Rescission, as we all know, is one of those last-resort legal remedies that is rarely granted. In the insurance world, it is especially difficult for an insurance company to rescind an insurance policy after it is issued to the policyholder.

Where, however, the policyholder misrepresents the risk or itself or some other critical element that goes to the underwriting decision, the remedy of rescission may be available to the insurance company to avoid any obligation to the policyholder. For example, if in the insurance application the policyholder or its agent misrepresents that the insured building has a working fire sprinkler system, the insurance company may have a good case to rescind the policy.

What happens if the insurance company finds out about the misrepresentation, but continues to accept the policyholder’s premium payments? That was one of the issues addressed in a recent New York appellate case.

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