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NY's First Department Allows Insurer to Rescind

April 9, 2009

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The First Department recently reiterated its position in respect of policy recision in <i>Kiss Construction NY Inc. v. Rutgers Cas. Ins. Co.</i> In applying for insurance coverage, Kiss represented that it was solely a painting company. However, it was sued by a construction worker and during the claim investigation, Rutgers learned Kiss had been serving as a general contractor and disclaimed coverage for the underlying action based on this material misrepresentation.

Kiss filed a declaratory judgment action against Rutgers seeking a defense and indemnification, and in an affirmative defense, Rutgers moved for recision of the policy. Rutgers motion for summary judgment was denied, but the Appellate Division reversed the decision and held the policy was rescinded.

Of interest is the fact that Rutgers did not formerly give notice of the recision prior to this action, nor did it return the premium. In addition, prior decisions of the Court held that an insurer’s duty to defend existed pending a judicial determination of its right to rescind. Although that point was reiterated here, it appears that an insurer with knowledge of a misrepresentation is not forced to assume a defense, provided it is ultimately successful in obtaining a judgment that recision was proper.

Thanks to Stephanie Chen for her contribution.

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