Insurance Policy Rescission After a Claim is Filed: Bad Faith and Third-Party Claims

Recurring Issues for Insurers, Policyholders, and Innocent Third Parties

Recording of a 90-minute CLE video webinar with Q&A


Conducted on Tuesday, April 20, 2021

Recorded event now available

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Program Materials

This CLE webinar will discuss the challenges and complications for insurers from rescinding an insurance policy and how a policyholder can effectively respond if the insurer attempts to rescind its policy after a covered claim is made. The panel will review addressing rescission for statutorily required coverage, bad faith indicators, and how different courts treat claims made by innocent third parties. The program will review what types of misrepresentations may justify the rescission of insurance policies, the related acts of revival and reinstatement, and bad faith "post-claim" underwriting.

Description

While insurers' counsel view the rescission of an insurance policy as an underutilized tool in handling insurance claims, policyholders' contend rescission is often nothing more than opportunistic, post-claims underwriting that leaves the policyholder and sometimes injured third parties defenseless. The representations of the insurer and its agents at the time of purchasing the coverage may also play a role in whether rescission is proper as well as the policy exclusions.

Rescission is an equitable remedy, but its use and scope are matters of state statutory law. The remedy targets material misstatements in the application or claims presentation process, but applications and other paperwork are often confusing. Attempting to rescind a policy after losses often leads to bad faith and litigation claims with costs that could exceed the claim amount. A valid choice of law provision does not necessarily control applicable "bad faith" law.

Because rescission often requires some level of intentionality, summary judgment is seldom effective for the insurer. Insurers must be careful not to waive the right to rescission and exercise it carefully. Policyholders, however, have significant defenses, including bringing claims or counterclaims for bad faith.

Listen as the panel discusses the increasing use of rescission in all types of policies, including general liability coverage, auto coverage (including fleet and business coverage), and individual policies.

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Outline

  1. Overview of rescission and state law requirements
  2. Procedures and formalities of rescission or cancellation
  3. Grounds for rescission
  4. Bad faith rescission
  5. Strategies for policyholders
  6. Strategies for insurers

Benefits

The panel will review these and other issues:

  • What is the required procedure for seeking rescission?
  • What types of proof can or must an insurer rely on to seek rescission?
  • Is rescission effective as to innocent insureds and third parties?
  • What are the badges of "bad faith" in rescission? Can the insurer waive the right to rescind?
  • What are the insurer's duties upon rescission?

Faculty

Kokalas, Marci
Marci Goldstein Kokalas

Partner
Goldberg Segalla

Ms. Kokalas focuses her practice on complex insurance coverage matters and disputes arising under general liability and...  |  Read More

Monteleone, Joseph
Joseph Monteleone

Partner
Weber Gallagher Simpson Stapleton Fires & Newby

Mr. Monteleone serves as coverage and monitoring counsel for errors and omissions (E&O), directors and officers...  |  Read More

Vespole, Mark
Mark R. Vespole

Partner
Wilson Elser Moskowitz Edelman & Dicker

Mr. Vespole is a trial lawyer who also counsels and represents financial institutions, insurers and corporations and...  |  Read More

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