Opinion
CA2004-001183.
Decided January 26, 2005.
LOCKWOOD GOLDEN (Lawrence W. Golden, Esq., of Counsel) for the Plaintiffs.
O'CONNOR, GACIOCH, LEONARD CUMMINGS, LLP (Hugh B. Leonard, Esq., of Counsel) for the Defendant.
DISCUSSION: Plaintiff Paul Burdick took a loan against his 401K plan and purchased an ATV, but was told that he needed a valid driver's license to obtain insurance. His license was then under suspension for failure to pay some tickets. Some months after the purchase, on April 5, 2002, his mother, Plaintiff Rebecca Burdick, procured the policy at issue in this matter, covering the ATV. She filled out an application for insurance in her name, nowhere on it indicating that her son Paul had an interest in the ATV or that he regularly operated it. The application indicated that a policy would only be written for the titled owner of the ATV. On August 10, 2003, the ATV was reported stolen and the Burdicks made a claim under the policy. On October 2, 2003, the carrier took a recorded statement from Paul Burdick concerning the purchase, ownership, and use of the ATV. On April 14, 2004, the carrier took examinations under oath of Rebecca Burdick and Paul Burdick. On June 28, 2004, the carrier denied the claim, alleging that 1) Rebecca Burdick had engaged in fraud, 2) Ms. Burdick made material misrepresentations in the application for coverage, thus subjecting the policy to cancellation. On or about the same date the carrier issued and mailed a check to Ms. Burdick for the entire premiums paid since inception. In the instant motion the Defendant has properly dropped the fraud allegation (there is no indication or claim of fraud related to the occurrence, and it is to such fraud the provision cited refers) but argues that the policy is void ab initio because of material misrepresentations in the application (See Taradena v. Nationwide Mut. Ins. Co. 239 AD2d 876, 659 NYS2d 646 [4th Dept., 1997]), that Rebecca Burdick has no insurable interest in the ATV, and that Paul Burdick is not in privity with Defendant and therefore has no cognizable cause of action. Plaintiffs cross-move for summary judgment on their behalf, alleging that the carrier's disclaimer is untimely and that it is therefore estopped from disclaiming, and that the termination was not consistent with policy provisions.
This motion is made prior to any discovery by Plaintiff.
Is the Policy Void Ab Initio?
The Defendant alleges that Rebecca Burdick made material misrepresentations in the policy application that require the policy to be declared void ab initio.
a) A representation is a statement as to past or present fact, made to the insurer by, or by the authority of, the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof. A misrepresentation is a false representation, and the facts misrepresented are those facts which make the representation false. (b) No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless such misrepresentation was material. No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract.
The Defendant provides the affidavit of Krista Hacker, an underwriter for American Modern Home Insurance Company. Citing the underwriting guidelines of her employer, she states that had the true facts been before her, the company would not have issued insurance coverage to Rebecca Burdick. The materiality of ownership and use is prima facie shown by the guidelines, but the materiality of misrepresentations ordinarily is an issue of fact. Ferris v. Columbian Mut. Ins. Co. 190 AD2d 1061, 593 NYS2d 683 [4th Dept., 1993]. The conclusion that misrepresentation occurred intentional or not is all but inescapable.
An insurer may avoid an insurance contract if the insured made a false statement of fact as an inducement to making the contract and the misrepresentation was material (see Insurance Law s 3105 [a], [b]). "Rescission is available even if the material misrepresentation was innocently or unintentionally made" (Nationwide Mut. Fire Ins. Co. v. Pascarella, 993 F Supp 134, 136 [citation omitted]
Curanovic v. New York Cent. Mut. Fire Ins. Co. 307 AD2d 435, 762 NYS2d 148 [3rd 2003].
It is accordingly impossible for this Court to see this case as other than bound by the holding in Taradena v. Nationwide Mut. Ins. Co. 239 AD2d 876, 659 NYS2d 646 [4th Dept., 1997], in which the 4th Department specifically found the failure to properly identify the real owner of a vehicle to result in an ab initio cancellation vis a vis the insured (though not as to a third party). There was a material misrepresentation here, of just the kind found in Taradena. Accordingly, without more, the insurer would be entitled to have the policy declared void ab initio.
But, there is more.
