The D&O E&O Monitor

D&O - Extinguishing a Bad Faith Claim Can Be a Problem Even After Insurer Pays Its Policy Limits

Joe Monteleone — Fri, 13 Apr 2012 17:23:40 -0600

In Isilon Systems, Inc. v. Twin City Fire Ins. Co., Case No. C10-1392 (W.D. Wash. April 10, 2012) [see here], the Court handed down what some may view as a surprising ruling upon the defendant excess insurer’s Motion for Partial Summary Judgment.

The underlying facts are rather straightforward. The excess insurer attached with a policy limit of $5 million excess of $20 million underlying limits.[1] The claim at issue was one brought by the SEC against a former CFO of the insured company. It was resolved with an award of injunctive relief, but with the incurrence of significant defense expenses estimated at about $5 million in excess of the $20 million underlying limits. The company paid these defense expenses by way of its indemnification obligations to the former CFO and sought reimbursement from the insurer before the underlying limits were fully exhausted.

The insurer denied coverage on the basis that the CFO had knowledge or information that could lead to a claim at the time the application for the policy was completed. It based its coverage determination upon documents provided by the company to the SEC. The company then brought the instant litigation against the insurer challenging its denial of coverage. A few months later, the insurer withdrew its denial and stated that it would pay its $5 million limit as soon as it received proof of exhaustion of the underlying limits. The insurer in fact paid the $5 million after receiving proof of the exhaustion of the underlying policy.

End of story and all lived happily ever after?

Noooooo!

Among the company’s claims in its lawsuit against the insurer were ones based on the following.

Violation of Washington’s Consumer Protection Act (“CPA”)
Breach of the insurance contract
Breach of an implied covenant of good faith and fair dealing (the bad faith claim)
Violation of Washington’s Insurance Fair Conduct Act (“ICFA”)

First, the court granted summary judgment to the insurer on the CPA claim because the company could not establish an injury once the insurer performed under the contract by paying its limits at the time it was first obligated to do so. Likewise, the insurer was also granted summary judgment on the breach of contract claim for essentially the same reasons.

So far, so good, at least from the insurer’s perspective. But, here is where it gets interesting.

The Court declined to grant summary judgment on the bad faith claim. Applying Washington law, the Court held that there remained an issue of whether, at the time of the application, the former CFO had subjective knowledge of facts that might give rise to a claim. The Court found that the insurer did not establish its good faith because, at the time of the denial, it was open to question, at least on an objective basis, whether the former CFO had in fact violated the prior knowledge warranty question on the application.[2] The Court also declined to grant summary judgment on the statutory ICFA claim based on the same reasoning.

Dependent upon what may transpire in continuing litigation at the trial level or upon any appeal that might be taken, this case stands for the proposition that an insurer may still have a bad faith exposure grounded in its initial denial of coverage, even after it pays its full policy limits when first contractually obligated to do so.

[1] It appears that the policy may have been an excess Side A DIC, but whether it was of that variety or a follow form excess is of no moment to the Court’s decision and reasoning.

[2] The Court’s Opinion does not indicate whether it was this former CFO who signed the application.

D&O and E&O - How Not To Report A Claim Redux

Joe Monteleone — Fri, 13 Apr 2012 17:23:40 -0600

In our May 25, 2011, blog post [see here], we reported on the lower court decision in this matter. Now the Third Circuit has affirmed that decision in Atlantic Health System, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, No. 11-2060, (3d Cir. March 22, 2012).[see here]

This is another cautionary tale of what can go wrong when an insured, directly or through its broker, ignores the claim reporting instructions in the policy form or on the Declarations and sends its notice of claim to an incorrect address. Some commentators will complain that this is another insurance company “gotcha” and there is no big deal in sending notice of a claim to the address for an underwriting unit. Why can’t they just walk it across the street or down the hall to wherever the claims unit may be?

The Third Circuit relied heavily upon its earlier decision in American Cas. Co. of Reading, Pennsylvania v. Continisio, 17 F.3d 62 (3d Cir. 1994), quoting from that decision as follows.

[T]he only reasonable interpretation of the policy provision is that the insureds mustvregard the information they possess as a potential claim and formally notify their insurervthrough its claims liability department that a claim may be asserted . . . . [N]otice mustvbe given through formal claims channels because we recognize that the information needed, or at least the perspective utilized in reviewing it, varies when predicting the probability of future losses and recognizing the need to investigate a claim that may be made based on past occurrences. (emphasis added)

Continisio, 17 F.3d at 69.

