Key Takeaway
Court modifies Fatmir rule requiring insurers to provide documentation of underwriting practices to establish material misrepresentation in policy procurement cases.
Joseph v Interboro Ins. Co., 2016 NY Slip Op 08050 (2d Dept. 2016)
(1) “Based on the information provided by McKayle, Karis completed an application for insurance, which said that the premises would be occupied by the plaintiffs as their primary residence. The plaintiffs signed the application, and thereafter, on the date of closing, a homeowners’ insurance policy was issued by the defendant Interboro Insurance Company (hereinafter Interboro). After a fire occurred at the premises, Interboro discovered that the plaintiffs did not occupy the premises as their primary residence and rescinded the policy, contending that the plaintiffs, through a material misrepresentation, induced Interboro to issue a policy that it normally would not have issued.”
(2) “A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented” (Interboro Ins. Co. v Fatmir, 89 AD3d at 994; 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 that show that it would not have issued the policy if the correct information had been disclosed in the application”
I will pause at point number two since this important. Many of the fraudulent procurement defenses seem to go awry on the Fatmir rule, that as originally constructed required the underwriting manual. Seeing that this rule is overly onerous, Joseph now modifies this rule to require “documentation” covering the underwriting practices.
