Rescission action requires reasonable promptness by insurer
September 4th, 2011
In The Charter Oak Fire Ins. Co. v. American Capital, Ltd., No. DKC 09-0100 (Aug. 9, 2011), the Court considered the issue of whether an insurer acted with reasonable promptness to rescind an insurance policy after learning of misrepresentations in the application for insurance. The district court denied the insured's motion to dismiss, finding that the facts alleged in the amended complaint that the element of reasonable promptness was adequately plead in the complaint.
In reaching that conclusion, the district court reviewed key points concerning an action for rescission of an insurance policy.
Because rescission is a "radical remedy", courts have long recognized that a party requesting it must move quickly. Courts have deemed the promptness requirement so important that they place the onus on the plaintiff insurer to show it.
The relevant trigger for rescission is when a plaintiff learns of "the facts that would justify rescission", not merely "facts that raise the mere potentiality for rescission." Also, when an insurer suspects that its policyholder may have made misrepresentations, it is entitled to a "reasonable time" within which to investigate the matter before it must rescind.
Even assuming that the insurer has not sought rescission with reasonable promptness, the policyholder would need to show actual prejudice because of the delay. Prejudice cannot be presumed from the mere fact of the delay. See North American Specialty Ins. Co. v. Savage, 977 F.Supp. 725 (D. Md. 1997).
In reaching that conclusion, the district court reviewed key points concerning an action for rescission of an insurance policy.
Because rescission is a "radical remedy", courts have long recognized that a party requesting it must move quickly. Courts have deemed the promptness requirement so important that they place the onus on the plaintiff insurer to show it.
The relevant trigger for rescission is when a plaintiff learns of "the facts that would justify rescission", not merely "facts that raise the mere potentiality for rescission." Also, when an insurer suspects that its policyholder may have made misrepresentations, it is entitled to a "reasonable time" within which to investigate the matter before it must rescind.
Even assuming that the insurer has not sought rescission with reasonable promptness, the policyholder would need to show actual prejudice because of the delay. Prejudice cannot be presumed from the mere fact of the delay. See North American Specialty Ins. Co. v. Savage, 977 F.Supp. 725 (D. Md. 1997).
