so obviously material that reliance on the incomplete application would be reckless." Kraus, 799 F2d at 505. In Verex Assur., Inc. v. John Hanson Sav. & Loan, Inc., 816 F2d 1296, 1305 (9th Cir 1987) (applying Oregon law), however, the court held that when a mortgage guaranty insurer assumed an active role in the sale of loans and insurance certificates, the extent of the insurer's knowledge was a relevant factual inquiry in the negligence claims (distinguishing Kraus).
NOTE: An insurer may not avoid a policy because of misstate-ments or misrepresentations by its agent, and not due to fraud or bad faith of the insured. Williams v. Pac. States Fire Ins. Co., 120 Or 1, 10, 251 P 258 (1926). In State Farm Fire & Cas. Co. v. Sevier, 272 Or 278, 537 P2d 88 (1975), the insured told the insurance agent that he had been convicted for drunken driving, but the agent answered "no" to the question whether the applicant had been convicted of any traffic violations. The court held that the agent's knowledge of the conviction was imputed to the insurer despite allegations of collusion between the insured and the agent, and that the insurer's attempt to rescind more than one year later, after an accident in which one person was killed and another injured, came too late.
§ 14.1-2 Concealment and Fraud
"[T]o prevail on a claim for rescission, an insurer must prove, among other things, that the insured made a misrepresentation or...
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