National Union Fire Ins. Co. of Pittsburgh, Pa. v. Sahlen, s. 93-4029

• Decision Date: 03 September 1993
• Docket Number: 93-4231,Nos. 93-4029,s. 93-4029
• Citation: 999 F.2d 1532
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff-Counterclaim Defendant-Appellee, v. Harold F. SAHLEN, Thomas R. Pledger, Nelson H. Logal, Defendants-Counterclaim Plaintiffs-Appellants, Aarif Dahod and Lawrence Bodden, Intervenors-Defendants Counterclaim-Plaintiffs-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1532

999 F.2d 1532

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA Plaintiff-Counterclaim Defendant-Appellee, v. Harold F. SAHLEN, Thomas R. Pledger, Nelson H. Logal Defendants-Counterclaim Plaintiffs-Appellants Aarif Dahod and Lawrence Bodden, Intervenors-Defendants Counterclaim-Plaintiffs-Appellants.

Nos. 93-4029, 93-4231.

United States Court of Appeals Eleventh Circuit.

Sept. 3, 1993.

James H. Schropp, Jonathan M. Jacobs, Anthony J. Renzi, Fried, Frank, Harris, Shriver & Jacobson, Washington, DC, Robert S. Geiger, Levine & Geiger, P.A., Miami, FL, for Pledger in No. 93-4029.

Jan Douglas Atlas, Robin Corwin Campbell, Atlas, Pearlman & Trop, P.A., Ft. Lauderdale, FL, for Logal in No. 93-4029.

Jane W. Moscowitz, Baker & Moscowitz, Miami, FL, for Bodden in Nos. 93-4029, 93-4231.

Martin J. Hanna, Martin J. Hanna, P.A., Coral Springs, FL, for Dahod in Nos. 93-4029, 93-4231.

Paul R. Regensdorf, Fleming, O'Bryan & Fleming, Ft. Lauderdale, FL, for appellee in No. 93-4029.

James H. Schropp, Jonathan M. Jacobs, Anthony J. Renzi, Fried, Frank, Harris, Shriver & Jacobson, Washington, DC, for Pledger in No. 93-4231.

Jan Douglas Atlas, Atlas, Pearlman & Trop, P.A., Ft. Lauderdale, FL, for Logal in No. 93-4231.

Patricia Ann Burton, Paul R. Regensdorf, Fleming, O'Bryan & Fleming, P.A., Ft. Lauderdale, FL, for appellee in No. 93-4231.

Appeals from the United States District Court for the Southern District of Florida.

Before EDMONDSON and CARNES, Circuit Judges, and HILL, Senior Circuit Judge.

PER CURIAM:

Petitioners, officers and directors of Sahlen & Associates, Inc. ("SAI"), appeal the rescission of their Officers and Directors Liability Insurance Policy. The district court declared the policy void under Florida law and granted summary judgment in favor of Respondent National Union Fire Insurance Company of Pittsburgh, PA ("National Union"). We find that the district court properly held the policy void and affirm.

I.

In September, 1988, SAI submitted to National Union an application for directors and officers ("D & O") liability insurance signed by SAI President and Chief Executive Harold Sahlen. SAI attached certain required documents to the application, including a 1987 annual report, SEC filings, and mid-1988 financial statements.

In April, 1989, it was discovered that officers and/or employees of SAI had been manufacturing fictitious invoices over a period of years. Consequently, accounts receivable were overstated by $45 million and the company's financial health was significantly worse than it had appeared. SAI's accountants immediately withdrew their certification of financial statements prepared for the company between 1986 and 1989, including some of the documents attached to the D & O policy application. Following an investigation by the outside directors, SAI terminated Harold Sahlen and Petitioners Lawrence Bodden, Aarif Dahod and Nelson Logal. A torrent of civil and criminal actions followed public announcement of the wrongdoing. In late May, 1989, SAI filed a petition for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq.

In September, 1989, National Union entered into an Interim Funding Agreement with SAI officers and directors. The agreement provided that National Union would pay the Insureds' defense costs in the civil and criminal suits as they were incurred but reserved National Union's rights under its D & O policy. In July, 1991, National Union filed suit for rescission of the policy. ¹ In August, 1991, National Union terminated the Interim Funding Agreement and informed the Insureds that it would cease payment under the policy as of September 3.

National Union based its claim for rescission on the following provision of Florida law, Fla.Stat. § 627.409(1):

(1) All statements and descriptions in any application for an insurance policy or annuity contract, or in negotiations therefor, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless:

(a) They are fraudulent;

(b) They are material either to the acceptance of the risk or to the hazard assumed by the insurer; or

(c) The insurer in good faith would either not have issued the policy or contract, would not have issued it at the same premium rate, would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.

