In a recent decision granting summary judgment (Index No. 601904/06, Motion Sequence No. 8), Justice Charles E. Ramos of the Supreme Court of New York, Commercial Division, held that a notice of circumstances (the "Notice") that plaintiff JPMorgan Chase & Co. ("JPMC") had submitted to defendant Twin City Fire Insurance Company ("Twin City") under its earlier insurance program did not contain any misrepresentations entitling Twin City to rescind its insurance policy for the subsequent renewal program. Proskauer Rose LLP represented JPMC.
Background Facts
In late November 2001, in the context of the impending bankruptcy of Enron Corporation, Inc. ("Enron"), JPMC's bankers professional liability insurance program for the 1997-2001 policy period (the "97-01 Program") was about to expire. Concerned about the probability of claims being asserted against JPMC as a result of the services it had provided to Enron, certain insurers that were considering participating in JPMC's renewal insurance program for the 2001-2002 policy period (the "01-02 Program") insisted that potential Enron claims be noticed to the expiring 97-01 Program as a condition of their binding coverage on the subsequent program. Accordingly, on November 29, 2001, JPMC transmitted the Notice to the claims departments of each of the insurers in the 97-01 Program (including Twin City). The Notice first reiterated the disclosures that JPMC had made in a November 28 Press Release concerning the amount of its credit exposure to Enron (the "Press Release"), then set forth the acts that JPMC believed could lead to claims and the types of claims JPMC expected would be made. JPMC also disclaimed liability in the Notice, stating that it would contest the validity of any claims and had "no actual knowledge" that any wrongful conduct, i.e., actual breaches of duty, had occurred.
JPMC subsequently sued Twin City under the renewal 01-02 Program for settlements it paid arising out of the implosion of WorldCom, Inc. In response, Twin City claimed that it was entitled to rescind the renewal policy on the grounds that JPMC intentionally misrepresented or concealed facts in the Notice and the Press Release concerning its prior dealings with Enron that allegedly would have caused Twin City to decline to bind coverage for future unrelated claims.
The Opinion
The court dismissed Twin City's counterclaims for rescission in their entirety. The court commented that the Notice and Press Release were not a part of the renewal proposal packet that JPMC had submitted to its insurers in lieu of an insurance renewal application, and that Twin City did not even allege that it requested JPMC to warrant the factual accuracy of the statements in the Notice or to make any other representations or warranties concerning Enron. Moreover, because Twin City's underwriters testified at their depositions that they did not recall actually reading the Notice prior to binding coverage for the 01-02 Program, the court held that Twin City "failed to raise a triable issue of fact that its underwriters actually relied upon any of the statements contained in the Notice, the Press Release, or JPMC's broker." (Decision at 10.) The court further held that "Twin City fails to demonstrate that JPMC deliberately made misrepresentations or concealed information concerning its secured exposure with Enron in the Notice or elsewhere." (Decision at 11.) Not only was JPMC's denial of wrongdoing in the Notice merely a disclaimer of liability, but all the JPMC employees responsible for furnishing the information for inclusion in the Notice, or for drafting and reviewing the Notice, had been deposed, and none was aware of any actual wrongdoing by JPMC in connection with Enron.
In any event, the court held that Twin City waived its right to seek rescission of the 01-02 Program because it retained premiums well after it had knowledge of the alleged misrepresentations upon which it claims to have relied when it agreed to bind coverage. As the court held: "Due to an insured's compelling need to know whether it is covered under a policy, an insurer may be estopped from asserting its right to rescission if it unreasonably delays notification . . . or continues to accept or retain premiums." (Decision at 16 (citations omitted).)
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