The sad part about decisions abrogating insurance coverage, based on misrepresentations by the insurance applicant, is that innocent third parties often suffer from the lack of coverage. A recent Pennsylvania decision provides one more example.
The June 2013 collapse of a masonry wall on a building being demolished, which killed six people in an adjacent Salvation Army store in Philadelphia and injured many more, received extensive media coverage at the time. The contractor hired to demolish the building, who hired in turn an apparently-uninsured subcontractor, had obtained an insurance policy by responding as follows on an application:
Q. Are the conditions of nearby structures documented before demolition begins?
Q. Does the applicant have a formal loss control or safety program?
Q. Does the applicant have a risk manager and/or safety director who is responsible for safety activities?
Q. Does applicant use subcontractors?
Unfortunately, none of those answers were truthful. The court found that the statements were false, were knowingly false when made (the policy was obtained just before demolition work began), and were material. Thus, the demolition insurance contract was void ab initio, since the policy had been issued based on those misrepresentations, and the carrier could not protect itself from the actual risks. In turn, there is one less source of funds for those who were injured, or for the relatives of the persons killed. This case makes no new law, but is a sad reminder of the sorry state of affairs left behind by those who lie when applying for insurance.
The case is Berkley Assur. Co. v. Campbell, 2017 Phila. Ct. Com. Pl. LEXIS 110 (April 18, 2017) (available for purchase here). It is reminiscent of a New York case arising from a crane collapse, where it was discovered – after the fact – that the tower crane subcontractor had represented its work as interior drywall with no exterior work. In each case the truly wronged parties were those who were injured or killed, yet had no recourse to insurance proceeds due to outright lies on an insurance application by the contractor. The fact that the demolition contractor’s principal and the subcontractor are now serving time in jail is little consolation.