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United States Life Ins. Co. v. Blumenfeld

Issue Discussed: Rescission and Reformation

Submitted by Michele Jacobson, Julie Goldman

Date Promulgated: February 14, 2012

 

United States Life Ins. Co. v. Blumenfeld, 938 N.Y.S.2d 84 (N.Y. App. Div. 2012) (collecting cases under NY law)

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

Issue Decided:  Does an insurer’s continued acceptance of premiums after learning of potential material misrepresentations by the insured, which would entitle the reinsurer to seek rescission, bar the reinsurer from seeking rescission?

Key Holdings
An insurer that accepts premiums after learning that its insured may have materially misrepresented information waives its right to seek rescission of the contract, even if it allegedly inadvertently continued to accept premiums. An insurer has “sufficient knowledge” of the misrepresentations when it has “‘knowledge which is sufficient to lead a prudent person to inquire about the matter, when it could have been ascertained conveniently, constitutes notice of whatever the inquiry could have disclosed, and will be regarded as knowledge of the facts’” (internal citations omitted). An insurer’s continued acceptance of premiums more than a year after learning that its insured made material misrepresentations prohibited the insurer from seeking rescission.

Key Takeaways
A claim for rescission must be made promptly after the insurer learns that its insured may have made materially representations, or the insurer waives its right to rescission. Whether or not the insurer purposefully continued to accept premiums is immaterial, as “‘[i]ntent is established if the insurer had ‘sufficient information’ regarding grounds for rescission but chose not to exercise its right to rescind’” (internal citations omitted).