PHL Variable Life Insurance Company sued Jolly and the Faye Keith Jolly Trust for negligent misrepresentation of Jolly’s assets in the application for a $10 million life insurance policy. The company sought to rescind the policy and to retain the premiums paid by the Trust, the policy owner. PHL also sought to recover the amount of commissions paid to the broker.
After Jolly defaulted, the district court rescinded the policy based on the default, but denied PHL’s claims for damages and retention of the premiums, which had been paid into the registry of the court. There was no evidence that the Trust, which was not in default, had participated in any misrepresentation of Jolly’s assets. The district court awarded summary judgment in favor of the Trust on the damages claims.
On appeal, PHL argued that by signing the application and representing that its contents were "full, complete and true to [my] best knowledge and belief," the Trustee had stated falsely that it had knowledge of Jolly’s assets. According to the Eleventh Circuit’s opinion, PHL relied on Georgia cases "holding that a declaration made ‘to the best of my knowledge and belief’ in an insurance application may be false when the applicant relies on information provided by someone with no knowledge of the truth of the matter represented, such as the insurer’s agent, or when the applicant makes the declaration despite knowing that it is actually false."
Those cases, the court held, did not apply "because PHL has submitted no evidence that [the Trustee] failed to read the application or that [the Trustee] knew that Jolly’s statements were false."
PHL also argued that even if the Trust had made no misrepresentation, PHL nonetheless was "equitably entitled to retain the policy premiums because the default judgment against Jolly established that the insurance policy was obtained by fraud." The Eleventh Circuit rejected this argument, noting that "Georgia law provides no support for this proposition." Rather, "Georgia law generally requires an insurer seeking to rescind an insurance contract to return any premiums paid under the contract, even where the insured person originally obtained the policy by fraud."
Without elaboration, the court noted that "there may be some exceptions to this general rule," but concluded that "none apply here."
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