Misrepresentations in Insurance Litigation
© 2015 National Association of Insurance Commissioners
court stated that the material misrepresentation rendered the policy void ab initio,
and thus Coregis had no duty to defend its insured. On appeal, the court found that
material misrepresentations render insurance contracts voidable, not void ab initio.
Because Coregis had acted promptly to inform the client that it was reserving
rights pending resolution of the matter, the appeals court affirmed the summary
judgment verdict of the circuit court in favor of the insurer. The final outcome of
this case suggests that in Illinois, a material misrepresentation renders the policy
voidable, not void ab initio, and the insurer may, perhaps unintentionally, waive
rescission rights if it fails to act promptly. Coregis reinforces the language in
Illinois Code Section 154,
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which places a one-year limitation on the insurer’s
rescission option in certain types of insurance.
Another interesting application of this concept in the same state is American
Service Ins. v. United Auto Ins.,
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where a minor child had recently received a
driver’s permit but was not listed on the auto insurance application as an
“operator” of the vehicle. He caused an accident involving only property damage.
While investigating, the insurer noted a “coverage issue” but apparently did not
explain it to the insured. The insured continued paying premiums without the child
listed as a driver, and the insurer continued accepting those premium payments.
About seven months later, the child caused another accident. The insurer rescinded
the policy as of a date effective prior to the first accident and returned premiums to
the insured. On summary judgment, the trial court upheld United’s argument and
allowed its policy rescission to stand. On appeal, the issue of whether United had
waived its rescission rights was raised, given that there were actually two
accidents involving the unlisted child, and that time had passed between the two
events. The appeals court ruled that the trial court acted properly in allowing a
policy rescission on summary judgment in this case, because the one-year time
limitation in Section 154 of the Illinois Code was not exceeded.
In some situations, a court may restrict the insurer’s right to rescind a policy
by invoking the doctrine of estoppel. This legal doctrine is sometimes used to
prevent one party from taking certain actions that might produce an unfair result
due to the other party’s reasonable reliance on the first party’s promises. Because
promises of coverage are made in insurance contracts, courts take care to examine
the degree to which the insured relied on those promises, and may choose to cite
the legal doctrine of estoppel to prevent the insurer from using policy rescission as
a remedy in the event a material misrepresentation is discovered.
For example, in one case mentioned in Ingram (2006),
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the insured was asked
if any prior applications for insurance had been cancelled. In fact, a prior
9. “… With respect to a policy of insurance as defined in subsection (a), (b), or (c) of
Section 143.13, except life, accident and health, fidelity and surety, and ocean marine policies, a
policy or policy renewal shall not be rescinded after the policy has been in effect for one year or
one policy term, whichever is less. This section shall not apply to policies of marine or
transportation insurance.”
10. Appellate Court of Illinois, First District, First Division, 2011, No. 1-09-3070.
11. Graphic Arts Mutual Insurance Company v. Pritchett, 469 S.E.2d 199 (Ga. Ct.
App. 1995).
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