Employment Practice Liability (EPL) Insurance
3/23/2009 11:19:17 PM EST
McCarter & English, LLP on Admiral Ins. Co. v. Debber: Ninth Circuit Affirms Rescission of EPLI Policy Based on Misrepresentations in Policy Application
attorneys, McCarter & English, LLP
The Ninth Circuit Court of Appeals recently affirmed in an unpublished decision a district court’s holding that an insurer was entitled to rescind consecutive Employment Practices Liability Insurance (EPLI) policies where it was determined that the insured misrepresented its claims history in the policy application. In this commentary, Brian Osias and Mark Villanueva of McCarter & English, LLP examine the decision of the Ninth Circuit in Admiral Ins. Co. v. Debber, 2008 U.S. App. LEXIS 20898 (9th Cir. Cal. Sept. 26, 2008).
The commentary examines in detail the factual background in Admiral Ins. Co. v. Debber, beginning with the completion of the original application by officers of the insured. In that application, the officers of the insured stated that the insured had not been subject to any relevant claims for the immediately preceding five years. The commentary then outlines a subsequent sexual harassment lawsuit that was filed against the insured, and explains the insurer’s action to rescind the policy on the basis that the insured had failed to disclose pervious claims against it.
The district court held that “[t]o allow an insured to conceal two sexual harassment and retaliation lawsuits clearly filed within five years of the original application and then claim upon renewal of the policy that those suits are outside the five year period is, understandably, unsupported in law.” The district court noted that “even an unintentional non-disclosure is sufficient to support rescission of an insurance contract, if the non-disclosed information was material to the contract.” The Ninth Circuit Court of Appeals affirmed the district court’s ruling and held that the insurer was entitled to rescind the EPLI Policies ab initio. The Ninth Circuit recognized that “[u]nder California law, ‘a material misrepresentation or concealment in an insurance application, whether intentional or unintentional, entitles the insurer to rescind the insurance policy ab initio.’”
The commentary explains the purpose of EPLI and how insurers evaluate applications for such insurance. The commentary states that “If an EPLI policy is issued based on an application that fails to disclose material information, the insurer may attempt to rescind the policy, regardless of whether the omission in the application was intentional.” The commentary then advises that “Insureds may therefore wish to take an expansive and/or over-inclusive view in determining what information to disclose in connection with completing their EPLI applications to avoid rescission of their policies.”
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