A manufacturing company applies for a commercial property policy with Zenith Insurance through Zenith's authorized captive agent. The application asks if the facility stores any flammable liquids. The facility manager tells the agent they store a small amount of specialty solvent. The agent verbally assures the manager, "The company only cares about bulk storage, so I will check 'No' on the form." Zenith's agency contract explicitly states agents have no authority to modify or interpret application questions. Zenith issues the policy. Six months later, a Zenith risk engineer inspects the facility, notes the solvent storage in their official report, but Zenith takes no action and continues billing and accepting monthly premiums. A year later, a fire destroys the building. Zenith attempts to deny the claim and void the policy due to the application misstatement.
Based on the legal interpretations and doctrines of insurance contracts, which of the following conclusions regarding this dispute are correct? (Select all that apply)
- By continuing to accept premium payments after their risk engineer documented the true facts, Zenith Insurance created a waiver of their right to void the policy based on the misstatement.Answer
- The application's false statement about flammable liquids is legally classified as a representation rather than a warranty, meaning it would only void the contract if deemed material to the risk.Answer
- CZenith Insurance is bound by the agent's verbal interpretation because the agent possessed express authority, which legally arises from the applicant's reasonable perception of the agent's role.
- DUnder the doctrine of adhesion, the applicant's verbal misstatement must be interpreted in favor of the insured because the insurer drafted the application form.