Concealment of Pending Lawsuits in Renewal Application Voids Policy
Applying Ohio law, a federal district court has held that misrepresentations in an application warranty statement regarding three unreported lawsuits filed against the insured during the initial policy period rendered a renewed claims-made and reported policy void ab initio. Certain Underwriters at Lloyds London Subscribing to Policy No. HMPL 18-0164 & HMPL 17-0158 v. KG Admin. Servs., Inc., 2019 WL 6770061 (N.D. Ohio Dec. 12, 2019). The court also held that, because the claims were not reported during the initial policy period, the insurer did not have any coverage obligations under the initial policy.
The insured purchased an errors and omissions policy covering the period from January 2018 to January 2019 and later renewed the policy for the period of January 2019 to January 2020. Three lawsuits were filed against the insured in January, May, and November of 2018. The insured did not report the lawsuits to the insurer during the 2018-2019 policy period, and the insured did not disclose the lawsuits in its renewal application for the 2019-2020 policy. The policyholder reported the lawsuits to the insurer in April 2019. The insurer brought suit seeking rescission of the later policy based on the insured’s failure to disclose the lawsuits in its renewal application and seeking a declaratory judgment that the insurer owed no duty to defend or indemnify under the initial policy.
The court held that the renewal policy was void ab initio as a result of the insured’s failure to disclose the lawsuits in its application. Applying Ohio law, the court explained that the insured’s statement in the renewal application that it had no “knowledge or information of any act, error, omission, fact, circumstance, or contentions of any incident which may give rise to a claim being made against” the insured constituted a warranty because the renewal policy “unambiguously indicated” that material misrepresentations in the application would render the policy void. By accepting the certificate of insurance, the court held, the insured warranted that all information and statements it provided were true and that any material misrepresentations or concealment would render the certificate of insurance void. The court rejected the insured’s argument that the insured did not determine that the lawsuits were claims pursuant to the policy until April 2019, holding that the lawsuits clearly constituted a claim under the policy’s definition, which stated that “a claim includes the service of suit or the institution of an arbitration proceeding against the insured.”
The court also held that the insurer had no duty to defend or indemnify under the initial policy because notice of the lawsuits was not timely given. The policy provided that notice of a claim must be given “as soon as reasonably possible[,]” but no later than “60 days after the Certificate of Insurance expiration.” The court held that, under Ohio law, notice provisions are conditions precedent to coverage in claims-made policies and that the insured’s failure to provide notice of the 2018 lawsuits until April 2019 barred coverage for the claims under the policy in effect when those suits were filed.