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Eastern District of California Dismisses Bad Faith Action, Where Misrepresentation Voids Policy

On June 6, 2017, the U.S. District Court for the Eastern District of California found, consistent with longstanding California precedent, that a material misrepresentation made in the course of a coverage investigation voids coverage. The holding reaffirms the importance of the insurer’s investigation into claims it suspects may be fraudulent. The court also, again consistent with California precedent, declined to find any bad faith conduct in the absence of coverage. Young v. Progressive Casualty Insurance Co., No. 1:16-CV-01198-DWM, 2017 WL 2462497 (E.D. Cal. Jun. 6, 2017) concerned Young’s claim to Progressive for the theft of his motor home. His policy provided comprehensive coverage with an agreed value for the motorhome of $63,000 with no deductible. Law enforcement recovered the motor

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Posted in Bad Faith

Rescission: An Underutilized Tool

The rescission of an insurance policy is one of the most underutilized tools in handling insurance claims. If used properly, it unwinds the insurance transaction and the parties are restored to their position prior to the contract; it is as if the insurance contract never existed. Although rescission is primarily an equitable device, its use and scope is authorized by many state statutes. In situations where the insured has made material misrepresentations or fraudulently applied for a policy, it shields the insurer from unwarranted claims and unjust liability. There are three types of state statutes regarding rescission: (1) states that allow rescission based on material misrepresentation; (2) states that limit rescission to a knowing or reckless misrepresentation; and (3) states

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When is Rescission Based Upon Material Misrepresentations The Proper Course of Action?

Carriers rely on application representations regarding the existence of potential claims.  Sometimes, the carrier learns after the fact that an applicant may not have reported all known potential claims.  What can/should the carrier do?  A recent example is found in Continental Casualty v. Gargoyles, a case involving allegations of securities fraud.  Continental extended a defense under a reservation of rights, which it later sought to withdraw when the president of Gargoyles confessed to criminal wrong-doing as part of a plea agreement.  In this case, the facts confessed in the plea agreement contradicted the reported claims in the insured’s policy application.  Once the plea agreement was confirmed, Continental moved to rescind the policy and recoup its defense costs.  The court held

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Posted in Bad Faith
Avoiding Insurance Bad Faith
Cozen O’Connor represents insurance clients in jurisdictions throughout the U.S. against statutory and common law first- and third-party extracontractual claims for actual and consequential damages, penalties, punitive and exemplary damages, attorneys’ fees and costs, and coverage payments. Whether bad faith claims are addenda to a broader coverage matter or are central to the complaint, Cozen O’Connor attorneys know how to efficiently respond to extracontractual causes of action. More
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