Federal Deposit Insurance Corp. v. Great American Insurance Co., 2010 U.S. App. LEXIS 11471 (2d Cir. June 7, 2010)

In Federal Deposit Insurance Corp. v. Great American Insurance Co., the issue on appeal concerned whether the defendant was entitled to rescind coverage. Federal Deposit Ins. Co., 2010 U.S. App. LEXIS 11471, at *14. Specifically, the court considered whether the failure of Connecticut Bank of Commerce (“CBC”) to report (a) a loss, (b) the indictments of officers of a company that CBC acquired (“MTB”), and (c) a prior insurer’s (“Lloyd’s”) decision not to renew or extend its fidelity bond were “material misrepresentations” and, therefore, an appropriate basis for rescinding coverage. Id. The court provided the standard for success on a defense of misrepresentation: “the movant bears the burden of establishing (1) a misrepresentation (or untrue statement) by the plaintiff which was (2) knowingly made and (3) material to defendant’s decision whether to insure.” Id. (citing Pinette v. Assurance Co. of Am., 52 F.3d 407, 409 (2d Cir. 1995)). Additionally, the court provided that “[m]atters made the subject of special inquiry are deemed conclusively material.” Id. (citing State Bank & Trust Co. v. Conn. Gen. Life. Ins. Co., 145 A. 565, 566 (Conn. 1929)). As applied, the court held that CBC’s failure to report that $950,000 was advanced by MTB agents based on fraudulent invoices constituted a known, material misrepresentation in response to the question concerning losses sustained in the prior three years. Id. at **16-17. Similarly, CBC’s failure to disclose the indictments of MTB officers in response to the catchall question requesting “any knowledge of or information concerning any occurrence or circumstance whatsoever which might materially affect” the insurer’s decision to issue fidelity coverage constituted a known, material misrepresentation. Id. at **17-18. Finally, in response to the question as to whether any insurance of a similar nature had been declined or canceled, the court held that CBC’s failure to disclose that Lloyd’s decided not to renew or extend its fidelity coverage was a known, material misrepresentation. Id. at **19-20. As such, the defendant was entitled to rescind coverage. Id. at *21.