Insurance Coverage/Rescission

Insurance Coverage/Rescission

Our client was a trustee who assumed responsibility for an insurance brokerage due to allegations that the brokerage was being operated fraudulently (i.e. – embezzlement of funds). A claim was subsequently made against the brokerage for failure to obtain insurance coverage for a client, prior to the time the trustee assumed control, potentially as a result of the prior owners taking the funds instead of using them to purchase the requested policy. We tendered the claim to the professional liability insurer for the insurance brokerage, which asserted the right to rescind the policy based on the alleged fraudulent conduct of the prior owners. We asserted that the policy language prohibited rescission. The insurer brought a Motion for Summary Judgment and provided declarations in support from witnesses who had not yet been deposed. Pursuant to a local rule (which I haven’t seen anyone else ever use) we requested that the Court either order the witnesses to appear for live cross-examination or appear for deposition on 3 days notice. The Court ordered the depositions and the case was settled, favorably for our client, the next day.