You Mean You Don't Write Homeowners Policies for Pediatric Offices? But It's In a House, With Lots of Kids...

HOMEOWNERS – POLICY RESCISSION – APPLICATION MISREPRESENTATION – USE OF SIGNED STATEMENT OF INSURED
Tower Ins. Co. v. Rajaram
(Sup. Ct., New York Co., decided 8/19/2008)

Tower issued a homeowners insurance policy to Dr. Madhu Rajaram for a residential private house located at 138 Brighton 11th Street, in Brooklyn, New York for the period January 5, 2006-2007. In her policy application, Dr. Rajaram represented that the house would be "owner occupied" and that it would be for “primary usage.” Here's a street view of the property. Note the green awning with the multi-colored lettering and white sign with the caduceus. Those are called clues.


Erna Karpilovskaya allegedly tripped and fell on the sidewalk outside the insured premises on January 15, 2006. She commenced a personal injury action in Kings County Supreme Court against the City of New York and various persons, including Dr. Rajaram.

Tower received first notice of that occurrence and Ms. Karpilovskaya's claim on November 14, 2006. It sent a representative to investigate, who found Advanced Pediatric Practice, PC, operating on the first and second floors of the building. Tower's representative took a signed statement from Dr. Rajaram, which began:

My name is Dr. Madhu Rajaram. My date of birth is (redacted). My home address is 7 Telegraph Hill Road, Homdel, NJ 07733. My contact telephone number is (redacted). I have been the Property Owner of a residential private house located at 138 Brighton 11th Street, Brooklyn, NY 11235, since January 5, 2006. I have leased the property to the former owner (I will provide their name at a later date) since January 5, 2006 until November 2006. I have never resided at the property since I purchased it on January 5,2006. I visit the premises a few times a month or whenever necessary. I do not believe I visited the premises on January 15, 2006, however ... (redacted).

By letter dated December 13, 2006, Tower disclaimed coverage for various reasons, including Dr. Rajaram's policy application misrepresentations, late notice, and the policy's business pursuits exclusion. Tower then commenced this this action in New York County Supreme Court to “confirm the propriety of its disclaimer” and moved for default judgment against certain defendants and summary judgment against the remaining defendants.

In denying Tower's motion for a default judgment against certain defendants, New York County Supreme Court Justice Eileen Rakower noted that each such defendant had answered after the prescribed time period but before September 16, 2007, the date given in Tower's letter to those defendants, which advised them: "This letter is to inform you that Tower Insurance Company of New York will move for a default judgment against you, if you fail to respond to the Complaint by September 16, 2007."

The court granted Tower's motion for summary judgment, however, adjudging and declaring that the policy was void ab initio and that Tower had no duty to defend or indemnify any party in the related Kings County Supreme Court personal injury action.

Justice Rakower rejected the defendants' argument that Tower's disclaimer was untimely under Insurance Law § 3420(d) because "the issue of a timely disclaimer is irrelevant if the policy, from its inception, never provided coverage for the particular claim at issue." The court then addressed Tower's rescission argument:

In order to establish that a fact is material so as to void ab initio an insurance contract, an insurer must show that it would not have issued the policy had that fact been revealed at the time that the policy was issued. (Interested Underwriters at Lloyd‘s v. H.D.I. III Assoc., 213 AD2d 246 [1st Dept. 1995]). “A court, in finding a material misrepresentation as a matter of law, generally relies upon two categories of evidence, an affidavit from the insurer’s underwriter and the insurer’s underwriting manual.” (Kroski v. Long Island Sav. Bank FSB, 261 AD2d 136 [1st Dept. 1999]). Tower supports its claim that it would not have issued the policy if it had known that Rajaram was not living at the residence by submitting the affidavit of Mr. Blomquist, Supervising Underwriter. Mr. Blomquist affirms that if Rajaram had indicated on her application that she did not intend to occupy the premises it would have presented an unacceptable risk and Tower would not have issued the “homeowner’s policy.” Mr. Blomquist refers to the Tower Group Homeowner’s Selection Rules (“the Rules”) which are annexed to his affidavit. Indeed, those rules state that the insured premises must be “owner occupied.’’

Rajaram represented on the “Homeowner Application” that the building would be "owner occupied” and that it would be for “primary usage.” However, in her statement to Mr. Williams, Rajaram gives her home address as “7 Telegraph Hill Road, Homdel, NJ and she states unequivocally that she “leased the property to the former owner... I have never resided at the property since I purchased it on January 5, 2006.”’ The defendant owners do not contradict the statement made by Ms. Rajaram. Where “the evidence of the materiality of the misrepresentation is clear and substantially uncontradicted, the matter is one of law for the court to determine.” (Interested Underwriters at Lloyd’s v. H.D.I. III Assoc., 213 AD2d 246 [1st Dept. 1995]).

The Rules also state that: “any risks with the following factors may not be written: Any business conducted on the premises . . .” Rajaram indicated on her application that no business was to be conducted on the premises. Contrary to this declaration, Mr. Williams affirms that he "observed a pediatrician’s office being operated from the first and second floors of the premises.”

Tower has shown that it would not have issued a homeowner’s policy had it known that Rajaram would not be residing at the subject premises and that she would be running a business at the location. It is incumbent upon the party opposing summary judgment to come forward with proof in admissible form demonstrating that there exists an issue of fact for the trier of fact to determine. Here, the defendant owners have not contradicted Tower’s showings. Indeed, they submit no evidence controverting Tower’s showing.

The defendants argued that Tower did not support its summary judgment motion with proof in admissible form because Dr. Rajaram's statement, although signed by her, "contain[ed] no jurat, no notary public or commissioner of deeds, and is neither an affidavit nor affirmed under penalties of law.” In rejecting this argument Justice Rakower noted:

While generally, unsworn statements should not be considered in a motion for summary judgment, the statement by Rajaram here is annnexed to an affidavit by Mr. Williams which attests that the statement was taken by him and that Ms. Rajaram read and signed the statement at the bottom of each page to attest to its accuracy. While hearsay, admissions by a party of any fact material to the issue are always competent evidence against that party. (Reed v. McCord, 160 NY 330, 341). Of course, the party-declarant has the right to explain it.

In policy rescission cases, it's not that the insurer would not have insured the risk at all, but that it would not have issued the particular policy on the particular terms it did. This case is a good example of that principle.

So is this how it went?

Dr. Rajaram to Broker/Agent: "I just bought a house in Brooklyn. There will be lots of kids and toys there."

Broker/Agent to Dr. Rajaram: "Okay, fill out this homeowners policy application."