In my view, this matter was well-decided and well-reasoned both at the District Court level and upon appeal before the Third Circuit. It is certainly not a classic situation of a denial of coverage based upon a hyper-technicality. Rather, it shows a keen judicial understanding of the nature of underwriting and claims responsibilities within an insurance company. Hopefully, word of this decision is disseminated widely among policyholders and their brokers. Forewarned should be forearmed.

Fiduciary Liability Insurance (ERISA) - Nature Abhors a Vacuum - Insurer Introduces New Endorsement

Joe Monteleone — Wed, 04 Apr 2012 18:45:39 -0600

In an illustration of how remarkably fast an insurance market may react to a significant judicial decision, consider the following.

On February 21, 2012, the New York high court rendered its decision in Federal Ins. Co. v. International Business Machines Corporation, Slip Op. No, 20, Decided February 21, 2012. See [here] and [here] for a copy of our March 2, 2012, post on the decision and a copy of the decision.

Responding even more quickly than this blogger, Chartis issued a press release on March 1, 2012, [here] announcing an endorsement that would appear to have been prepared to address the “coverage gap” highlighted in the Court’s ruling[1]. While I am not privy to the actual endorsement wording nor any actual cause and effect between the decision and the creation of the endorsement, the speed at which the marketplace has reacted is remarkable.

Of course, we hasten to emphasize that this endorsement, which is by an insurer that was not a party to the coverage litigation and was introduced after the case was decided (albeit only slightly more than a week after the decision was rendered), does not reflect at all on the correctness of the Court’s decision and reasoning. Indeed, if anything, it may reflect the fact that the case was correctly decided and now the marketplace may be beginning to react by offering enhanced coverage.

Special thanks to Mike Krasner of The Signature Group for calling the Chartis press release to my attention. See also Mike’s thoughtful comments on my March 2 post and my reply to those comments.

[1] This Fiduciary Liability Insurance Edge℠ endorsement appears to be only available to private company, not-for-profit and financial institution insureds. Curiously, the press release does not mention whether it would be available to a public company risk such as IBM.

Excess E&O - Exhaustion of Underlying Limits - Zeig Rears Its Hoary Head in Virginia

Joe Monteleone — Fri, 23 Mar 2012 11:26:04 -0600

One of the oldest and most frequently cited cases in the annals of insurance jurisprudence is Zeig v. Massachusetts Bonding & Ins. Co., 23 F.2d 665 (2d Cir, 1928). In very short summary, arguably applying New York law to particular excess policy language and a discrete set of underlying facts, Zeig held that the excess policy at issue was attached by allowing the insured to fill in any gap in coverage because the underlying insurer failed to pay its full limit of liability.

A number of jurisdictions in decisions over the past several years have declined to follow Zeig,[1] instead holding that the excess policy at issue does not attach until all of the underlying insurance is exhausted by actual payment of the full policy limits by those insurers.

In a very recent decision, however, Maximus, Inc. v. Twin City Fire Ins. Co., 2012 U.S. Dist. LEXIS 32970 (E.D. Va. March 12, 2012), a Virginia federal court elected to follow Zeig despite no compulsory reason to do so and no indication that New York law was even applicable.[2]

As typical in these cases, Maximus involved a settlement that did not fully exhaust the underlying insurers’ limits by actual payment from those insurers. Arguably, the insured Maximus had stepped in to fill any gaps. The key excess policy language provided as follows.

[The Policy] shall apply only after all applicable Underlying Insurance with respect to an Insurance Product has been exhausted by actual payment under such Underlying Insurance, and shall only pay excess of any retention or deductible amounts provided in the Primary Policy and other exhausted Underlying Insurance. (emphasis added)

The Court inexplicably (in my opinion) found this language ambiguous, despite the presence of “actual payment” language so essential to the excess insurers prevailing in many of the cases cited in Footnote 1.

The explanation offered by the court was the following.

[The Policy] conspicuously lacks a definition of ‘actual payment under such Underlying Insurance’. It neither states that actual payment requires payment of the full limit of an underlying policy by the lower-tier carriers, nor does it expressly preclude the insured from filling the gap to exhaust the underlying policy.

The Court recognized that JP Morgan was decided in favor of the excess insurer where there was substantially identical language. Nonetheless, the Court noted that JP Morgan was not decided under Virginia law and thus of no binding precedential value.

