The insurer obtained a default judgment permitting it to rescind a policy for fraudulent misrepresentations in an application and subsequent renewals.
The complaint alleged the carrier issued a CGL policy to the contractor-insured based on the material representation that the insured did 100% residential work and no commercial work, and that it did no roofing work at all. However, the insurer later discovered that the insured advertised itself as being both a roofing contractor, as well as a home improvement contractor. Moreover, the insured was doing roofing work on commercial buildings. The insurer alleged it only learned all of this after a jobsite fire where the insured was doing commercial roofing work.
The insurer sought rescission on the basis of material misrepresentations in the application, and failure to cooperate. It moved for a default judgment when the insured failed to answer the complaint after being served. The court found for the carrier on rescission, and did not reach the cooperation issue.
Among other things, the court addressed the standard for rescission based on falsehoods in an insurance application.
- Under Pennsylvania law, insurers may void insurance policies obtained by means of fraudulent misrepresentations.
- Plausible claims for such fraud must include allegations that “‘(1) the representation was false; (2) that the insured knew that the representation was false when made or made it in bad faith; and (3) that the representation was material to the risk being insured.’”
- Applying these principles, the court observed the insured mis-stated in the application and renewals that it only did residential carpentry and no roofing work, that the insurer relied on these misrepresentations in issuing the policies, that the carrier never would have issued the policies if the truth had been told, “and that those same misrepresentations were repeated when [the insured] renewed its insurance” in the following two years.
Thus, in considering whether to grant a default judgment, the court found a claim for rescission had been plausibly stated.
After finding the insurer-plaintiff met all the other criteria, the court entered a default judgment and granted rescission.
Date of Decision: January 20, 2022
MMG Ins. Co. v. AA Remodeling, U.S. District Court Western District of Pennsylvania No. 2:21-CV-01577-CCW, 2022 WL 196229 (W.D. Pa. Jan. 20, 2022) (McNamara, J.)