A recent decision from the Appellate Division, Third Department, reiterated two key legal principles in first-party coverage actions: (1) an insured’s misrepresentations in an insurance application need not be willful for an insurer to rescind the policy; and (2) an insured who signs an insurance application is bound by the representations therein.
In Barese v. Erie & Niagara Ins. Ass’n,1 the plaintiff loaned money to an employee to purchase a residence. The plaintiff secured his loan through a mortgage on the residence. Sometime later, the plaintiff’s employee stopped making payments toward the mortgage and toward a homeowners insurance policy the employee had secured. As a result, the plaintiff learned the insurer would soon be cancelling that policy. The plaintiff, through an insurance broker, subsequently secured his own policy on the residence. The plaintiff then commenced a foreclosure proceeding against his employee. After commencing the foreclosure proceeding, the plaintiff learned the policy he secured would be cancelled as well.
While the foreclosure proceeding was still pending, the plaintiff, through the broker, then signed and submitted an application for a landlord package policy from the insurer. This application stated that the plaintiff owned the residence, the residence was occupied by tenants, insurance coverage on the residence had never been cancelled, and there was no mortgage on the residence. The insurer issued the policy based on that application.
The foreclosure action later concluded, and the plaintiff obtained the deed to the residence. A few months later, while the residence was vacant, a fire broke out and caused property damage. The insurer ultimately denied coverage for the loss, citing misrepresentations in the insurance application. As a result, the plaintiff commenced suit against both the insurer and the broker. The trial court found the plaintiff had made material misrepresentations in the application to the extent that the insurer was permitted to rescind the policy and was entitled to summary judgment.
On appeal, the Third Department agreed. The court found it was undisputed that, at the time the application was submitted, and contrary to the representations therein, the plaintiff did not own the residence, tenants were not occupying the residence, coverage had been cancelled on the residence, and there was a mortgage on the residence. Further, the insurer met its burden, through submission of an affidavit from an underwriting manager and citation to the policy language and a policy manual, that the plaintiff’s misrepresentations were material, as the insurer would not have issued the policy but for the misrepresentations.
Significantly, in affirming, the court highlighted a couple of fundamental principles in first-party coverage actions that are often misapprehended. First, the court reiterated that even an innocent or unintentional misrepresentation by an insured is a sufficient basis for rescinding an insurance policy. Second, the court rejected the plaintiff’s argument that, while he had signed the application, which the broker had completed on his behalf, he had not read the application; the court reaffirmed that the signer of an insurance application is bound by the representations therein.
If you have any questions regarding the content of this alert, please contact Jessica Tariq, counsel, at jtariq@barclaydamon.com; Tony Piazza or Mark Whitford, Insurance Coverage & Regulation Practice Area co-chairs, at apiazza@barclaydamon.com and mwhitford@barclaydamon.com; or another member of the firm’s Insurance Coverage & Regulation Practice Area.
12024 N.Y. App. Div. LEXIS 1107 (3d Dept. Feb. 29, 2024).