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In Admiral Ins. Co. v Joy Contractors, Inc., 2012 NY
Slip Op 4670 (N.Y. June 12, 2012), the New York Court of Appeals,
New York's highest court, held that an insurer may seek
rescission against an additional insured for the named
insured's misrepresentations during the underwriting
process.
The
coverage dispute arose from the deadly collapse of a tower crane
operated by Joy Contractors, Inc. during construction of a luxury
high-rise condominium in Manhattan. Admiral
Insurance Company, which issued an excess commercial general
liability policy to Joy, denied coverage to Joy and other entities
claiming additional insured status under the policy on the basis of
a residential construction exclusion. Admiral
also advised Joy that there might be no coverage because of
Joy's misrepresentations in its underwriting
submission. Specifically, Joy had represented
that it specialized in drywall installation, did not carry out
exterior work and performed no work at a level above two stories
from grade; Admiral's investigation, however, revealed that Joy
was actually the structural concrete contractor, performing work on
the building's entire exterior with the tower crane.
Admiral
subsequently filed suit against Joy and the additional insureds,
seeking a declaration of no coverage and asserting causes of action
for rescission of the policy. Relying primarily
on Lufthansa Cargo, AG v New York Mar. & Gen. Ins.
Co., 40 A.D.3d 444 (1st Dep't 2007) and BMW Fin.
Servs. v Hassan, 273 A.D.2d 428 (2nd Dep't 2000), lv
denied 95 N.Y.2d 767 (2000), the intermediate appellate court
upheld the dismissals of the rescission causes of action against
the additional insureds. The appellate courts in
Lufthansa and BMW had reasoned that the
misrepresentations of the named insured were irrelevant as to
coverage for the innocent additional insured because each
individual additional insured must be treated as if separately
covered by the policy and as if he had a separate policy of his
own.
The Court of
Appeals, however, found Lufthansa and BMW
unpersuasive on the basis that the misrepresentations in those
cases did not deprive the insurer of knowledge of the central
insured risk. In contrast, Joy's
representation that it performed interior drywall installation
deprived Admiral of knowledge of the "obviously much greater
risk presented by exterior construction work with a tower crane at
a height many stories above grade."
The Court of
Appeals also noted that to dismiss the causes of action for
rescission against all defendants except Joy would illogically
permit the additional insureds to rely on the terms of a policy
that may be deemed to never have existed to create coverage in the
first place. That is, "'additional'
insureds, by definition, must exist in addition to
something; namely, the named insureds in a valid existing
policy." Accordingly, the Court of Appeals
held that Admiral's causes of action for rescission and
reformation, as well as its other claims related to Joy's
alleged misrepresentations in its underwriting submission, were
properly interposed against the additional insureds.
This article is for general information and does not include
full legal analysis of the matters presented. It should not be
construed or relied upon as legal advice or legal opinion on any
specific facts or circumstances. The description of the results of
any specific case or transaction contained herein does not mean or
suggest that similar results can or could be obtained in any other
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subject to varying results. The invitation to contact the authors
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Duane Morris LLP, a full-service law firm with more than 700
attorneys in 24 offices in the United States and internationally,
offers innovative solutions to the legal and business challenges
presented by today's evolving global markets. Duane Morris LLP,
a full-service law firm with more than 700 attorneys in 24 offices
in the United States and internationally, offers innovative
solutions to the legal and business challenges presented by
today's evolving global markets. The
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