The insurer was unsuccessful in seeking rescission or reformation of an umbrella policy. Great Am. Ins. Co. v. Zelik, 2020 U.S. District. LEXIS 5229 (S.D. N. Y. Jan. 6, 2020).
Kim Hodges tripped and fell in front of vacant lot owned by Joseph Zelik, a real estate investor. Zelik tendered to Great American under the umbrella policy he had covering the lot. Zelik obtained the policy through Secure Insure, an insurance broker.
As part of the application process for the umbrella policy, Zelik sent Secure a spreadsheet of twenty-seven properties Zelik wanted insured under the policy,. The spreadsheet included descriptions of the properties as well as the underlying carrier and policy number per location. Secure provided Great American with the same spreadsheet. The spreadsheet indicated that the underlying carrier for a number of the properties was Allstate. All properties for which the underlying insurance policy was listed as "Allstate" had an underlying homeowner's policy.
The application, which was signed by Secure on Zelik's behalf, stated that underlying insurance for each property was a CGL policy with a limit of no less than $1 million per occurrence. Neither Zelik nor Secure altered the Allstate homeowner's insurance underlying some of the properties before binding the umbrella policy.
Great American offered $5 million of commercial coverage under the umbrella policy, The policy covered all properties listed in the spreadsheet, including those covered under the Allstate homeowner's policy.
One of the properties listed as covered in the umbrella policy was a vacant lot at 467 Bushwick Avenue, where Hodges tripped and fell. Allstate provided Zelik with a defense in the suit filed by Hodges. Allstate notified Great American of the suit. Allstate tendered the one million dollar limit of its primary policy to contribute to the Hodges' lawsuit for the settlement demand in excess of the Allstate limit. Allstate advised Great American of the tender.
When Great American investigated, it learned that the underlying policy for 467 Bushwick Avenue was a homeowner's policy. Great American advised Zelik that based on material misrepresentations made in the application for the umbrella policy, Great American would seek to rescind the policy. Great American then filed suit against Zelik. Zelik filed a counter-claim and a third-party complaint against Secure.
Great American moved for summary judgment seeking to rescind or reform the policy. The court determined that the evidence on whether there was a misrepresentation was not clear and substantially uncontradicted on the question of materiality, so it remained a question for the jury. Provisions in the policy suggested that the nature of the underlying insurance was immaterial to Great American's decision to issue the policy. The policy stated that if the insured failed to maintain compliant underlying coverage, Great American would only be liable to the same extent that it would have been had the insured fully complied with the policy requirements.
Great American also asked that the policy be reformed to remove the properties that were not properly insured by CGL coverage. While Great American showed that it entered the policy under the mistaken belief that all the properties had underlying CGL policies, it did not show that this mistake was mutual. Nor did Great American show that Secure, Zelik's agent, believed that the six properties were covered by CGL policies. Therefore, Great American's motion for summary judgment was denied,.
Secure's motion for summary judgment against Zelik also failed. Zelik adduced evidence that it asked Secure to obtain umbrella coverage for all of his properties, including 467 Bushwich Avenue. If Great American succeeded on any of its claims that the umbrella policy did not cover the Hodges incident, Secure would have failed to do just that. Therefore, Secure's motion for summary judgment in the negligence and malpractice claim failed.