Assuming this decision is not reversed on appeal, has not the Court at least provided an opinion as to how to “fix” the problematic policy language? Indeed, the Court recognized that these policy provisions can be written unambiguously so “as to overcome the public policy concerns articulated in Zeig.”[3]

However, as I have stated before in this space, coverage decisions like Maximus may soon become little more than a tempest in a teapot. That is because most excess policy language has evolved to allowing for payments from the insured and other sources to be recognized in exhaustion of underlying limits.

[1] See, e.g., Citigroup Inc. v. Federal Ins. Co., 649 F. 3d 367 (5^th Cir. 2011); Great Am. Ins. Co. v. Bally Total Fitness Holding Corp., 2010 U.S. Dist. LEXIS 61553 (N.D. Ill., June 22, 2010); Comerica Inc. v. Zurich Am. Ins. Co., 498 F. Supp. 2d 1019 (E.D. Mich. 2007); Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London, 73 Cal. Rptr. 3d 770 (Cal. Ct. App. 2008).

Even a New York court, while perhaps not expressly overruling Zeig, nonetheless did not permit “filling the gaps” by an insured to substitute for actual payments by underlying insurers. JP Morgan Chase & Co. v. Indian Harbor Ins. Co., 930 N.Y.S. 2d 175 (N.Y. Sup. Ct., May 26, 2011).

I concede, nevertheless, that all of these decisions, like Zeig, were peculiar to the excess policy language before the respective courts.

[2] It should be noted first that Twin City was not the insurer at the center of this dispute, as they reached a settlement agreement before this matter was decided. The next layer down, however, continued to dispute its attachment with the insured.

The Court held that Virginia law was in fact applicable, but both the insured and insurer agreed that the outcome of their dispute would be the same under either New York or Virginia law. Hence, the Court had its “invitation” to apply Zeig.

[3] It is very important to note that, even if the insured prevails upon any further appeal, there remains a very critical hurdle in this and similar cases for an insured to clear. Specifically, the insured must establish that all of the payments made by it and the underlying insurers constitute covered Loss. Regardless of being allowed to fill the gaps, the insured is not entitled to credit any items of non-covered Loss to an exhaustion of the underlying limits. The Court’s discussion of some of the damages and other monetary components of the settlement in this case leave the answer uncertain as to whether the insured can clear that hurdle.

What is the Life Expectancy of a D&O Securities Class Action Claim?

Joe Monteleone — Fri, 02 Mar 2012 13:00:39 -0600

I am asked this question many times by claims, underwriting and brokerage clients and, dependent upon at what point in history the question is asked dating back to the passage of the Private Securities Litigation Reform Act (PSLRA) in December 1995, my answer varies. A somewhat typical “life span” range would be two to five years.

While admittedly an outlier, a recent decision of the United States District Court for the District of Arizona granting class certification and appointing a union pension fund as lead plaintiff, illustrates just how long a securities class action can last from first filing to final disposition. Siracusano vs. Matrixx Initiatives, Inc., No. CV 04-00886-PHX-NVW (Order of February 27, 2012).

You might recall this is the same case that previously wound its way to the Supreme Court of the United States on a pleading issue after the same court in Arizona had granted defendants’ motion to dismiss. Specifically, the case concerned the drug Zicam manufactured by the defendant and allegations that Matrixx concealed reports that the drug could cause anosmia, a loss of the sense of smell.

The Supreme Court ruled that any adverse event reports concerning Zicam that alter the “total mix” of information otherwise disclosed or available to the market, also had to be disclosed. The Court remanded the case to the District Court for further proceedings consistent with its ruling. Matrixx had argued that only “statistically significant” studies or reports must be disclosed.

This case was commenced in the District of Arizona by filing of a Complaint on April 27, 2004, so it is now approaching its eight-year anniversary. Although I am not privy to any details of the litigation, including the limits of any tower of D&O insurance for Matrixx, one can easily imagine defense and appellate expenses already totaling at the seven- or eight-figure levels.

What could lie down the road in the Matrixx litigation?

With dismissal and class certification already ruled upon in favor of the plaintiff class, discovery should now begin in earnest. It may in fact have already begun after the Supreme Court decision in March 2011 and subsequent remand to the trial court. It is also possible that at some point during or after discovery defendants could move for summary judgment. Ultimately, there could be a trial on the merits or appeals from any summary judgment or trial judgment ruling. Of course, it is always possible, if not likely, that the litigation will settle at some point through direct negotiations or facilitated by mediation.

