The Supreme Court ruled in Primed v. Starr Insurance last year, and the insurance coverage dispute has implications for the insurance industry and other industries. This case is about whether an insurer can revoke a policy when it discovers a misrepresentation. In this case, the insurer argued that the company had sufficient knowledge of the misrepresentations due to outside materials. Emily G. Cottingham, an attorney at Parker, LLP Attorneys at Law in Fort Worth, Texas, represents Primed.
Heinz made material misrepresentations
The District Court erred in concluding that Heinz made material misrepresentations and relied on the testimony of Starr underwriters. Heinz argues that Starr did not investigate Heinz’s insurance application, delayed pursuing rescission, and accepted the premium and benefit of the policy after learning of the material misrepresentations. If this is so, Heinz must prove these affirmative defenses by a preponderance of the evidence.
The District Court rejected Heinz’s argument that the investigation was unreasonable because it failed to identify any grounds for rescission. Starr’s investigators resorted to their loss history analysis when they made the decision to sell the Policy. The plaintiffs argued that the insurer had sufficient knowledge that Heinz had misrepresented the nature of its business, as indicated by emails.
In Primed v. Starr insurance, the District Court held that Heinz made material misrepresentations on his insurance application. The court held that Starr could not rescind the policy because Heinz knew of the misrepresentations when it sold it to him. Therefore, Starr won the case. The case is still pending in the Third Circuit, but Starr is favored by some jurors.
Starr knew of the misrepresentations
In its complaint, Heinz asserted that Primed insurance had knowledge of the misrepresentations that Starr had made to him. The insurer, Starr, had agreed to sell the Policy to him despite knowing about these misrepresentations, citing Friedman v. Prudential Life Insurance Company of Am., and pointing to emails indicating that its underwriter had read both the article and the loss in 2008. The District Court held that, even though Starr was aware of the misrepresentations, the insurer nevertheless agreed to sell the Policy to Heinz without limiting its coverage.
The complaint further states that the insurance company should have disclosed the misrepresentations of Starr to Primed. The company failed to disclose the fact that Starr engaged in mail fraud, and that its employees and agents knew about it. The Starr employees were also allegedly engaged in fraudulent activities, including mailings from their office. Furthermore, the Starr staff helped Smiths and SAA keep track of transactions to ensure the payment of commissions.
The District Court rejected this argument, noting that the insurer had an obligation to investigate the misrepresentations. The plaintiff also noted that the insurer’s failure to assert rescission after a reasonable investigation had constituted an unreasonable delay. Moreover, New York law requires the party seeking rescission to do so without undue delay. Therefore, insurers are entitled to a reasonable amount of time to investigate any basis for rescission, but they cannot delay seeking rescission based on a small period of time.
It waived its right to rescind the policy
In the case of the insured in DuBeck, the insurer waived its right to rescind a policy after the woman was diagnosed with breast cancer and began receiving medical bills. The insurer waited a year before investigating the woman’s medical history. Ultimately, the insurer waived its right to rescind the policy, citing that the woman had misrepresented her medical history.
The plaintiffs contended that Primed insurance had waived its rescinding rights when the insured failed to disclose material misrepresentations. This court found that the misrepresentations of the insured were material, and that the insurer had no duty to issue the policy unless it had information that was material. Therefore, the insurer was not obligated to continue paying premiums after being made aware of these misrepresentations.
In addition to a policy waiver, an insurer can be estopped from denying coverage if it has given you enough notice. If an insurer gives you notice of the inadvertence, you can sue them for breach of contract. In some states, the insurer must have a reason to rescind a policy before it expires. This is not an uncommon situation in many states.
