Union Mutual Fire Insurance Co. was within its rights to rescind insurance coverage for a New York apartment building fire after learning that the insured lied about having a swimming pool—on more than one occasion.
A New York appeals court for the Second Judicial Department has reversed a lower court, finding the insurer demonstrated as a matter of law that the misrepresentations about the pool in the plaintiff’s applications for insurance were material.
The plaintiff, Arkady Nabatov, obtained a commercial policy of insurance from the defendant Union Mutual, effective February 7, 2017 for two adjacent apartment buildings. On the application for the 2017 policy, the plaintiff represented that there was no swimming pool on the property. Shortly thereafter, Union Mutual informed the plaintiff that its inspection in fact revealed there was a pool on the premises contrary to the application. After the insurer said it could not accept the risk under its guidelines for landlord/tenant liability insurance because of the pool, the plaintiff subsequently represented, in a document dated February 22, 2017, that the pool had been removed. Union Mutual then reinstated the 2017 policy.
The insurer later issued a renewal policy effective February 7, 2018. In the application for the 2018 policy, Nabatov represented that there was no swimming pool on the property.
On June 16, 2018, the property was damaged by fire, and the ensuing investigation revealed a swimming pool on the property.
Nabatov admitted in a deposition that he never did remove the pool.
Union Mutual then disclaimed coverage for the fire, and rescinded the 2017 and 2018 policies, on the ground that the plaintiff had made multiple material misrepresentations concerning the presence of a swimming pool on the property.
The insured sued the insurer and insurance broker for alleged breach of contract and won in the Kings County court, which dismissed Union Mutual’s contention that there was no coverage because of the misrepresentation.
Union Mutual appealed and the state appeals court for the Second Judicial Department has now reversed, finding the insurer was within its rights to deny coverage and rescind the policies.
The court noted that to establish its right to rescind an insurance policy, an insurer must demonstrate that the insured made a material misrepresentation. A misrepresentation is material if the insurer would not have issued the policy had it known the facts. The insurer must present documentation such as underwriting manuals, bulletins, or underwriting rules pertaining to similar risks, showing that it would not have issued the same policy if the correct information had been disclosed in the application.
The appeals court found that Union Mutual established its prima facie entitlement to judgment as a matter of law by demonstrating that the plaintiff made misrepresentations on his application for insurance, and that it would not have issued the 2017 policy and the 2018 policy had the plaintiff disclosed that there was a swimming pool on the property. Union Mutual submitted an affidavit from its underwriter, along with it underwriting guidelines for its New York landlord/tenant program, which provide that swimming pools are an unacceptable risk, and if a potential insured answered “yes” to the question on the application asking if there is a swimming pool on the property, no policy of insurance would issue.
With these facts going undisputed by the plaintiff, Union Mutual demonstrated as a matter of law that the misrepresentations in the plaintiff’s applications for insurance were material, the court found.
The ruling added that a “material misrepresentation, even if innocent or unintentional, is sufficient to warrant rescission of an insurance policy.”
