It is not Nice to Lie to Your Insurer

Material Misrepresentation on Application Defense to Claim

Apr 25, 2025

Lies on Application for Insurance Eliminates Coverage for a Claim

Magna Tyres USA, LLC appealed the summary judgment in favor of Coface North America Insurance Company and against its complaint of breach of contract and request for a declaratory judgment. In Magna Tyres USA, LLC v. Coface North America Insurance Company, No. 24-13036, the United States Court of Appeals, Eleventh Circuit (April 10, 2025) determined the effect of a material misrepresentation on an application for insurance.

FACTS

Magna Tyres USA, an affiliate of Magna Tyres Group, obtained coverage under Coface’s international credit insurance policy to cover the credit it extended to its customers.

Coface’s agent completed and submitted the insurance application to underwriting before returning it to Magna Tyres USA for signature. He wrote that “if there is a section that isn’t completed, then that means it doesn’t have to be completed” and to sign if Magna Tyres USA did not want to make any changes.

Michael de Ruijter, chief executive officer of both Magna Tyres Group and Magna Tyres USA, signed the application. Magna Tyres USA answered that it lacked any information detrimental to the creditworthiness of any customer and left blank how much of its outstanding customer debts were over 60 days past due.

The policy contained a provision excluding coverage based on misrepresentation.

Magna Tyres USA obtained coverage for multiple companies, including three for which it eventually submitted claims: Tires Direct, Inc., Narsi, Inc., and Tire Super Center of Orlando, LLC. Before the application was signed Magna Tyres USA knew Sanjeet Singh Veen owned three companies whose debts exceeded $11.6 million. Magna Tyres USA’s former employee, who oversaw accounting, testified that Singh was regularly 90 days past due on his accounts. And in a January 2020 meeting, Magna representatives stated that Singh’s debts created “too much risk” and decided to stop shipping products until he paid.

Alexandre Lacreu, chief underwriting officer for Coface, stated that Coface would not have insured the debts of any Singh company had Magna Tyres USA disclosed that there was one person responsible for the customers’ orders, that the customers were heavily indebted and had debt that was 60 days past due, and that Magna Tyres USA had stopped delivering products based on that debt.

Magna Tyres USA submitted insurance claims to Coface seeking coverage for the unpaid debts of the covered companies, some of which Coface held in abeyance and some of which it denied. Magna Tyres USA sued.

Coface answered that Magna Tyres USA made material misrepresentations on its application. The district court granted summary judgment in favor of Coface.

DECISION

The district court did not err in ruling Magna Tyres USA made a material misrepresentation. Magna Tyres USA misrepresented in its application that it lacked any information detrimental to the creditworthiness of any customer and, in fact, Magna Tyres knew information detrimental to the creditworthiness of the covered companies when it signed the application in February 2020.

A party to a contract has a duty to know the contents of the contract before he signs it, and to know the content of an application for insurance, regardless of whether an insurance agent completes the application.

Michael de Ruijter signed the application and knew all information regarding Singh’s payment history with both Magna Tyres USA and Magna Tyres Group.

The misrepresentation was material. Florida courts have held that the determination of materiality to the acceptance of risk is a question of law based on an objective view of materiality, and the determination of how the insurer would have acted is one of fact requiring testimony from the insurer’s representatives. The failures to disclose that Singh was the common owner of the companies and had amassed debts sufficient for Magna to stop shipping based on the risk of nonpayment were objectively material.

Lacreu was designated to testify as a corporate representative regarding the procedures for evaluating the buyers’ credit risk.

An insurance company has the right to rely on an applicant’s representation and is under no duty to inquire further unless it has actual or constructive knowledge that such representations are incorrect or untrue. Coface lacked knowledge about Singh’s companies having such high debt that Magna Tyres stopped shipping to them before obtaining coverage. Coface was entitled to rely on the truthfulness of the application that Magna Tyres USA had no information relevant to the customers’ creditworthiness.

ZALMA OPINION

This is not a rescission case, although Coface could have rescinded the policy, it did not. It denied the claim based on misrepresentation and left the policy in effect. Magna Tyres lied on its application, knew it had a customer with a major bad debt and only after the policy was issued attempted to collect the debt from the insurer instead of the customer it let get deep in debt. Insurers are entitled to rely on the good faith of an insured and when lied to the insurer can refuse to pay. Technically, the major lies from Magna, could be evidence of fraud.

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