ALARCON v. OTSEGO MUTUAL FIRE INSURANCE COMPANY (2026)

DECISION & ORDER

In an action to recover damages for breach of contract, the plaintiff appeals from an order of the Supreme Court, Suffolk County (Deanna D. Panico, J.), dated January 21, 2025.  The order granted the defendant's motion for summary judgment dismissing the complaint and on its counterclaim for a judgment declaring that the subject insurance policies were void ab initio and denied the plaintiff's motion for summary judgment on the complaint and dismissing the defendant's affirmative defenses and counterclaim.

ORDERED that the order is affirmed, with costs, and the matter is remitted to the Supreme Court, Suffolk County, for the entry of a judgment, inter alia, declaring that the subject insurance polices are void ab initio.

In July 2015, the plaintiff purchased a house in Bay Shore.  The plaintiff's broker filled out an application for the plaintiff for homeowners' insurance with the defendant Otsego Mutual Fire Insurance Company.  In the application, the plaintiff's broker represented, among other things, that the number of families in the dwelling was one.  Based on that information, the defendant issued a homeowners' insurance policy with the plaintiff as the named insured.  The homeowners' insurance policy was thereafter renewed.

In or about January 2020, the plaintiff made a claim under the homeowners' insurance policy for water damage sustained when a pipe broke.  In investigating the claim, the defendant purportedly discovered that the house had three separate apartment units, each with its own kitchen, bathroom, space for living and sleeping, and access to the outside without having to pass through any other apartment.  As a result, the defendant concluded that the house was a three-family dwelling.  The defendant informed the plaintiff that it was disclaiming coverage and voiding the policy because, inter alia, the plaintiff had made a material misrepresentation of fact by stating on her insurance application that the house was a one-family dwelling.

In or about May 2021, the plaintiff commenced this action against the defendant alleging breach of contract.  Based, among other things, on the material misrepresentation that the plaintiff allegedly made on her insurance application that the house was a one-family dwelling, the defendant asserted a counterclaim for a judgment declaring that the insurance policies were void ab initio.

The defendant moved for summary judgment dismissing the complaint and on its counterclaim for a judgment declaring that the insurance policies were void ab initio.  The plaintiff moved for summary judgment on the complaint and dismissing the defendant's affirmative defenses and counterclaim.  The Supreme Court granted the defendant's motion and denied the plaintiff's motion.  The plaintiff appeals.

“To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy” (Piller v. Otsego Mut. Fire Ins. Co., 164 AD3d 534, 535 [internal quotation marks omitted];  see Interboro Ins. Co. v. Fatmir, 89 AD3d 993, 993–994;  Novick v. Middlesex Mut. Assur.  Co., 84 AD3d 1330, 1330;  Varshavskaya v. Metropolitan Life Ins. Co., 68 AD3d 855, 856).  “A representation is a statement as to past or present fact, made to the insurer by, or by the authority of, the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof” (Insurance Law § 3105[a];  see Morales v. Castlepoint Ins. Co., 125 AD3d 947, 948).  “A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented” (Interboro Ins. Co. v. Fatmir, 89 AD3d at 994;  see Insurance Law § 3105[b][1];  Novick v. Middlesex Mut. Assur.  Co., 84 AD3d at 1330;  Varshavskaya v. Metropolitan Life Ins. Co., 68 AD3d at 856).  “To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application” (Morales v. Castlepoint Ins. Co., 125 AD3d at 948 [internal quotation marks omitted];  see Joseph v. Interboro Ins. Co., 144 AD3d 1105, 1106;  Interboro Ins. Co. v. Fatmir, 89 AD3d at 994;  Schirmer v. Penkert, 41 AD3d 688, 690–691).

Here, the plaintiff's own testimony, along with photographs and floor plans, established, prima facie, that the house was structurally configured as a three-family dwelling, and thus, the statement on the plaintiff's insurance application indicating that it was a one-family dwelling was a misrepresentation (see Estate of Gen Yee Chu v. Otsego Mut. Fire Ins. Co., 148 AD3d 677, 678;  Almonte v. CastlePoint Ins. Co., 140 AD3d 658, 659;  Castlepoint Ins. Co. v. Jaipersaud, 127 AD3d 401, 401;  Lema v. Tower Ins. Co. of N.Y., 119 AD3d 657, 658;  Dauria v. CastlePoint Ins. Co., 104 AD3d 406).  Contrary to the plaintiff's contention, “the number of families is determined by actual use, even if in violation of the certificate of occupancy” (Castlepoint Ins. Co. v. Jaipersaud, 127 AD3d at 401).  Further, the defendant established, prima facie, that the plaintiff's misrepresentation was material by submitting, inter alia, an affidavit from its Director of Underwriting, along with its 2015 Downstate Underwriting Guidelines, which established that the defendant did not insure three-family dwellings and would not have issued the policies if the plaintiff had disclosed that the house contained three dwelling units (see Nabatov v. Union Mut. Fire Ins. Co., 203 AD3d 1052;  2900 Stillwell Ave., LLC v. U.S. Underwriters Ins. Co., 172 AD3d 1143, 1144;  Estate of Gen Yee Chu v. Otsego Mut. Fire Ins. Co., 148 AD3d at 678–679).

In opposition, the plaintiff failed to raise a triable issue of fact.  “An insurer is held to a strict standard when it is endeavoring to avoid payment on its insurance contract because of answers to inquiries or declarations which it has framed” (Fanger v Manhattan Life Ins. Co. of N.Y., N.Y., 273 A.D.2d 438, 439).  “ ‘An answer to an ambiguous question on an application for insurance cannot be the basis of a claim of misrepresentation by the insurance company against its insured where ․ a reasonable person in the insured's position could rationally have interpreted the question as [the insured] did’ ” (Dam Props.  Holding Corp. v. Union Mut. Fire Ins. Co., 210 AD3d 635, 636, quoting Garcia v American Gen. Life Ins. Co. of N.Y., 264 A.D.2d 808, 809;  accord Fanger v Manhattan Life Ins. Co. of N.Y., N.Y., 273 A.D.2d at 439).  “This rule is in keeping with the general principle that an ambiguous contract term should be construed against the drafter” (Garcia v American Gen. Life Ins. Co. of N.Y., 264 A.D.2d at 809;  see Security Mut. Ins. Co. v. Perkin, 86 AD3d 702, 703).

Here, the question on the application asking for the “# FAMILIES” was not ambiguous (see Almonte v. CastlePoint Ins. Co., 140 AD3d at 659;  Dauria v. CastlePoint Ins. Co., 104 AD3d 406;  Hermitage Ins. Co. v. LaFleur, 100 AD3d 426).  In any event, as the plaintiff admitted that she did not read the application before she signed it, she could not have been misled by any unclear language (see Joseph v. Interboro Ins. Co., 144 AD3d at 1107;  Bleecker St. Health & Beauty Aids, Inc. v Granite State Ins. Co., 38 AD3d 231, 232).

Accordingly, the Supreme Court properly granted the defendant's motion for summary judgment dismissing the complaint and on its counterclaim for a judgment declaring that the insurance policies were void ab initio.  For the same reasons, the court properly denied the plaintiff's motion for summary judgment on the complaint and dismissing the defendant's affirmative defenses and counterclaim.

Since this is, in part, a declaratory judgment action, the matter must be remitted to the Supreme Court, Suffolk County, for the entry of a judgment declaring that the subject insurance polices were void ab initio.

BARROS, J.P., CHAMBERS, TAYLOR and GOLDBERG VELAZQUEZ, JJ., concur.