The Eleventh Circuit has affirmed a District Court Order granting Met Life summary judgment, rescinding a life insurance policy based upon misrepresentations in the policy application. The decision was based upon a Florida statute, which provides for rescission in either of two circumstances: (1) the insurer can show that the prospective insured made misrepresentations in the application that were material either to the acceptance of the risk or to the hazard assumed by the insurer; or (2) the insurer would not have issued the policy (or would have issued it on different terms) had it known the true facts. The insured contended that any misrepresentations could not, as a matter of law, have been material to the acceptance of the risk because Met Life had completely reinsured the liability. The Court found that it did not have to reach this contention since the evidence supported rescission under the second prong of the statutory test. Miguel v. Metropolitan Life Insur. Co., Case No. 06-11491 (11th Cir. Oct. 18, 2006). This creative argument deserves an “A” for effort.
Reinsurance Avoidance
UK Court affirms avoidance of insurance based upon nondisclosure of fraud allegations
The UK Court of Appeal has upheld the avoidance of insurance on a vessel based upon the failure to disclose, during the placement of the insurance, that third parties had made allegations of fraudulent conduct by the prospective insured. North Star Shipping Ltd. v. Sphere Drake Insurance, [2006] EWCA Civ 378 (April 7, 2006). Even though the allegations turned out to be lacking in merit, the Court found that they would have been material to an underwriter considering the placement of the insurance.
UK Court of Appeals speaks on the materiality standard for contract avoidance
In North Star Shipping Ltd v Sphere Drake Insurance Plc, [2006] EWCA Civ 378 (April 7, 2006), the UK Court of Appeals stated that when a party seeks to avoid insurance on the basis of the non-disclosure of a “material circumstance,” a material circumstance “is one that would have an effect on the mind of a prudent insurer in estimating the risk and it is not necessary that it should have a decisive effect on his acceptance of the risk or the amount of premium to be paid.” Id., paragraph 18.
UK – Duty to disclose, misrepresentation and avoidance of reinsurance
The London Personal Accident Reinsurance market experienced underwriting difficulties and spirals in the latter half of the 1990s. In an extensive opinion, a UK Commercial Court judge found that problems in this market were caused largely by undisclosed gross loss making underwriting, in which the reinsurance brokers had a prominent role. Sphere Drake Insurance Limited v. Euro International Underwriting Limited, Stirling Cooke Brown Reinsurance Brokers Limited, et al., 2003 EWHC 1636 (High Court of Justice, Queens Bench Division Commercial Court July 8, 2003).
UK – Duty of disclosure and avoidance of reinsurance
Appeal of decision with respect to attempted avoidance of reinsurance, with an extensive discussion of the duties of disclosure and the underwriting process. Court of Appeals held that a reinsured under an excess of loss reinsurance agreement did not owe its reinsurers an implied duty of care to underwrite ceded risks in a prudent manner. Available at Bonner & Ors v. Cox & Ors, 2005 EWCA Civ 1512 (Court of Appeal Civil Division December 8, 2005).