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The Common Law Right to Rescind a Policy

November 16, 2015
By: Scahill Law Group PC

The Common Law Right to Rescind a Policy

Unlike New York, Pennsylvania law gives an insurer a common law right to retroactively rescind an automobile insurance policy (see Klopp v. Keystone Ins. Cos., 528 Pa. 1, 595 A.2d 1 [1991] ) as to an insured who has made a misrepresentation material to the acceptance of risk by the insurer. The carrier may exercise that right within 60 days of the issuance of the policy, without resort to the terms and conditions of the more restrictive statute governing the cancellation of automobile insurance policies (see Erie Ins. Exch. v. Lake, 543 Pa. at 375, 671 A.2d at 687).

Delta Diagnostic Radiology, P.C. v. Infinity Group., (2015 WL 5192836) was issued by the Appellate Term, Second Department on September 2, 2015. The lower court denied summary judgment to the insurance carrier in a no fault dispute. The proof submitted indicated the policy was properly cancelled in Pennsylvania, as the insured made a material misrepresentation to the carrier as to his residency on the policy application. Retroactive rescission of an automobile policy is not available in New York as a remedy despite a misrepresentation in the application for insurance. (see, Vehicle and Traffic Law
§ 313; see also, Matter of Insurance Co. of North America v. Kaplun, 274 AD2d 293 [2nd Dept. 2000]; Olivio v. Government Employees Insurance Co. of Washington, D.C., 46 AD2d 437 [2nd Dept. 1975]).

In support of the motion for summary judgment in the lower court, the defendant argued that, under a "grouping of contacts" analysis (see Matter of Eagle Ins. Co. v. Singletary, 279 A.D.2d 56, 717 N.Y.S.2d 351 [2000] ), Pennsylvania law should be applied, since that state had the most significant contacts with the parties and the contract. Under Pennsylvania law, an insurer is permitted to retroactively rescind an automobile insurance policy based upon material misrepresentations made by the named insured in the application for the policy (see Erie Ins. Exch. v. Lake, 543 Pa. 363, 671 A.2d 681 [1996] ). Defendant also argued that it had issued a letter to the insured rescinding the policy ab initio, and, since defendant had refunded the insured's premiums, there was no coverage available for the claim submitted by plaintiff.

The Appellate Term reversed, holding, "Defendant, in its motion papers, demonstrated that the policy was effective commencing on May 20, 2008, that the letter notifying the insured of the policy's rescission had been mailed to the insured on July 10, 2008, and that the check returning the insured's premiums had been mailed on July 18, 2008. Thus, defendant demonstrated, prima facie, that it had validly rescinded the policy in accordance with Pennsylvania law by showing that, within 60 days of issuance of the policy, it had provided the insured with "a written statement of the reason for cancellation" (40 P.S. § 991.2002[c][3]) and that it had returned to the insured the premiums he had paid (see Klopp v. Keystone Ins. Cos., 528 Pa. 1, 595 A.2d 1). In opposition to defendant's showing, plaintiff failed to raise a triable issue of fact as to the validity of the retroactive rescission of the policy in accordance with Pennsylvania law." Delta Diagnostic Radiology, P.C. v. Infinity Grp., No. 2013-2147KC, (N.Y. App. Term. Sept. 2, 2015).

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