In general, an insurer has the right to rescind an insurance policy if it can demonstrate that the insured made a material misrepresentation in the policy application. Recently, a New York State appellate court issued a decision reiterating this principle in addressing a fire loss claim.i
The case involved two separate properties on Long Island: a property located in New Hyde Park and a property located in Floral Park. The closing for the purchase of the Floral Park property was scheduled for March 25, 2015, and on March 24, 2015, the insured submitted an application for a homeowners’ insurance policy for the Floral Park property, listing it as an owner-occupied residence as of April 5, 2015. The application also contained a representation that the plaintiff did not own, occupy, or rent any other property. The insurer issued a homeowners’ insurance policy for the Floral Park property, effective March 24, 2015.
Following the closing on the Floral Park property, the insured continued to reside at the New Hyde Park property while performing renovations at the Floral Park property. On April 15, 2015, the Floral Park property was damaged due to a fire, and the insured submitted an insurance claim for the damage to the homeowners’ insurer. The insurer denied coverage for the claim based on misrepresentations in the policy application, including the insured’s failure to disclose that he owned a separate residence and that he was not occupying the Floral Park property as his primary residence.
The insured filed a lawsuit against the insurer and obtained a jury verdict that the insurer failed to establish that the misrepresentation was material. The court entered a judgment in favor of the insured for $300,000. The insurer appealed, and the appellate court reversed, finding that the verdict should have been set aside and the claim dismissed. The court found that the insurer established that the policy application contained misrepresentations that the Floral Park property would be owner-occupied as of April 5, 2015; that the insured did not own, occupy, or rent any other residence; and that it would not have issued the same policy if the application had disclosed the correct information. In opposition to this prima facie showing, the insured failed to raise a triable issue of fact, and the insurer thus was entitled to a declaration that the policy was rescinded and void.
This decision serves as a good reminder to policyholders and their insurance agents and brokers to be sure all of the information submitted in a policy application is completely accurate. In addition, this decision provides guidance for the requirements an insurance company must satisfy to rescind a policy based on a material misrepresentation. As discussed above, the insurer must show not only that the information was incorrect but also that it would not have issued the policy if it had been supplied with the correct information.
1 Thandi v. Otsego Mut. Fire Ins. Co., 2021 NY Slip Op 06206 (2nd Dept).
If you have any questions regarding the content of this alert, please contact Sanjeev Devabhakthuni, partner, at sdevabhakthuni@barclaydamon.com; Tony Piazza, Insurance Coverage & Regulation Practice Area chair, at apiazza@barclaydamon.com; or another member of the firm’s Insurance Coverage & Regulation Practice Area.