Gulf Ins. Co. v. Transatlantic Reinsurance Co. (N.Y. App. Div. 2009)

Issue Discussed: Rescission and Reformation

Submitted by Michele Jacobson, Julie Goldman

Date Promulgated: October 1, 2009

Gulf Ins. Co. v. Transatlantic Reinsurance Co., 886 N.Y.S.2d 133 (N.Y. App. Div. 2009)

Court:  New York Supreme Court, Appellate Division, First Department

Issue Decided:  Should a claim for reformation be dismissed at the summary judgment phase if the non-movant produced evidence of the parties’ intent and of mutual mistake at the time the contract was executed?

Can knowledge of a reinsured’s agent be imputed to the reinsured in a
rescission claim?

Key Holdings
Under New York law, in order to support a claim for reformation, a mutual mistake must have existed at the time that the contract was signed. Course of performance is persuasive evidence concerning the parties’ intent at the time of signing. If the non-movant introduces evidence of “‘unequivocal evidence of mutual mistake’” “‘in evidentiary form’” in response to a motion for summary judgment dismissing the non-movant’s claim for reformation, the motion should be denied, considering that “all reasonable inferences” should be drawn in the favor of the non-movant (internal citations omitted). The non-movant need not “come forward with incontrovertible proof of mutual mistake.” Accordingly, since the cedent had come forward with evidence supporting a reformation claim, the lower court had erred in granting summary judgment to the reinsurer.

The cedent moved for summary judgment dismissing the reinsurer’s claim for rescission on the ground that, even though its managing general agent was aware of the fact that was not disclosed, it had no such knowledge. The cedent argued that its agent’s knowledge could not be imputed to it to support a claim for rescission based upon a material nondisclosure. The Appellate Division upheld the denial of summary judgment to the cedent, holding that the common law rule of imputing an agent’s knowledge to its principal applies in the reinsurance context. Whether the nondisclosure was material, however, was for the trier of fact.

Key Takeaways
To withstand a motion for summary judgment, a party seeking reformation must make a clear showing of mutual mistake, but is not required to present “incontrovertible” proof.
A reinsured is deemed to share the knowledge possessed by its agent for purposes of a rescission claim.