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Insurer wins bid to void policies after apartment count mistake
A New York appeals court found the insurer proved the incorrect unit count was a material misrepresentation and that it would have priced the risk differently if disclosed.
A New York appeals court ruled that Union Mutual Fire Insurance Company could void two commercial property policies because the applications listed two apartment units while the building had three, leaving the policyholder with no coverage in an underlying personal injury lawsuit, Insurance Business reports.
The insurer issued the policies for 2020 and 2021 based on the application information and later rescinded them after the discrepancy surfaced following the personal injury case. Union Mutual sought a court declaration that the policies were void from the start, meaning it owed no defense or coverage.
After the insurer lost earlier in Nassau County, the Appellate Division, Second Department reversed. The court said an insurer may rescind when an applicant makes a material misrepresentation, defining materiality based on whether the insurer would have issued the policy if it had known the correct facts.
The appeals court emphasized that rescission requires documentation tied to underwriting practices, such as underwriting manuals, bulletins, or rules for similar risks. It found Union Mutual met that burden through its underwriter affidavit and guidelines showing it would have charged a higher premium if the third unit had been disclosed, and sent the case back for judgment voiding the policies and declaring no duty to defend or cover.