Recissions based on 'material misrepresentations' can help combat fraud

To establish its right to rescind an insurance policy, “an insurer must demonstrate that the insured made a material misrepresentation,” and to establish materiality as a matter of law, “the insurer must present documentation concerning its underwriting practice . . . which show that it would not have issued the same policy if the correct information had been disclosed in the application.” (Credit: Olivier Le Moal/Shutterstock.com)

A number of years ago, a couple purchased a three-story house in New York City’s Queens borough that contained three separate dwelling units, each with its own kitchen, bathroom and separate entrance. Thereafter, the couple applied for and obtained a fire insurance policy from Otsego Mutual Fire Insurance Co., indicating on their application that the house was a two-family dwelling. After the house was damaged by fire, Otsego rescinded its policy on the ground that the couple had made a material misrepresentation of fact by stating on their insurance application that the house was a two-family dwelling.

The couple sued, but Supreme Court, Queens County, granted the insurer’s motion for judgment as a matter of law. The case reached the Appellate Division, Second Department. The appellate court affirmed, finding that the insurer had the right to rescind the policy due to the policyholders’ material misrepresentation of fact in asserting that the house was a two-family dwelling when, in fact, it was a three-family home.