Given all of these possibilities, it is not entirely out of the realm of reasonable conjecture that this case will reach its 10th anniversary, and possibly extend beyond that point.

CONCLUSION: An underwriter’s and actuary’s nightmare.

ERISA - Are All Violations Covered Under A Fiduciary Liability Policy?

Joe Monteleone — Fri, 02 Mar 2012 07:39:07 -0600

This question was answered in the negative in a recent New York Court of Appeal decision. Federal Ins. Co. v. International Business Machines Corporation, Slip Op. No, 2o, Decided February 21, 2012. A copy of the Opinion of Chief Judge Lippman is attached [here].

The underlying claim was a class action brought on behalf of plan participants against International Business Machines Corporation (IBM) and the IBM Personal Pension Plan (collectively “IBM”). The key allegations in the class action were that certain amendments to IBM plan violated ERISA provisions relating to age discrimination. The action was settled and IBM appears to have successfully sought and obtained reimbursement under a $25 million limit primary policy for payments it had to make for plaintiff attorney fees. The instant case involved their pursuit of coverage for those fees from the first excess layer insurer upon exhaustion of the primary limits.

Although the court does not make clear what type of policy is at issue, it appears to be fiduciary liability coverage by virtue of the following definition of Wrongful Act in the primary policy, to which the excess followed form.

[Wrongful Act means] 1. Any breach of the responsibilities, obligations or duties by an Insured which are imposed upon a fiduciary of a benefit Program by the Employee Retirement Income Security Act of 1974, as amended, or by the common or statutory law of the United States, or ERISA equivalent laws in any jurisdiction anywhere in the world; 2. any other matter claimed against an Insured solely because of such Insured’s service as a fiduciary of any Benefit Program; 3. any negligent act, error or omission in the administration of any Benefit Program. (emphasis added)

The Court held that IBM was sued in the underlying action as a plan sponsor and settler of the plan, and not in any fiduciary capacity under ERISA. The only reasonable interpretation of the Wrongful Act definition was that coverage is limited to acts undertaken in the capacity of an ERISA fiduciary.

IBM had argued that “fiduciary” is an undefined term in the policy and, thus, should not be limited only to fiduciary duties under ERISA. The Court rejected this argument, finding that the clear intent of the disputed language was “easily understandable to the average insured” and would not encompass the broad interpretation sought by the insured. IBM also unsuccessfully argued that Clause 2 in the definition would be rendered meaningless by virtue of the Court’s interpretation of Clause 1, and that later changes the excess insurer made to its own fiduciary liability policies evidenced the ambiguity of the disputed definition.

Accordingly, the Court ruled in favor of the insurer and awarded costs against the insured.

The language at issue here is similar to that in many other fiduciary liability policies and this decision should serve as good guidance in applying the coverage to claims similar to the one at issue here.

Lawyers Professional Liability - An Enlightened (and Correct) Application of the Prior Knowledge Condition

Joe Monteleone — Fri, 02 Mar 2012 07:39:07 -0600

In a very recent decision[1], the Southern District of Texas took a rather enlightened view of the application of the prior knowledge condition found in the policy’s insuring agreement.

The underlying facts in Laminack were that lawyers in a “predecessor firm”[2] to the insured firm were retained to bring an antitrust action against certain pharmacy benefits management companies. The clients contend that, while at both the predecessor firm and the insured firm, the lawyers assured the clients that there were no statute of limitations problems. Nonetheless, the defendant benefits managers were successful in getting summary judgment based upon a statute of limitations defense, and this was upheld through an appeal to the Fifth Circuit and denial of certiorari by the Supreme Court of the United States.

In the Laminack declaratory judgment action, the insurer obtained summary judgment on the issue of the duty to defend on the basis that the insured had reason to believe before policy inception that the statute of limitations issue might reasonably be expected to be the subject of a malpractice action against them.

The prior knowledge condition[3] at issue provided that there can be coverage for alleged wrongful conduct prior to policy inception only if no insured “had any basis” to foresee that the prior conduct “might reasonably be expected” to be the subject of a malpractice claim. The insurer had agreed to provide a defense under a reservation of rights to later withdraw if it was established that there was operative prior knowledge on the part of the insured. The insurer then filed its declaratory judgment action.[4]

The Court found that it was beyond dispute that the insureds knew prior to policy inception that the pharmacy benefits manager defendants had obtained summary judgment based upon the statute of limitations defense. As to whether or not a subjective or objective standard should be applied to determine whether that summary judgment might reasonably be the basis for a malpractice claim, the Court held that the unambiguous language of the policy called for an objective standard.

