Failure to Disclose Untimely Filings on Application Voids Lawyer's Policy

The United States District Court for the District of New Jersey, applying New Jersey law, has held that an insured attorney’s failure to disclose on an insurance application an appeal filed late and a lawsuit filed outside of the statute of limitations constitutes a material misrepresentation warranting a default judgment voiding the policy.  Liberty Ins. Underwriters, Inc. v. Wolfe, 2017 WL 481468 (D.N.J. Feb. 3, 2017)

The insurer issued a Lawyers Professional Responsibility Liability Insurance Policy to the insured, an attorney.  The policy application asked whether the applicant had knowledge of any circumstance, act, error or omission that could result in a professional liability claim under the policy, to which the insured answered “no.”  The insured subsequently sought coverage for two legal malpractice lawsuits under the policy.  In one of the underlying lawsuits, the insured had filed an appeal 60 days late and in the other underlying lawsuit, the insured filed the suit outside of the statute of limitations.   After requesting additional information from the insured for both lawsuits and defending one of the lawsuits under a reservation of rights, the insurer filed a complaint for declaratory relief and damages, alleging that the insured had made material mispresentations in his initial policy and renewal applications, rendering the policy void ab initio.  The insured failed to respond to the complaint.  The insurer subsequently moved for a default judgment.

The court granted the insurer’s motion for default judgment, holding that the insured had made material misrepresentations in the insurance application by failing to disclose the basis for the two malpractice claims against the insured―facts known to the insured at the time of the policy application―and the insurer could therefore rescind the policy.  The court stated that at the time the insured had filled out the insurance application, the insured “was specifically admonished by the [trial court]” for filing a notice of appeal 60 days late, filed a lawsuit outside of the statute of limitations, and failed to object or oppose a motion for summary judgment, yet none of those facts were disclosed in the policy application.  The court concluded that “[n]ot only has [the insurer] established a basis for relief, [the insurer] will also suffer prejudice if default is denied because it will continue to be bound by the contract the [insured] procured through fraud.”