Thomas M. Bona, P.C.

Attorneys At Law

Material Misrepresentation Discovered After Fire Voids Policy

As part of our continuing commitment to provide outstanding representation and to serve as an information resource, we wish to inform you of a recent decision from the Appellate Division concerning insurance coverage.

One of the grounds upon which an insurance policy which has already been issued can be voided, is material misrepresentation. Although voiding a policy for material misrepresentation does not happen frequently, when it does happen and there is no insurance coverage, the consequences can be serious. A recent case from the Second Department demonstrates this principal.

In Morales v. Castlepoint Insurance Company, the plaintiff purchased a homeowners policy for premises at 369 Tompkins Avenue in Brooklyn from Castlepoint Insurance Company ("Castlepoint"). The application submitted to Castlepoint represented the premises were occupied by the plaintiff and served as his "primary residence". The first page of the policy indicated that the premises were owner occupied. The policy was renewed yearly and was in full force on the day of the loss. In fact, the plaintiff never lived at the premises. On January 14, 2011, the premises were damaged by fire. After the plaintiff put in a claim for damages with Castlepoint, the plaintiff was notified that it was disclaiming coverage on the ground that he had made a material misrepresentation. The homeowner commenced this action to recover damages and for breach of the policy. Castlepoint answered and asserted among other affirmative defenses, that the policy was void ab initio as a result of the plaintiff's misrepresentation that he occupied the premises. Castlepoint moved for summary judgment which was denied by the lower court. Castlepoint appealed.

The Second Department reversed. The Second Department noted that to establish its right to rescind, an insurance company must demonstrate that the insured made a material misrepresentation. A representation is a statement made as an inducement to the issuance of the insurance policy. A misrepresentation is material if the insurer would not have issued the policy had it known of the misrepresented facts. To establish materiality as a matter of law, an insurer must present documentation regarding its underwriting
practices such as underwriting manuals or rules pertaining to similar risks that show that it would not have issued the same policy if the correct information had been disclosed in the application.

In this case, the defendant misrepresented that the premises were owner-occupied. The Appellate Division found that this misrepresentation was material implicitly finding that Castlepoint would not have issued the policy if it knew that the homeowner was renting the premises. Contrary to the plaintiff's contention, the Second Department found that Castlepoint established that even if the misrepresentation was not made by him but rather by his insurance broker, it was ratified by him since the policy was renewed as owner-occupied for several years thereafter.

Here, there was no insurance so the loss is totally upon the homeowner. Material misrepresentations are often only discovered when there is a loss. Therefore, it is important when investigating a loss, whether homeowners or automobile, to thoroughly investigate to be sure that the material facts are actually the same as when the policy was issued.

Should you have any questions, please call.


Thomas M. Bona