What then is the optimal solution?

Without having to substantively change either the language in the exclusion or application question set forth above, courts should apply the subjective/objective standard in a simpler and more straightforward manner as did the court in Laminack. Specifically, if there is subjective knowledge of malpractice at the time of the application or inception of the policy, denial of coverage or rescission should result as appropriate. Similarly, even if there is no such knowledge, there should be a resultant denial or rescission if any insured could reasonably have foreseen that a claim might be made.

[1] Darwin Select Ins. Co. v. Laminack, Pirtle & Martines, L.L.P), Case 4:10-cv-05200, USDC, S.D. Tex. (Decided February 8, 2012).

[2] A predecessor firm is typically defined in a professional liability policy as follows.

Predecessor Firm means any legal entity which was engaged in the practice of law to whose financial assets and liabilities the Named Insured is the majority successor in interest and which is designated in the application as a Predecessor Firm.

[3] Note that is far more advantageous for an insurer to have the prior knowledge language contained in a policy condition, as opposed to being one of the policy exclusions. As a general rule, the insured will have the burden of establishing that a condition has been satisfied, particularly where it is formulated as a condition precedent within the insuring agreements. This is how most insurers set forth their prior knowledge conditions. On the other hand, if it is set forth as a policy exclusion, the burden of proof shifts to the insurer to establish that the exclusion applies.

[4] Defending under a reservation of rights, while at the same time bringing a declaratory judgment action on the duty to defend and ultimately to indemnify, is in many jurisdictions and instances the most prudent action an insurer can take in these situations. See, e.g., Trovillion v. United States Fidelity & Guar. Co., 130 Ill. App. ad 694, 474 N.E.2d 953 (1985); Villa Charlotte Bronte. Inc. v. Commercial Union Ins. Co., 64 N.Y.2d 846, 476 N.E.2d 640, 487 N.Y.S.2d 487 (1985).

Insurance Coverage Litigation - Some Food for Thought

Joe Monteleone — Fri, 27 Jan 2012 14:26:55 -0600

Insurance coverage disputes in the D&O and E&O arena provide substantial grist for the mill that is this blog. Perusing these decisions on a daily basis has led me to some interesting conclusions and many unanswered questions.

My career in D&O and E&O insurance began in 1985 as an in-house claims lawyer. Since then, the coverage litigation landscape has drastically changed, primarily as follows.

We are now bombarded with new decisions on almost a daily basis from various sources, including blogs such as this one, law firm newsletters, electronic and print litigation reporting services, legal newspapers, the insurance press and sundry other sources.

Although many of these decisions are ultimately reported officially, and thus will carry more precedential weight than others, there are a host (if not the majority) of decisions that are picked up only on one of the electronic reporting services such as Westlaw or Lexis or are simply unpublished decisions of various courts picked up by enterprising sorts like myself.
Like a black market hidden economy, there are an increasing number of coverage disputes that are resolved without seeing the light of day. In addition to old-fashioned face to face negotiations (which in my opinion is the ideal way to resolve these disputes), many disputes are decided in arbitration – either because the insurance policies contain a mandatory arbitration provision or the parties freely elect to arbitrate. Although arbitration can often be a valuable alternative dispute resolution mechanism, one of the downsides is that the results are typically confidential and, unlike with most court decisions, we do not build up a body of precedent to guide the parties in future disputes. An unfortunate result of this is that parties frequently arbitrate the same issues repeatedly.
Who wins most of these disputes? I am unaware of any statistics in this area, but I just examined the current issue of LexisNexis® Mealey’s™ Emerging Insurance Disputes, a respected source and not one that has any apparent bias in reporting decisions favorable to one side over the other. That issue contained reports on 11 decisions, with six in favor of the insurer and five in favor of the insured. This is a bi-weekly publication, so the fact that there were 11 decisions in it only underscores my point above about the frequency of coverage disputes.

What are your thoughts on these issues? Please use the Comment feature to share them with all of our subscribers or, if you prefer, e-mail me at jmonteleone@tresslerllp.com.

