Material
Misrepresentation Discovered After Fire
Voids
Policy
As part
of our continuing commitment to provide outstanding representation and to serve
as an information resource, we wish to inform you of a recent decision from the
Appellate Division concerning insurance coverage.
One of
the grounds upon which an insurance policy which has already been issued can be
voided, is material misrepresentation.
Although voiding a policy for material misrepresentation does not happen
frequently, when it does happen and there is no insurance coverage, the
consequences can be serious. A recent
case from the Second Department demonstrates this principal.
In Morales
v. Castlepoint Insurance Company, the plaintiff purchased a homeowners
policy for premises at 369 Tompkins Avenue in Brooklyn from Castlepoint
Insurance Company ("Castlepoint").
The application submitted to Castlepoint represented the premises were
occupied by the plaintiff and served as his "primary
residence". The first page of the policy indicated that
the premises were owner occupied. The
policy was renewed yearly and was in full force on the day of the loss. In fact, the plaintiff never lived at the
premises. On January 14, 2011, the
premises were damaged by fire. After the
plaintiff put in a claim for damages with Castlepoint, the plaintiff was
notified that it was disclaiming coverage on the ground that he had made a
material misrepresentation. The
homeowner commenced this action to recover damages and for breach of the
policy. Castlepoint answered and
asserted among other affirmative defenses, that the policy was void ab initio
as a result of the plaintiff's
misrepresentation that he occupied the premises. Castlepoint moved for summary judgment which
was denied by the lower court.
Castlepoint appealed.
The
Second Department reversed. The Second
Department noted that to establish its right to rescind, an insurance company
must demonstrate that the insured made a material misrepresentation. A representation is a statement made as an
inducement to the issuance of the insurance policy. A misrepresentation is material if the
insurer would not have issued the policy had it known of the misrepresented
facts. To establish materiality as a
matter of law, an insurer must present documentation regarding its underwriting practices such as
underwriting manuals or rules pertaining to similar risks that show that it
would not have issued the same policy if the correct information had been
disclosed in the application.
In this
case, the defendant misrepresented that the premises were owner-occupied. The Appellate Division found that this
misrepresentation was material implicitly finding that Castlepoint would not
have issued the policy if it knew that the homeowner was renting the
premises. Contrary to the plaintiff's contention, the Second Department
found that Castlepoint established that even if the misrepresentation was not
made by him but rather by his insurance broker, it was ratified by him since
the policy was renewed as owner-occupied for several years thereafter.
Here,
there was no insurance so the loss is totally upon the homeowner. Material misrepresentations are often only
discovered when there is a loss.
Therefore, it is important when investigating a loss, whether homeowners
or automobile, to thoroughly investigate to be sure that the material facts are
actually the same as when the policy was issued.
Should
you have any questions, please call.
Thomas M. Bona
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