Insurance Law 3105 Does Not Apply to Personal Injury Policies: A No-Fault Defense Analysis

SS Med. Care, PC v USAA Gen. Indem. Co., 2015 NY Slip Op 51094(U)(Civ. Ct. Kings. Co. 2015)

Want to cancel a policy that insures against property damage? Material misrepresentation under Insurance Law Section 3105 will do it. A policy of insurance that insures against death or personal injury? Section 3105 does not apply, and any cancellation will be prospective at best.

Against this reality came the lack of reality that is SS Med. Care, PC v USAA Gen. Indem. Co.

What the Civil Court Got Wrong

In this case, the Civil Court made two distinct errors:

First, the court found that the law developed under Section 3105 applied to a policy of insurance insuring against personal injury or death. This was a mistake. Section 3105 governs misrepresentations in property damage policies. The statute simply does not reach automobile liability and no-fault insurance, which are categorized as personal injury coverage.

Second, the court failed to apply the correct fraudulent procurement theory to the facts. Instead, it analyzed the case through the lens of a flawed 3105 paradigm, reaching a result that cannot be squared with the established body of law governing automobile policy rescission.

The Correct Legal Framework: Fraudulent Procurement

The established rule in New York for rescinding any insurance policy — including an automobile policy — based on misrepresentation is as follows:

“It is well settled that to establish the right to rescind an insurance policy an insurer must show that the insured made a material misrepresentation when he or she secured the policy.” (Interboro Ins. Co. v Fatmir, 89 AD3d 993, citing Novick v Middlesex Mut. Assur. Co., 84 AD3d 1330; Varshavskaya v Metropolitan Life Ins. Co., 68 AD3d 855, 856; Schirmer v Penkert, 41 AD3d 688, 690; Zilkha v Mutual Life Ins. Co. of NY, 287 AD2d 713, 714.)

A misrepresentation is material only if the insurer would not have issued the policy had it known the facts misrepresented. (Interboro, 89 AD3d at 994; see Insurance Law § 3105; Novick, 84 AD3d at 1330.)

Proving Materiality as a Matter of Law

The materiality requirement has evidentiary teeth. Courts have held:

“To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show it would not have issued the same policy if the correct information had been disclosed in the application.” (Interboro, 89 AD3d at 994, quoting Schirmer v Penkert, 41 AD3d at 690–691.)

This is demanding. Bare assertions by claims personnel that the policy would not have been issued are insufficient. The insurer must produce actual underwriting documentation — the kind that reflects internal criteria for policy issuance.

Why the 3105/Personal Injury Distinction Matters

This is all nonsense in the context of no-fault defense — and understanding why matters practically.

The distinction between property damage and personal injury policies is not a technicality. Section 3105 creates a rescission framework that can operate retroactively — voiding coverage as if the policy never existed. For property damage claims, this creates manageable consequences: the claimant simply has no coverage for the damage.

But retroactive rescission of a personal injury policy raises entirely different concerns. Automobile liability and no-fault policies protect accident victims — third parties who may have relied on the existence of coverage for their medical care, lost wages, and pain and suffering recoveries. Allowing retroactive rescission of these policies through Section 3105 would leave accident victims without recourse through no fault of their own.

This is precisely why the law has developed a different — and more restrictive — framework for personal injury policies: fraudulent procurement with prospective-only cancellation. Even if an insured committed fraud in obtaining a policy, the cancellation applies going forward, not backward. Prior accident victims remain protected.

The Correct Approach for No-Fault Defense

When a no-fault defense attorney encounters a fraudulent procurement scenario — for example, where the insured misrepresented the vehicle’s garaging location, the identity of the primary driver, or other material underwriting facts — the proper steps are:

1. Confirm the policy type: Verify that the policy at issue is an automobile liability/no-fault policy (personal injury coverage), not a pure property damage policy.
2. Assert fraudulent procurement, not 3105: Frame the defense as a fraudulent procurement claim, which voids the policy from the date of the misrepresentation forward.
3. Gather underwriting documentation: Obtain underwriting manuals, internal rules, and documentation showing the insurer’s criteria for issuing similar policies.
4. Expect prospective-only relief: Do not seek retroactive voidance of coverage for accidents that occurred before the misrepresentation was discovered.

The Civil Court in SS Med. Care skipped steps 1 and 2 — applying the wrong statutory framework to the wrong type of policy. The result was a legally unsound ruling that could not withstand appellate scrutiny.

Practical Implications for Carriers and Defense Counsel

For insurers handling material misrepresentation issues in no-fault cases: ensure that your legal team understands the distinction between Section 3105 (property damage policies) and fraudulent procurement (personal injury policies). Using the wrong theory does not just result in a bad ruling — it may allow fraudulent claimants to escape consequences because the carrier failed to assert the correct legal theory.

For providers challenging coverage denials based on fraudulent procurement: scrutinize whether the carrier has produced the underwriting documentation required to establish materiality as a matter of law. A bare assertion that the policy would not have been issued is insufficient to obtain summary judgment on the coverage defense.

Related Articles

• Material Misrepresentation in Insurance Claims: New York Legal Guide 2024
• Material Misrepresentation in Insurance Procurement: New York Law Protects Policyholders
• Fraudulent procurement and preclusion
• Policy can be rescinded under PA law; proof insufficient as to particular Assignor