Pennsylvania Federal Court rules on standard of proof needed for an insurer to void a policy ab inito based on an insurer’s material misrepresentations.

In H.J. Heinz Co. v. Starr Surplus Lines Insurance Co., lead was discovered in Heinz’ baby cereal, which was was traced to soy powder used in the product.  Heinz submitted a claim with its insurer for business interruption costs, but the insurer would not provide coverage for the loss.  Heinz commenced a declaratory judgment action against its insurer, and the insurer filed a counterclaim contending that the policy was void ab inito, since Heinz had failed to disclose prior incidents of contamination.

In determining the jury charge on the burden of proof in voiding a policy ab inito, the court held that if the insurer wanted to void the policy based on its insured’s misstatement of facts in its application, then the insurer would need to prove this by the preponderance of the evidence.  However, if the insurer wanted to void the policy based on the fact that its insured omitted information, then the insurer would need to prove that its insured acted with fraudulent intent via clear and convincing evidence.

So depending on if the insurer is trying to void the policy based on misstatements versus omissions, a different standard of proof would apply.

This case shows that differing levels of proof may be required for an insurer to prevail in voiding its insurance policy depending on how the insurer alleges its insured materially misrepresented itself.

Thanks to Colleen Hayes for her contribution to this post.