Rescission is a Remedy for Fraud in an Application for Insurance
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Post 5018
Beach Cruiser, LLC and Flyway Management, LLC own and manage multiple rental units. In 2021, Plaintiff Mt. Hawley Insurance Company (“Mt. Hawley”) issued Defendants an insurance policy (the “Policy”). The Policy covered bodily injury liability in connection with their units but excluded coverage in the event that Defendants provided “incorrect, false, inaccurate or incomplete information” in their application for insurance.
In Mt. Hawley Insurance Company v. Beach Cruiser, LLC, et al., No. 1:22-cv-10354-GHW, United States District Court, S.D. New York (March 6, 2025) the court applied New York’s law of rescission.
BACKGROUND
Plaintiff Mt. Hawley Insurance Company (“Mt. Hawley”) is an insurer, Defendant Beach Cruiser, LLC (“Beach Cruiser”) owns multiple residential properties and rents them out to tenants. It owns a residential property located at 146 President Street, Unit C, Charleston, South Carolina (the “Property”). Defendant Flyway Management, LLC (“Flyway,” and together with Beach Cruiser, “Defendants”) managed the Property on behalf of Beach Cruiser at all relevant times.. Nonparty USI Insurance Services (“USI”) served as an insurance broker for Beach Cruiser with respect to the Policy.
THE REPRESENTATIONS
Defendants’ application for the Policy checked “No” in response to the question “Are any properties rented by the day or by the week?”
Contrary to the statement in the application Defendants had been renting some of their units by the day or by the week for years.
THE ACCIDENT & INJURIES
On July 23, 2022, two of the tenants allegedly fell from the second floor of the Property after a porch railing collapsed. Both tenants sought damages from Defendants for their alleged injuries. Defendants claim coverage under the Policy. Plaintiff argues that Defendants’ claims are excluded from coverage because Defendants misrepresented the Property’s rental status in their application.
INSURANCE EXCLUSIONARY CONDITION
The principal question before the Court was whether New York Insurance Law § 3105(b) (“Section 3105(b)”) modifies the parties’ agreed-upon exclusion of coverage based on Defendants’ misrepresentations. The Court concluded that it does not. It does not apply where, as here, an insured’s claim is excluded from the insurance contract by prior mutual agreement.
The Policy includes coverage for, among other things, “bodily injury liability” up to $1,000,000 per occurrence subject to the Policy’s terms and conditions. For purposes of an endorsement: “the Application(s) includes, without limitation, any application forms and any other forms, documents, or information submitted to us in connection with or relating to issuance of this policy. For purposes of this endorsement, the Application(s) is a part of this policy and is incorporated herein.”
Beach Cruiser checked the “No” box in response to the question “Are any properties rented by the day or by the week?” However, Beach Cruiser had been renting the Property through Vrbo, an online platform for short-term vacation rentals, since 2018.
On January 25, 2022, Beach Cruiser executed a three-day rental contract through Vrbo for a party to stay at the Property from July 21 to July 24, 2022. The party included Walter Patrick Humphrey and Jonathan Charles Slade.
Mr. Humphrey filed an action in South Carolina state court against Beach Cruiser and Flyway arising from his alleged injuries (the “Humphrey Action”). Mr. Slade sent Flyway a demand letter alleging various causes of action arising from his alleged injuries.
On November 14, 2022, Mt. Hawley sent Beach Cruiser a letter stating that it was rescinding the Policy.
DISCUSSION
Summary judgment is appropriate here because the Policy unambiguously excludes coverage in connection with the July 23, 2022 incident. There is only one reasonable reading of Question 3 in the Application. Defendants’ response to Question 3 was plainly false. And the Endorsement unambiguously excludes coverage if the insured provided false answers in the Application.
The Policy unambiguously excludes coverage for Defendants’ claims. New York courts have held that, where there has been a misrepresentation by an insured, the insurance company can avoid liability on the policy by showing that the misrepresentation was material.
Because enforcing the Endorsement according to its terms is not inconsistent with Section 3105(b), the Endorsement is not, as Defendants and Nationwide argue, “void . . . as a matter of public policy.”
Plaintiff’s motion for summary judgment was GRANTED and Defendants’ and Nationwide’s motions for summary judgment was DENIED. The Court declared that Plaintiff Mt. Hawley Insurance Company has no obligation under the Policy to defend or indemnify Defendants Beach Cruiser, LLC and Flyway Management, LLC in connection with the July 23, 2022 incident.
Accordingly, because the Policy unambiguously excludes claims in the event of a misrepresentation in Defendants’ application, and because Defendants’ application unambiguously misrepresented the rental status of the Property, Plaintiff’s motion for summary judgment was GRANTED and Defendants’ and Nationwide’s motions for summary judgment were DENIED.
ZALMA OPINION
Insurance is a contract of good faith that requires each party to the contract to act fairly and in good faith to each other. When one party, seeking insurance, lies about the risks faced by the insured and the property that is the subject of the proposed insurance contract, he, she or it, has misrepresented a material fact and the law of equity requires the policy to be declared void.
(c) 2025 Barry Zalma & ClaimSchool, Inc.
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
