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July 29, 2014

Second Department Upholds Rescission of Insurance Policy Where Plaintiff Misrepresented the Number of Dwelling Units in a Multi-Family Home

Recently, in Lema v Tower Ins. Co. of N.Y. (2014 NY Slip Op 05162), an action to recover the proceeds of a homeowners' insurance policy, the Appellate Division, Second Department reversed, on the law, a trial court order denying the defendant's motion for summary judgment seeking to dismiss the plaintiff's complaint.

In order to rescind an insurance policy, an insurer must show that the insured made a material misrepresentation of fact when he or she secured the policy. A misrepresentation is considered material when the insurer would not have issued the policy had it known the facts misrepresented. This is proven by showing evidence of underwriting practices and policies that establish that it would not have issued the same policy if the correct information had been disclosed in the application.

In Lema, the defendant submitted evidence demonstrating that the plaintiff made a misrepresentation in the application for insurance. Plaintiff represented in the application that the subject premises was a two-family dwelling. Defendant submitted evidence, including photographs and the affidavit of its property field adjuster, proving that the subject premises had three dwelling units, each with its own kitchen, bathroom, and separate entrance. This evidence, the court found, established, prima facie, that the subject premises was a three-family dwelling.

Further, defendant put forward the affidavit from its underwriting manager and its "Homeowners Selection Rules," showing that it would not have issued the same policy if the plaintiff had disclosed that the subject premises was a three-family dwelling.

The Court found that plaintiff-insured failed to raise a triable issue of fact in opposition to the motion. Accordingly, the Second Department found that the Supreme Court should have granted the defendant's motion for summary judgment dismissing the complaint.

This case offers an example of a successful rescission by an insurer in the frequently encountered situation where an insured misrepresents the number of rental units.

Should you have questions regarding the information presented in this alert, please contact Anthony J. Piazza, Chair of the firm's Insurance Coverage & Regulation Practice Area, at (585) 295-4420 or apiazza@hblaw.com.

 

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