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Commercial Property |
Finding As A Matter Of Law
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Material Misrepresentation
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Untimely Disclaimer |
Precision Auto Accessories,
Inc. (Precision) was insured by Utica First Insurance Company (Utica) when its
business was completely destroyed by fire. After Precision filed a claim, Utica
began an investigation and discovered that Precision had materially
misrepresented its claims history on its insurance application. Utica informed
Precision that it would not cover its loss. It also rescinded the policy and
refunded Precision's entire premium. Precision sued Utica and asked the court
to make a determination that it did not willfully conceal or misrepresent a
material fact in its insurance application and that Utica should cover the
loss. The lower court found that Utica had not established as a matter of law
that Precision made a material misrepresentation. Utica appealed.
On appeal, the Supreme
Court, Appellate Division, Fourth Department, New York, stated: "To
establish materiality of misrepresentations as a matter of law, the insurer
must present documentation concerning its underwriting practices, such as
underwriting manuals, bulletins or rules pertaining to similar risks, to
establish that it would not have issued the same policy if the correct
information had been disclosed in the application." Precision argued that
Utica also needed to provide evidence that the misrepresentation was willful.
The court disagreed and stated that a "material misrepresentation, even if
innocent or unintentional, is sufficient to warrant a rescission of the
policy."
Precision argued that Utica
could not rely on any misrepresentation in the application because its own
agent should have obtained the correct information. Again, the court disagreed.
It noted that as the signer of the contract, Precision was bound by the
misrepresentations in the application. The court also noted that an insurance
broker is generally considered to be an agent of the insured.
Precision then argued that
Utica waived its right to rescind the policy because it learned about
Precision's loss history after it issued the policy but before the fire
occurred. As evidence of Utica's knowledge, Precision submitted testimony of
the insurance broker stating that on the day of the fire she was told that
Utica knew about Precision's loss history. The court noted that this testimony
was speculative and inadmissible. It also noted that even if Utica knew about
Precision's loss history before the fire, there was no evidence that it
accepted a premium from Precision after it learned about Precision's history.
Precision lastly argued that
it was "prejudiced" because Utica took eight months to give Precision
notice that it was rescinding the policy. Again, the court disagreed. It noted
that even if Utica's disclaimer was not timely, Precision had not shown that it
was actually prejudiced in any way by the timing of the disclaimer.
The court modified the
decision of the lower court and concluded that Utica was not obligated to
indemnify Precision for its fire loss.
Precision Auto Accessories,
Inc., vs. Utica First Insurance Company-Supreme Court, Appellate Division,
Fourth Department, New York-June 6, 2008-52 Appellate Division 3d 1198