Fla.Stat. § 627.409(1) (1989). ²

The district court found in favor of National Union on a motion for summary judgment, concluding inter alia that SAI's attachment of inaccurate financial statements was a material misrepresentation under subsection (b) of the Florida statute. In the alternative, the district court held the policy void under subsection (c) of the Florida statute because National Union presented uncontradicted deposition testimony that it would not have issued the policy had it known of SAI's true financial position. The district court declared SAI's D & O policy void ab initio on December 4, 1992. 807 F.Supp. 743.

After disposing of two outstanding motions, the court entered final judgment on February 18, 1993, but reserved jurisdiction over National Union's claim for reimbursement of payments made theretofore under the Interim Funding Agreement. This appeal ensued.

II.

Concerned that the district court's retention of jurisdiction over the question of reimbursement precluded our own jurisdiction over the appeal, we submitted a sua sponte question of jurisdiction to the parties. We are now satisfied that jurisdiction over this appeal lies under 28 U.S.C. § 1292. ³

Section 1292 provides the courts of appeals with jurisdiction over interlocutory district court orders which modify injunctions. ⁴ During the pendency of this case, the district court granted a motion by the Insureds for partial summary judgment and held that National Union was required to pay the Insureds' defense costs in the underlying suits until its claim for rescission was resolved. We find that this order of the district court constituted an injunction for purposes of § 1292(a)(1). See C. Wright & A. Miller, Federal Practice and Procedure, § 3922 (West 1993 supp.) (defining "injunction" for purposes of § 1292); and see Gon v. First State Ins. Co., 871 F.2d 863 (9th Cir.1989) (order directing insurer to pay defense costs is an injunction under § 1292(a)(1)); Allstate Ins. Co. v. Arvida Corp., 421 So.2d 741 (Fla.Dist.Ct.App.1982) (order directing insurer to defend is a mandatory injunction under Fla.R.App.P. 9.130(a)(3)(B), the Florida statute analogous to 28 U.S.C. § 1292(a)(1)).

On December 17, 1992, Petitioners Logal and Bodden filed a motion to compel National Union to pay costs incurred prior to rescission of the policy. The district court denied the motion, noting that because the policy was void ab initio the Insureds were entitled to no benefit from it and any prior order requiring National Union to advance defense costs had "no bearing on that result." This ruling effectively dissolved the injunctive relief provided for in the court's earlier grant of partial summary judgment in the Insureds' favor. This appeal rests upon that modification or dissolution of an injunction and we have jurisdiction under 28 U.S.C. § 1292(a)(1).

III.

Petitioners contend that the district court erred in holding their D & O policy void under Florida law. It is undisputed that the financial statements attached to the policy application were inaccurate, reflecting, as they did, fictional accounts receivable. Petitioners assert, however, that inaccuracies in financial statements attached to a policy application are not "statements" within the meaning of Fla.Stat. § 627.409. We disagree. The documents provided to National Union were specifically required as part of the application and were patently critical to the insurer's decision to provide coverage. They were part and parcel of the completed application and the district court correctly found that indisputably inaccurate figures in them were "statements and descriptions in [an] application for an insurance policy" under Fla.Stat. § 627.409.

Misrepresentations and incorrect statements in a policy application bar recovery under the policy where, inter alia, they are material to the risk assumed by the insurer or the insurer would not have offered the same terms had it known the truth. Fla.Stat. § 627.409(1)(b) & (c). The statute contains no knowledge or intent element; unintentional or unknowing misstatements bar recovery under a policy if they alter the risk or the likelihood of coverage. Continental Assur. Co. v. Carroll, 485 So.2d 406 (Fla.1986); Fernandez v. Bankers Nat. Life Ins. Co., 906 F.2d 559 (11th Cir.1990); William Penn Life Ins. Co. v. Sands, 912 F.2d 1359 (11th Cir.1990). ⁵

The actual, precarious state of SAI's financial health and the alleged criminal wrongdoing of certain of its high-level officers and employees quite obviously altered the risk assumed by the insurer. No further showing is required to void the policy under subsection (b) of the Florida law. See Fernandez, supra, at 565-66 (listing Florida appellate and federal district court cases holding that "misrepresentations on an insurance application are material for preventing recovery when the misstatement obviously affects the risk of insurance"). National Union presented uncontradicted deposition testimony of the underwriter who handled the SAI policy that he would not have offered the policy had he known of the company's true financial state. No further showing is required under subsection (c) of the Florida statute. See, e.g., Jackson Nat. Life Ins. Co. v. Proper, 760...