131_C153

INSURED’S MATERIAL MISREPRESENTATION ENTITLED CARRIER TO RESCIND POLICY

Commercial Property	Policy Rescission
Material Misrepresentation	Matter of Law

Precision Auto Accessories, Inc. (Precision) filed a claim with Utica First Insurance Company (Utica) after a fire totally destroyed its place of business. Utica investigated the loss. It then told Precision that it was denying coverage and rescinding the policy as of the inception date because Precision allegedly materially misrepresented its previous loss history in its application for coverage. Utica also refunded the entire policy premium.

Precision commenced this action. It sought a determination that it did not willfully conceal or misrepresent a material fact in its insurance application. The action also included a demand that Utica pay for the fire damage. Utica moved for summary judgment to void the policy based on the material misrepresentations in the application and a determination that it did not owe Precision anything. Precision cross-moved for summary judgment for the relief it demanded in its complaint. It stated that the trial court erred in denying both parties’ cross-motions for summary judgment.

The appellate court determined that Utica met its burden because it was entitled to rescind the policy as a matter of law based on Precision’s misrepresentations and the fact that it would not have issued the policy if it knew about the actual losses. This was factually based on its published underwriting practices. Precision argued that its misrepresentations were not willful and that Utica knew about the misrepresentations but still allowed the policy to remain in effect. Precision also argued that Utica was estopped from denying coverage because its agent prepared the application and bound coverage.

The appellate court made the following determinations”

· It reviewed Utica’s minimum underwriting guidelines and determined that they corroborated its decision.

· It stated that the misrepresentations did not have to be willful, based on previous case law: “A material misrepresentation, even if innocent or unintentional, is sufficient to warrant rescission of the policy.”

· It rejected Precision’s contention that Utica waived its right to rescind the policy because it knew about Precision’s misrepresentations with respect to its loss history before the fire. Precision argued that continuing to accept premiums constituted a waiver of (or estoppel against) the right to rescind. The court rejected that argument because Precision could not prove that Utica accepted a premium payment after it became aware of the true loss history.

· It rejected Precision’s contention that Utica was estopped from denying coverage because the eight-month delay in the rescission notice was untimely as a matter of law and that Precision was prejudiced by the late notice. The court noted that a disclaimer is measured from the date Utica had all the facts necessary to make such a disclaimer.

The appellate court affirmed the trial court’s decision that Utica was not obligated to indemnify Precision for its fire loss.

Supreme Court, Appellate Division, Fourth Department, New York. Precision Auto Accessories, Inc., Plaintiff-Respondent-Appellant, v. Utica First Insurance Company, Defendant-Appellant-Respondent, et al., Defendants. June 6, 2008. 52 A.D.3d 1198, 859 N.Y.S.2d 799