For two reasons the carrier cannot rely on Taradena or Insurance Law § 3105 and declare the policy void ab initio:
First, the carrier chose to provide those to whom they sold policies more generous terms regarding cancellation for material misrepresentation than the law provides. Starting on page 6 of 8 of the policy the terms upon which the policy may be cancelled are set forth ("Termination"). ¶ 3 provides for termination if a policy is in effect for over 60 days, the case here. There it is set out that the company will only cancel in specified events, amongst which is "c. For discovery of fraud or material misrepresentation in: (1) Obtaining the policy. . .". In ¶ 2.b. it is provided that at least 20 days notice will be given of termination in "all other cases", which would include this case. There is, further, another, catch-all section, "C", "Other termination provisions". Nowhere does the carrier reserve its legal right to cancel or terminate a policy ab initio; on the contrary, and specifically mentioning exactly the claim against Rebecca Burdick here material misrepresentation in the application the carrier bound itself to a 20 day notice provision. The carrier can waive its legal rights, including the right to declare a policy void ab initio, and it has certainly appeared to do so in its policy, the terms of which must be construed against it (Matter of Mostow v. State Farm Ins. Co., 88 NY2d 321, 645 NYS2d 421, 668 NE2d 392; Custom Weld Indus. v. Chabina Co., 272 AD2d 364, 707 NYS2d 364; Scalia v. Equitable Life Assur. Socy. of U.S., 263 AD2d 537, 693 NYS2d 218; Horowitz v. Threadneedle Ins. Co., 194 AD2d 589, 599 NYS2d 79). Bedford Cent. School Dist. v. Commercial Union Ins. Co. 295 AD2d 295, 742 NYS2d 671). The appearance is strengthened by the October 21, 2003 reservation of rights letter to Ms. Burdick, wherein the carrier reserves its rights under the policy but nowhere references any additional or broader legal rights. The Termination provisions of the policy cited above are expressly cited. The same provisions are again cited in the June 28, 2004 letter purporting to declare the policy void. There is, at the least, a question of fact whether the right to declare void ab initio has not been waived by the policy provisions.
Second, the carrier is estopped from declaring the policy void by having retained the premiums paid for an unreasonably long period of time after learning the facts necessary to declare the policy void and return the premium. The carrier affirmative alleges it knew there had been material misrepresentations on the application at least by the time of the recorded statement of Paul Burdick on October 2, 2003, which indeed set forth that Paul was the owner and user, not Rebecca. The carrier then took examinations of Paul and Rebecca under oath on April 14, 2004. The premiums were not tendered back until June 28, 2004.
If a carrier continues to accept or retains premiums, or otherwise ratifies or acts consistently with the existence of the contract, it is estopped to then disclaim the contract. See: Mcnaught et Al. v. Equitable Life Assur. Society of United States 136 A.D. 774, 121 N.Y.S. 447 [2nd 1910]; Scalia v. Equitable Life Assurance Society of the United States 251 AD2d 315, 673 NYS2d 730 [2nd 1998]; Ellis v. Columbian Nat. Life Ins. Co. 270 A.D. 143, 59 NYS2d 335 [1st 1945].
The cases principally address the issue of continued acceptance of premiums. But neither can a carrier simply hold premium money indefinitely when it alleges the policy is void, for that too would be conduct only consistent with the supposition that there is a valid contract. The carrier held the premiums for either nine months (from the date of Paul's statement) or two and one half months (from the dates of the examinations under oath) beyond the time at which they knew enough to declare the policy void. The cases cited do not give specific guidelines about how long is too long. But cases regarding the time within which a company must give notice of disclaimer of coverage is, we think, instructive even if not authoritative.
