Policy Rescission: Timing Is Everything
An insurer may waive its right to rescind based on an insured’s misrepresentations, if the insurer is aware of the misrepresentations contained in the insurance application but fails to timely assert such a claim – says one Western District of Pennsylvania jury. In H.J. Heinz Co. v. Starr Surplus Lines Insurance Co., an insured sued its insurer after it failed to provide coverage for losses incurred after its product was accidentally contaminated. The insurer filed a counterclaim claiming that the policy should be rescinded since the insured failed to disclose several key events leading up to the loss at issue. The insurer contended there were four prior incidents of contamination that resulted in the product being recalled, which the insured failed to disclose. Additionally, the insured failed to disclose that one of its plants had been closed by the U.S. government after it was contaminated by listeria. The insurer moved for summary judgment on its claim for rescission, but the motion was denied since the insured claimed the insurer had been notified of the information it claimed was withheld, and that any omission by the insured was a result of the insurer’s failure to ask about any alleged prior contamination. At trial, the jury determined that the insurer failed to promptly assert a claim of rescission after it had gained sufficient knowledge to do so. This case illustrates that although an insured’s misrepresentations on its insurance application may be a valid basis to rescind a policy, if an insurer does not take prompt action and attempt to rescind the policy once it learns of the misrepresentations, it may act as a bar to prevailing on such a claim. Thanks to Colleen Hayes for her contribution to this post.
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