The court observed the applicable standard: “an insurer must demonstrate that (1) the insured made a false representation, (2) the insured knew the representation was false or made the representation in bad faith, and (3) the representation was material to the risk being insured.” The court found the insurer clearly pled facts sufficient to state a plausible claim for equitable rescission under Pennsylvania law by averring that the insured knew of potential claims additional named insured faced, while representing that noclaims existed. The court found the claims were material to the insured risk, as the insurer potentially would have had the duty to defend and indemnify the insured and the additional named insureds on those claims.
The court distinguished rescission at law, which requires return of premiums before seeking rescission, from equitable rescission which has no such requirement. Moreover, even an expired policy can be rescinded, since it would never have been issued if the relief sought were warranted. The court further found the insurer did not sit on its rights, but acted promptly after completing its investigation. The court also found the allegations of fraud sufficiently pleaded.