In Star Ins. Co. v. Treible’s Wrecker Serv. Inc., the underlying plaintiff commenced a negligence action against Treible’s claiming that Treible’s negligence inspection of his car resulted in plaintiff’s damages.  Star Insurance Company disclaimed coverage and commenced a declaratory judgment action seeking to rescind its insurance policy based on a material misrepresentation.  Star claimed that the president of Treible’s fraudulently concealed that Treible’s was operating a state motor vehicle inspection facility in addition to its towing and repossession services.

In its annual renewal application for insurance, Treible’s stated that its business consisted of repossession and towing services.  Moreover, when specifically asked in the application if it conducted any other work, Treible’s responded in the negative.  Further, the insurer’s agent had previously testified that the type of business a potential insured is operating is of the upmost importance in determining whether to issue insurance to that person / organization.  As such, the insurer claimed that it would not have insured Treible’s if it was known that Treible’s operated an inspection business.

Thus, the Court concluded that the representations made by Treible’s in its insurance application were false and material to the insurance contract.  Consequently, the Court granted the insurer’s motion to rescind the insurance policy.

The key question with respect to a material misrepresentation allegation is whether the insurer was induced into the contract by the material misrepresentation.  If the insurer can prove, by clear and convincing evidence, that:  a false representation, material to the transaction, was knowingly or recklessly made with the intent to mislead the party into relying on it, which ultimately resulted in the party’s injuries – then the contract could be rescinded.

Thanks to Colleen Hayes for her contribution to this post.  For any questions contact ">.