Key Takeaway
New York court ruling establishes that fraudulent procurement defense requires same evidence standards as Insurance Law 3105 material misrepresentation claims.
Compas Med., P.C. v Praetorian Ins. Co., 2016 NY Slip Op 51000(U)(App. Term 2d Dept. 2016)
“Moreover, defendant failed to establish as a matter of law that the misrepresentation by plaintiff’s assignor as to his place of residence was material (see Interboro Ins. Co. v Fatmir, 89 AD3d 993 ). For the foregoing reasons, the branches of defendant’s cross motion seeking summary judgment dismissing the first through third causes of action should have been denied.”
The citing of Fatmir now opens up a new door regarding the evidence necessary to substantiate “material misrepresentations” in establishing a fraudulent procurement defense.
“A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented (see Insurance Law § 3105 ; Novick v Middlesex Mut. Assur. Co., 84 AD3d at 1330; Varshavskaya v Metropolitan Life Ins. Co., 68 AD3d at 856). “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 that it would not have issued the same policy if the correct information had been disclosed in the application”
The case-law defined argument as I understood it was that the defense was predicated upon the “fraudulent procurement” of an insurance policy and not what could be classified as a “material misrepresentation” defense. The difference, while subtle, was the difference between application of Fatmir and a standard presentation of proof where the coverage specialist gives testimony relative to the policy premium amounts relative to the policy as written and the policy as should have been written.
But this is the first time that the application of Ins. Law 3105 has been introduced into the fraudulent procurement paradigm. I would categorize this case as a game changer, although not as significant as when the Second Department held that fraudulent procurement was a precludable defense. (Westchester Med. Ctr. v GMAC Ins. Co. Online, Inc., )
