When a named insured lies in an application for insurance coverage, the insurer may have the right to throw out the policy. However, this does not mean there is no coverage for innocent third parties. In fact, it may mean there is more coverage.
In Citizens United Reciprocal Exchange v. Perez, Luis Machuca, while driving with a passenger in a car owned by Sabrina Perez, was involved in an auto accident with a car driven by Dexter Green. Green claimed he was injured as a result of the accident and made a claim against Perez's policy.
Perez insured her car under a so-called "basic" policy with $10,000 in liability coverage. When she applied for insurance, she did not list Machuca, the father of her two children, as a resident of her household. In a recorded statement five days after the accident, Perez acknowledged that Machuca lived with her.
Citizens United filed a lawsuit seeking an order that, among other things, the policy was void due to a material misrepresentation and the voided policy provided no liability coverage to innocent third parties, such as Green.
Not only did the Court reject this argument, but it also decided that the coverage available to Green was more than the $10,000 provided by Perez's policy. This is because an innocent third party has the right to expect that all other drivers will be insured to the extent required by compulsory insurance. Even though drivers may choose the $10,000 limit "basic" policy after receiving a disclaimer, auto insurers are required to offer a so-called "standard" policy of at least $15,000 per person and $30,000 per occurrence. According to the Court, this is the level of coverage that Green, an innocent third party, was entitled to expect.
For injuries over the $15,000/$30,000 minimum amount, a third party would look to his or her own policy's Uninsured or Underinsured Motorist provisions.