The New York Court of Appeals ruled that when a policy is rescinded based on a named policyholder’s misrepresentations, there can be no coverage for additional insureds under the policy. Admiral Ins. Co. v. Joy Contractors, Inc., 2012 WL 2092863 (N.Y. June 12, 2012).
Joy Contractors, a tower crane operator, notified Admiral, its excess liability insurer, of an accident that resulted in the death and injury of several dozen people. Admiral issued a reservation of rights letter stating that coverage might be unavailable due to inaccuracies in Joy’s underwriting submission. In particular, Admiral noted that Joy had represented that it specialized in drywall installation and did not perform exterior work or work at a height greater than two stories when, in fact, Joy had acted as the structural concrete manager for the construction project and had performed work on the building’s exterior using a tower crane. Ultimately, Admiral brought suit against Joy and several other entities claiming coverage under the excess policy as “additional insureds.” Admiral argued that neither Joy nor the putative additional insureds were entitled to coverage in light of Joy’s alleged misrepresentations. Admiral sought rescission or reformation of the policy to such terms as might have been offered if Joy had responded accurately during the underwriting process. The trial court dismissed Admiral’s claims against the putative additional insureds, reasoning that Joy’s alleged misrepresentations had no effect on coverage provided to the additional insureds. The appellate division modified the ruling on a separate issue, but otherwise affirmed the trial court’s decision. The New York Court of Appeals reversed.
The Court of Appeals held that when a policy is voided due to a named insured’s misrepresentations, the policy is rescinded as to additional insureds as well. The court reasoned that it would be illogical to allow other entities to enforce a contract that has been declared void. The court stated that “‘additional’ insureds, by definition, must exist in addition to something; namely, the named insureds in a valid existing policy.” In so ruling, the court found inapposite two lines of New York precedent: (1) cases in which actions by one insured did not preclude coverage for innocent coinsureds, but in which, unlike here, the insurer did not seek rescission of the policy; and (2) cases in which “the named insureds’ misrepresentations did not deprive the insurer of knowledge of or the opportunity to evaluate the risks for which it was later asked to provide coverage” and where, unlike here, the additional insureds were specifically identified in the policies such that their interests were known to the insurer.
Admiral Insurance provides strong support for insurers seeking to deny coverage to additional insureds following the rescission of a policy as to the named insured. However, given the court’s analysis of related precedent, policyholders may argue that the ruling does not apply where additional insureds are specifically named on a policy or where risks posed by the additional insureds are known to the insurer.