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Summary Judgment On Material Misrepresentation Not Granted Due To “conclusory” Evidence Without Supporting Documentary Evidence (NY)

June 1, 2023

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The Supreme Court of New York Appellate Division, Second Department recently affirmed an order from the Supreme Court, denying a plaintiff-insurer’s motion for summary judgment, holding that the insurer failed to establish that the insured made a material misrepresentation as a matter of law where the insurer produced only “conclusory” testimony from an underwriter and did not produce supporting documentary evidence regarding the insurer’s underwriting practices.

The action involves plaintiff<em> <a href="https://www.wcmlaw.com/wp-content/uploads/2023/06/Union-Mutual-Fire-Insurance-Company.pdf">Union Mutual Fire Insurance Company</a> </em>(“Union Mutual”), who brought an action against defendant CMN Props., LLC (“CMN”) seeking a declaration that the commercial insurance policy it issued to CMN was void ab initio and that Union Mutual was not required to defend or indemnify CMN in an underlying personal injury action.

Union Mutual alleged that the policy was <em>void ab initio</em> because during its investigation of the underlying claim, it discovered that certain tenants residing at the premises owned by CMN were more than 60 days late on their rental payments at the time CMN applied for the policy—a fact which CMN did not disclose on its application.

Union Mutual alleged that CMN’s misrepresentation on its application was material as a matter of law, as Union Mutual would not have issued the policy if CMN had disclosed the truth.

The Second Department affirmed the trial court’s denial of Union Mutual’s motion for summary judgment, finding that Union Mutual had failed to eliminate triable issues of fact as to whether CMN’s misrepresentation regarding tenants in arrears constituted a material misrepresentation such that Union Mutual would not have issued the same policy if that information had been disclosed in the application.

The Second Department noted that to establish materiality as a matter of law, an insurer must present clear and substantially uncontradicted documentation concerning its underwriting practice, which can include underwriting manuals, bulletins, or rules pertaining to similar risks. Those materials must show that the insurer would not have issued the same policy if the correct information had been disclosed in the application.

In this case, Union Mutual’s affidavit and deposition testimony from a chief underwriter did not identify either a written underwriting policy regarding risks with tenants in arrears or any specific applicants with similar histories that were denied coverage. The Second Department found the underwriter’s affidavit and deposition testimony to be conclusory and unsupported by documentary evidence, and therefore insufficient to establish materiality as a matter of law.

Insurers must demonstrate through underwriter’s testimony that it would not have issued a policy if the correct information had been disclosed in an insurance application as produced AND not that materiality as a matter of law requires more support.  It is imperative n insurer creates and maintains clear records of its underwriting practices, as such records may later be the dispositive factor in a coverage dispute.

Thanks to Erin Gallagher for her assistance with this article.  You should have any questions, please contact <a href="tbracken@wcmlaw.com">Tom Bracken</a>.

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