The Plaintiffs have indeed claimed that the June 28, 2004 disclaimer should be deemed void for unreasonable delay. But late notice of disclaimer will not create coverage where none existed. Taradena, supra; Zappone v. Home Ins. Co., 55 NY2d 131, 138, 447 NYS2d 911, 432 NE2d 783. The late notice is therefore unavailing here. But what is consistently found in the cases is the determination that an unexplained delay of two months in giving notice will render a disclaimer ineffective. See Vecchiarelli, v. Continental Insurance Company, 277 AD2d 992, 716 NYS2d 524 [4th 2000]; Hartford Ins. Co. v. Nassau County 46 NY2d 1028, 389 NE2d 1061, 416 NYS2d 539 NY, 1979. It is difficult to see why a different standard should apply in regard to a reasonable time within which to declare a policy void ab intio and return the premiums than to disclaim coverage while acknowledging the policy and keeping the money; the effect on the policyholder is much the same either way, except that in case of a declaration of voidness the carrier is additionally improperly holding the policyholder's money. Even giving the Defendant the benefit of the April 14, 2004 date as the date it knew facts sufficient to declare the policy void, the unexplained two month delay in returning the premium money (here in the amount of $427.00) is unreasonable as a matter of law (cf. Hartford Ins. Co. v. Nassau County 46 NY2d 1028, 389 NE2d 1061, 416 NYS2d 539 NY, 1979) and the carrier is accordingly estopped from denying the policy. Inasmuch as the Hartford Ins., supra., test disallows an unexplained delay of two months, should facts develop in discovery that suggest an explanation for the delay, leave is granted to address this determination as subject to factual findings and thus revisable.
Paul Burdick: Standing
It is indeed difficult to see how Paul Burdick can state a cause of action against the Defendant. He is not a policy holder, he is not named anywhere in the application or policy materials, or in any way referred to as a third party beneficiary or as anyone otherwise with an interest. He has no contract with the Defendant, nor does he otherwise show privity with it. Prima facie, the Defendant therefore had no contractual or tort duties to Paul, and would not be answerable to him. See Sinclair's Deli v. Associated Mut. Ins. Co., 196 AD2d 644, 601 NYS2d 625; Utica First Ins. Co. v. Floyd Holding, Inc. 294 AD2d 351, 741 NYS2d 710. An issue of fact appears, however, concerning whether the Defendant waived the rights it would have had as a complete stranger to Paul Burdick by noticing and taking his examination under oath in regard to the claim. The Notice served is attached as Exhibit B to Plaintiff's Attorney's affidavit. Although its wording refers to CPLR Article 31, this notice is dated January 13, 2004 and the within action was not commenced until June 3, 2004; it is styled "Claimant against Respondent" as opposed to Plaintiff v. Defendant; the examinations themselves are denominated "examination under oath" as opposed to "deposition" or "examination before trial"; and it is plainly a notice pursuant to policy provisions permitting it to conduct an examination under oath of a claimant, and not the CPLR. See policy page 5 of 8, Part D(B)(3)(b). This pre-action notice refers to Paul Burdick as one of the "parties" to the "within action", i.e., claim. Inasmuch as this motion has been made prior to discovery having been had, and inasmuch as further discovery could to lead to additional evidence that the carrier in some sense viewed Paul Burdick as a de facto insured, and since there is some evidence in the form of the notice and fact of the examination that they so viewed him, dismissal of the complaint on summary judgment, pre-discovery, as to Paul Burdick would be, at best, pre-mature. Defendant's right to move again for the same relief, after discovery, is preserved.
There is an allegation that Rebecca Burdick showed the insurance agent some documentation concerning the ATV that had Paul Burdick's name on it. The agent is not a party, and in the absence of some act on the part of the insurer adopting the agent, the agent is deemed to be the agent of the insured. See Thomas Rendeiro v. State-wide Insurance Company, 8 AD3d 253, 777 NYS2d 323 [2d 2004] There is no basis here on which to find a "privity-like" relationship between Paul and the carrier.
Rebecca Burdick: Insurable Interest
The lack of an insurable interest is an affirmative defense, to be pleaded and proven by the Defendant. See Chase Automotive Finance Corp. v. Allstate Ins. Co. 280 AD2d 761, 721 NYS2d 116 [3rd Dept., 2001]; Weissman v. Galway Const. Corp. 239 AD2d 410, 659 NYS2d 42 [2nd Dept., 1997]; Rickert v. Travelers Ins. Co. 159 AD2d 758, 551 NYS2d 985 [3rd Dept., 1990.]. Affirmative Defenses, if not pled, are waived. CPLR § 3018. The Answer contains two affirmative defenses, the First alleging material misrepresentations by Rebecca Burdick and the Second alleging that Paul Burdick has no relationship with the Defendant which could ground a cause of action against it on his behalf. Lack of insurable interest on Rebecca Burdick's part is not alleged, and the defense is therefore waived.
There would, in any event, be an issue of fact presented concerning whether or not Rebecca Burdick has some substantial, "insurable" interest in the ATV, inasmuch as both she and Paul viewed her as having an "ownership" interest in this "family" vehicle.