First Department Rebuffs Common Insurer Premium, Rescission Claims

The Appellate Division, First Department affirmed the denial of the insurer’s motion for summary judgment.  It agreed that the insurer did not meet its burden of proving that the owner made a material misrepresentation in the application that would allow it to rescind the policy ab initio, or cancel it “from the beginning.”  Although the insurer claimed that it would have charged the owner additional premium if it had known the actual number of apartments on the premises, it did not point to any specific rating guidelines or supporting testimony. The First Department also held that the application question—asking to identify the number of “apartment units” on the premises—was ambiguous, as it could have been reasonably interpreted to mean only apartment units that were actually occupied.  The undisclosed third apartment was on the first floor, but the fire department determined that the fire started on the third floor.  At the time of the fire, the undisclosed apartment was unoccupied, used only for storage, and did not cause or contribute to the fire. The First Department further held that whether the insurer waived its right to rescind the policy was a fact issue.  Specifically, discovery revealed that the insurer inspected the premises after submission of the application and the purpose of the inspection was to “ensure the risk [had] the actual number of units reported.”  The insurer also renewed the policy twice before the fire and continued accepting premium payments.