When an insurer finds that the insured misrepresented a material fact in an application for insurance, the insurer may rescind the policy of insurance, and take the position that no coverage exists for a claimed loss. In a recent case analyzed by New York’s Second Department, Otsego Mutual rescinded its policy of insurance with the insured after a fire loss and after Otsego Mutual determined that the insured stated in the application for insurance that the property at issue was a two-family dwelling, when in fact it was a three-family home. Estate of Gen Yee Chu, et al. v. Otsego Mut. Fire Ins. Co., 2017 N.Y. App. Div. LEXIS 1516 (Mar. 1, 2017). Otsego Mutual established that it would not have issued the policy of insurance if it had known that the property was a three-family home. The insured testified that he believed that the house was a “legal two-family dwelling.”

The Second Department affirmed the lower court’s grant of summary judgment to Otsego Mutual after finding the insured’s testimony insufficient to establish a material fact in dispute. The Second Department stated explicitly, “an insurer may rescind a policy if the insured made a material misrepresentation of fact even if the misrepresentation was innocently or unintentionally made.” (emphasis added).

This decision is in accord with a number of prior New York decisions on the issue of material misrepresentation, and may be of use to insurers with losses involving misrepresentations in the application for insurance.