D&O - The Uncertain Insurance Implications of Dodd-Frank

Joe Monteleone — Fri, 27 Jan 2012 12:26:55 -0600

Much has been written about the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) since its passage in July 2010, including conclusions and speculation with regard to its impact on D&O insurers.

The devil is usually in the details when it comes to assessing any legislation, and the devil here lies in the fact that much of the rulemaking necessary to implement Dodd-Frank has yet to be promulgated. Adding to the uncertainty is the fact that all of the viable Republican presidential candidates are opposed to this legislation, in whole or in substantial part. A Republican presidency, perhaps coupled with a Republican-controlled House and/or Senate, may well lead to repeal or amendatory legislation or, at the very least, a different course to the rulemaking activity.

None of the major D&O policy forms on the market today specifically address Dodd-Frank exposures, at least not in the form itself. The primary impact of Dodd-Frank lies in the expected increase in covered claim activity due to generous “bounty” payments to whistleblowers and enhanced ability of the SEC to pursue executive compensation “clawbacks”. Unlike similar provisions under Sarbanes-Oxley, Dodd-Frank expands the compensation clawback beyond just the CEO and CFO to all current or former executive officers. This will likely bring a few other officer (but not independent director) positions into the mix, including the General Counsel, Chief Operating Officer and other duly appointed executives.

Notwithstanding future rulemaking or possible amendatory legislation if there is a change in the current Administration, insureds and insurers may see increased SEC investigatory activity pursuant to Dodd-Frank.

Coverage for clawback amounts should be non-existent because of the personal profit exclusion and the fact that disgorgement of such compensation should be uninsurable as a matter of law. Dependent upon policy language, however, there may be defense costs coverage for these clawback claims. Some commentators have expressed concern that whistleblower claims facilitated by former officers or employees may potentially trigger an Insured vs. Insured exclusion. That policyholder concern may not be well-taken in many instances where there is a “carveout” to the exclusion that addresses these types of situations. Moreover, many of the newer policy forms now contain a simple “insured entity vs. insured” exclusion that should not be triggered by a whistleblower claim in most instances.

In summary, election year politics, particularly if there is an Administration change and significant changes in the make-up of the House and Senate resulting from the November 2012 elections, may greatly affect the future direction of Dodd-Frank reforms. Stay tuned.

E&O - Insurer Granted Rescission of Accountants Professional Liability Policy

Joe Monteleone — Fri, 27 Jan 2012 12:26:55 -0600

I have always maintained, and continue to do so, that rescission is a drastic remedy and not one that is sought often and undertaken lightly by insurers. A recent decision in which an insurer successfully rescinded only illustrates why few situations are egregious enough to warrant rescission and the pitfall for the insured when it has its policy rescinded. Chicago Ins. Co. v. James A. Capwill, 2011 U.S. Dist. LEXIS 147086 (N.D. Ohio, No. 1:01-cv-2588, December 21, 2011).

Capwill involved applications for accountants professional liability insurance submitted in 1997, 1998 and 1999. In each successive application, the principal in the accounting firm made and reaffirmed certain representations as to the nature of his business.

The Court found that the insured had indisputably made intentional misrepresentations on the applications for insurance*, including statements with regard to his investment activities and fee income (fees for servicing fraudulent viatical insurance policies for individuals afflicted with AIDS) and prior license revocation. The insurer successfully rebutted arguments that it was barred by laches because it waited too long to assert its rescission defense. The Court found that the insurer diligently proceeded to develop evidence of material misrepresentation and that the insured was not prejudiced when the insurer timely asserted rescission after developing the supporting evidence.

The Court also held that the determination of materiality is made from the perspective of the insurer, not the insured applicant, and its conclusion is strikingly blunt.

[The insured] lied when he applied for insurance with the [insurer]. He persisted in his falsehoods when he applied for renewal. His motive and intent when he did so are manifest. The questions he fraudulently answered were material to the [insurer’s]decision to issue and then renew the policies, and the pricing thereof. There can be no question that, had [the insurer] been told the truth, it would not have accepted the applications. Its entitlement to rescission is clear.

Neither laches nor doctrines of estoppels, acquiescence or waiver bar the right to rescind.

The cautionary tale here is that, despite the high hurdle of having to prove both a material and intentional misrepresentation, an insurer can still prevail on a rescission claim under the egregious circumstances presented in this case.

*Under applicable Ohio law, it is necessary to establish that the misrepresentations must be material and made with intent to mislead the insurer. In many other jurisdictions, there is no intent requirement in addition to the requirement of materiality.