Thomas M. Bona, P.C.

Second Department:

Insured’s Belief That His Home Was Legal Two-Family Dwelling

Does Not Excuse Material Misrepresentation on Insurance Application


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 Second Department concerning material misrepresentation on an insurance application.  Although most people rarely pay attention to the insurance application that they fill out when they apply for a policy of insurance, what is contained in the application can have a significant impact. A recent case from the Second Department demonstrates this.


In Chu v. Otsego Mutual Fire Insurance Company (hereinafter “Otsego Mutual”), the plaintiff purchased a three-story house in Woodside, Queens. It was undisputed that the house contained three separate dwelling units each with its own kitchen, bathroom and separate entrance. In New York City, particularly Queens County this is very common, however, the problem arises if the house is a legal two-family with an illegal third-family apartment. In this case, the plaintiff alleged that he believed that the house was a legal two-family dwelling based on the certificate of occupancy and real property bills. Plaintiff and his wife applied and obtained a policy of insurance from Otsego Mutual, indicating on their application that the number of families in the dwelling was two. Some years later the house was damaged by fire. Otsego Mutual rescinded its policy on the grounds that the plaintiff and his wife had made a material misrepresentation of fact by stating on the insurance application the house was two-family dwelling.  Plaintiff subsequently commenced an action to recover damages for breach of the fire insurance policy.


At trial and at the close of evidence, defendant moved for judgment as a matter of law. The Supreme Court granted Otsego Mutual’ s motion, finding that it had established as a matter of law that they would not have insured the premises if it had been aware that it was a three-family dwelling. The plaintiff appealed. The Appellate Division affirmed.


The Second Department noted that in order to establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he secured the policy. A misrepresentation, the Court noted, is material if the insurer would not have issued the policy had it known the facts misrepresented. In this case, the plaintiff’s own testimony established the house was structurally configured as a three-family dwelling, and thus, his statement on the insurance application that it was a two-family dwelling was a misrepresentation. The Appellate Division noted that although the plaintiff testified that he believed his house was a legal two-family dwelling, an insurer may rescind the policy if the insured made a material misrepresentation of fact even if the misrepresentation was innocently or unintentionally made.


The Second Department noted that the defendant had established that the plaintiff’s misrepresentation was material through uncontroverted testimony of its witnesses and documentary evidence, including its underwriting guidelines which established that the defendant did not insure three-family dwellings, and it would not have issued the subject policy if the plaintiff had disclosed that the house contained three dwelling units.


Thus, the plaintiff’s loss was uninsured and borne by the plaintiff and not the insurer. Although it may be tempting for a homeowner to convert a two-family home into three apartments to gain extra income, if there is a loss which may implicate the insurance policy, the homeowner may be stuck if he does not have a policy which covers three dwelling units, which is obviously more expensive.


Should you have any questions, please call.

Thomas M. Bona