Insurer Not Liable for Coverage Due to Misrepresentation in Policy Application, Even Where Insured Did Not Directly Make the False Statement

Insurance Law Alert

March 2, 2015

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A New York Court Finds No Coverage Due To Misrepresentation Because Insured Accepted The Policy And Renewed It For Several Years.

In Morales v. Castlepoint Ins. Co., 2015 NY Slip Op. 01618 (N.Y. App. Div. 2d Dep’t Feb. 25, 2015), an intermediate New York appellate court held that the insured, a property owner, was not entitled to coverage for fire damage due to misrepresentation in the policy application, even though the misrepresentation was not made or authorized by the insured. The court ruled that even if the insured did not directly make the false statement in the policy application, he ratified it by accepting the policy and allowing the policy to be renewed for several years.

Here, the plaintiff had obtained a mortgage at the time he purchased the property, and had signed mortgage loan documents representing that the property would be owner-occupied and authorizing the mortgagee bank to obtain insurance for the property on his behalf. The bank did so, and obtained a dwelling fire policy, which was renewed annually. The policy application stated that the property would be owner-occupied. The insured, however, never lived at the premises in question.

Following a fire, the insurer denied coverage on grounds that the policy application materially misrepresented that the property would be owner-occupied. The insured sued for coverage, contending that he did not make the alleged misrepresentation in the policy application and that such statement was made by the bank and not authorized by him. Although the trial court denied the insurer’s motion for summary judgment and rescission on the basis of an issue of fact, a panel of the Appellate Division, Second Department, reversed on the law and granted judgment dismissing the insured’s complaint. The Second Department noted that the insurer had made a prima facie showing that a material misrepresentation had been made, and had established that it was material to its decision to issue the policy. The Second Department then ruled that the misrepresentation was attributable to the insured as a matter of law because, “even if the application had been submitted without his actual or apparent authority, he ratified the representations contained in the application by accepting the policy for owner-occupied premises and permitting it to be renewed for years thereafter on the same terms.” Id. at *2 (citations omitted).

While based on its specific facts, this decision indicates that courts will support an insurer’s denial of coverage and rescission due to material misrepresentation in a policy application, even where the false statement is not directly made by the insured.

For more information, please contact Charles W. Stotter.