Company’s Misrepresentations Warrant Policy Rescission Under Florida Law

A Florida federal district court has held that an insurer is entitled to rescind a directors and officers (D&O) policy it issued to its insured due to the insured’s misrepresentation of material facts on its application for insurance relating to the insured’s failure to disclose demands it received before submitting the application. Certain Underwriters at Lloyd’s, London v. Anchor Ins. Holdings, 2022 WL 17776547 (M.D. Fla. Dec. 19, 2022).

In October 2018, the insured company applied for a D&O policy. In its application, the company answered “no” to questions about whether there were any “pending claims” against the company, its directors, officers, or employees, and whether they knew of “any act, error or omission” that could give rise to a claim or lawsuit. About two months after the policy took effect, the company reported a claim to its insurer concerning an investment in the company that was allegedly procured through fraud. During the insurer’s investigation of the claim, it discovered that the insured knew about a series of earlier demands concerning the investment before it submitted its application. The insurer then filed a declaratory judgment action, seeking a ruling that it owed no duty to defend or indemnify the insured, and that it could rescind the policy based on the company’s misrepresentations.

The court held that the two conditions for rescission under Florida law were satisfied – i.e., that the misstatement or omission was material to the acceptance of the risk assumed by the insurer, and that the insurer in good faith would not have issued the policy had it known the truth. The court stressed that the record clearly demonstrated that the company “had actual knowledge of the potential claims against it” prior to the date it submitted its application. In so holding, the court noted that because the insurer “was deprived of the opportunity to meaningfully underwrite the exposures it was being asked to accept, the policy is due to be rescinded,” and the insurer was entitled to full reimbursement of defense costs less the premium paid.