Background
Leonila Alarcon purchased a Bay Shore house in 2015. Her insurance broker completed an application for homeowner coverage with Otsego Mutual Fire Insurance Company, representing that the dwelling housed one family. Otsego issued a policy and later renewed it on that basis.
After a pipe broke in 2020, Alarcon submitted a water-damage claim. Otsego’s investigation found three separate apartments, each with its own kitchen, bathroom, living and sleeping space, and outside access. The insurer concluded that the building was a three-family dwelling, disclaimed coverage, and treated the policies as void from the outset.
Alarcon sued for breach of contract. Otsego counterclaimed for a declaration that the policies were void ab initio, meaning legally ineffective from inception. Supreme Court granted summary judgment to the insurer and denied Alarcon’s competing motion.
The Court’s Holding
The Second Department affirmed. An insurer seeking rescission must establish a false representation made in obtaining coverage and show that the fact was material. A misrepresentation is material if the insurer would not have issued the policy had it known the truth.
Otsego met that burden with underwriting evidence, including its applicable guidelines, showing that it did not insure three-family dwellings and would have declined the risk. The physical configuration of three self-contained units also established that the one-family answer was inaccurate.
Alarcon did not create a factual dispute by arguing that the application’s request for the number of families was ambiguous. The panel found the question straightforward. It further reasoned that Alarcon admitted she had not read the application before signing it, so she could not claim that unclear wording caused her answer.
Because the action requested declaratory relief, the panel remitted for entry of a judgment expressly declaring the policies void ab initio. The result eliminated contractual coverage for the water-loss claim rather than merely excluding that particular occurrence.
Key Takeaways
- A signed insurance application can support rescission even when a broker completed it for the insured.
- An insurer proves materiality with concrete underwriting rules showing it would have rejected the accurately described risk.
- Property owners should disclose actual dwelling-unit configuration, not rely on informal labels or avoid reading an application prepared by someone else.
Why It Matters
The opinion matters to owners, brokers, carriers, and real-estate counsel because an occupancy mismatch can jeopardize the entire policy when a loss occurs. Owners converting or subdividing residential space should notify brokers and carriers promptly, and brokers should document the questions asked, the client’s answers, and any uncertainty about legal or actual use.
Coverage litigators should distinguish material underwriting facts from minor inaccuracies. Here, Otsego connected the misstatement directly to a categorical eligibility rule. Policyholders opposing rescission will need evidence challenging the property characterization, the clarity of the question, or the insurer’s actual underwriting practice—not simply an assertion that coverage was expected.