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…
