United States Life Ins. Co. in the City of New York v Blumenfeld
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on February 14, 2012
Gonzalez, P.J., Moskowitz, Acosta, Richter, JJ.
Order, Supreme Court, New York County (Milton A. Tingling, J.), entered March 29, 2011, which, in a declaratory judgment action seeking rescission of a life insurance policy, denied defendants' motion for summary judgment dismissing the amended complaint, unanimously reversed, on the law, without costs, and the motion granted, and it is declared that the life insurance policy is valid.
On April 25, 2006, plaintiff insurer issued a life insurance policy with a $5,000,000 death benefit, requiring quarterly premiums of $70,658.25. Defendant Rebeka Blumenfeld was the insured, and the beneficiary/policy owner was defendant the Blumenfeld Family Irrevocable Life Insurance Trust (the Trust). The policy included a two-year contestability clause, pursuant to New York Insurance Law § 3203(a)(3).
Defendant insured, who was retired and in her late 70s, represented in her January 2006 life insurance application to plaintiff that she had a net worth of $35-40 million and household income of $400,000-500,000 and that she was a beneficiary of two multi-million dollar life insurance policies. The application gave her address as an apartment in Williamsburg, Brooklyn. The Trust's address was given as 2 West 47th Street in Manhattan.
By letter dated April 22, 2008, plaintiff notified the Trust of its intent to rescind the policy because of material misrepresentations concerning the insured's financial status at the time of her signing the life insurance application. Plaintiff noted an ongoing fraud investigation. The letter cited a March 2007 investigative report that had revealed the insured owned no real estate and that she rented an apartment in a neighborhood in Brooklyn that had a median household income of $29,625. The letter further noted that plaintiff would refund any applicable premiums and that it would file a declaratory judgment action to rescind the policy unless it received additional information from the insured or a signed copy of the rescission agreement enclosed with the letter.
It is undisputed that after the insurer received the March 2007 investigative report, plaintiff retained and processed premium payments in April and May 2007, in the respective amounts of $43,452.50 and $130,387.50.
An investigative report from February 2008 identified the insured's residence as 2 West 47th Street, the same address the insured gave as the Trust's address in the policy application in January 2006.
Plaintiff commenced this action against the insured and the beneficiary/policy owner, on April 23, 2008, two days before the end of the policy's two year contestability provision. The insurer sought a declaratory judgment rescinding the policy based upon alleged misrepresentations in the insured's application. Plaintiff amended the complaint in September 2009.
Thereafter, by letter dated September 25, 2008, plaintiff notified the Trust that the policy was in its grace period and would terminate without value unless plaintiff received an additional premium in the amount of $81,262.73 prior to November 25, 2008. The Trust timely paid this premium.
In June 2010, defendants moved for summary judgment dismissing the amended complaint, arguing that plaintiff had ratified the policy and waived its right to rescind by failing to promptly seek rescission upon learning, as early as March 2007, of the insured's alleged misrepresentations (see S.E.C. v Credit Bancorp, Ltd., 147 F Supp 2d 238, 256-57 [SD NY 2001]). Defendants further argued that plaintiff was estopped from rescinding the policy because it had retained premiums after learning of the insured's alleged misrepresentations (see Continental Ins. Co. v Helmsley Enters., 211 AD2d 589 ).
In opposition to defendants' motion, plaintiff argued that it did not waive its right to rescind because its retention of premiums was inadvertent. Plaintiff claimed that its computer system was not designed to reject premiums. Moreover, rejecting premiums could be potentially detrimental to the policy holder in the event the court rejected the insurer's request for a declaration of rescission. Plaintiff further argued that it could not have waived its right to rescind because it lacked the ...