Applying Arizona law, a federal district court has held that an insurance brokerage firm’s failure to disclose past investigations by the Department of Insurance in response to a specific question on its professional liability insurance application warranted rescission of its policy. Admiral Ins. Co. v. AZ Air Time, LLC, No. CV-15-00245-PHX-SRB (D. Ariz. Aug. 10, 2016).

In the underlying case, an insurance brokerage firm was sued for defrauding its client while acting as its broker for a professional liability policy. In order to obtain its professional liability insurance coverage, the brokerage firm had completed an application that specifically asked whether any past or present agency personnel had been the subject of complaints filed, investigations, and/or disciplinary action by any insurance or other regulatory authority in the past five years. The brokerage firm answered no, although its personnel had been involved in multiple investigations by the Department of Insurance.

The insurer sought a declaration that there is no coverage under the policy and an order voiding and rescinding the policy. The court held that rescission of the policy was warranted because the brokerage firm’s failure to disclose the Department of Insurance investigations was legally fraudulent, involved facts material to the insurer’s risk, and resulted in the insurer issuing a policy it would not otherwise have issued.