A New York appellate court recently dealt with the issue of whether a homeowner’s policy could be rescinded, despite proof of fraud.  In Joseph v. Interboro Insurance Company, the plaintiffs needed to obtain homeowners insurance prior to closing on a residential property in Brooklyn. Their mortgage broker contacted an insurance broker to obtain a policy based upon representations the plaintiffs made in their loan application that they would occupy the premises as their primary residence.

The plaintiffs signed the application, and on the date of closing, a homeowners’ insurance policy was issued by the defendant. After a fire occurred at the premises, the defendant discovered that the plaintiffs did not occupy the premises as their primary residence and rescinded the policy, contending that the plaintiffs, through a material misrepresentation, induced the defendant to issue a policy that it normally would not have issued.

The plaintiffs sued the insurer for breach of contract and negligence, but the trial court awarded summary judgment in favor of the insurer.  On appeal, plaintiffs admitted that they did not intend to reside in the premises, but claimed they did not read the application and therefore did not make a willful misrepresentation.  The Second Department rejected that argument, finding that under New York law, a material misrepresentation justifies rescission, even if innocently made.

Thanks to Josh Gornitsky for his contribution to this post and please write to Mike Bono for more information.