April 22, 2019

Early in April 2019, the Second Circuit Court held that an insurer does not need to wait until a claim has been submitted under the policy before it can seek rescission of the policy based on material misrepresentation by the insured. The case is U.S. Underwriters Ins. Co. v. Orion Plumbing & Heating Corp. 18-2286-CV, 2019 WL 1253325.

In May 2012, United States Underwriters Insurance Company (US Underwriters) issued an insurance policy to Orion Plumbing & Heating Corporation (Orion) that provided insurance coverage for the following year. US Underwriters subsequently canceled that policy due to Orion's failure to pay the premiums. In June 2012, prior to the cancellation of the policy, an incident involving bodily injury occurred, which led to a lawsuit being filed against Orion. The lawsuit was eventually dismissed, and while the plaintiff appealed the dismissal, US Underwriters filed an action to rescind the policy based on Orion's material misrepresentations in the application for insurance. In the suit, US Underwriters sought a declaration that it had no duty to indemnify Orion for the personal injury action and sought to rescind the policy ab initio due to the material misrepresentations that Orion made on the application. The District Court for the Eastern District of New York denied the insurer's motion based on a lack of subject matter jurisdiction and came to the conclusion that US Underwriters failed to present a case or controversy. The district court said there was no dispute properly before it because an “attenuated chain of contingencies” (such as an appeal and an award) would have to occur before the insured could be entitled to coverage under its policy.