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May 2017 Bad Faith Cases: Material Misrepresentations In Application Make Policy Void AB Initio Even If Not Made in Bad Faith (Philadelphia Commerce Court)

In this Commerce Court case involving a declaratory judgment action concerning coverage for the horrific 2013 wall collapse on the Salvation Army store in Philadelphia, the court found the policy void ab initio “[b]ecause the misrepresentations in this case are palpably and manifestly material to the insurance company’s decision to take on a risk.” This action concerned the policy issued to the contractor involved in the collapse.

The court found that the contractor made palpably and manifestly material misrepresentations in its application, allowing for rescission. Specifically, the court found that the contractor “misrepresented that he had documented the condition of nearby structures before undertaking the demolition work, and he knew his statement was a lie. He similarly lied when claiming he had a safety program in place. He lied when he told insurance companies that he had a risk manager or safety director assess the demolition job on Market Street. And he lied when he said he was not using a subcontractor when in fact” he was. These falsehoods were material “since each one, ‘if given, would have influenced the judgment of … [the insurer] in issuing the policy, in estimating the degree and character of the risk, or in fixing a premium rate.’” Moreover, “a showing of bad faith is unnecessary where the misrepresentations contained in an insurance application were palpably and manifestly material to the risk assumed by the insurer.”

Date of Decision: April 18, 2017

Berkley Assurance Co. v. Campbell, Aug. Term 2013, No. 129, 2017 Phila. Ct. Com. Pl. LEXIS 110 (Phila. C.C.P. April 18, 2017) (Djerrasi, J.) (Commerce Program)