Continental Casualty Company v. Boughton
695 F. App'x 596
2d Cir.2017Background
- Continental Casualty Company (Continental) issued a claims-made policy to Marshall Granger & Company, LLP; Continental later sought rescission alleging material misrepresentations in the application.
- Marshall Granger’s owner Joseph Boughton and Northstar intervened defending the policy and asserting rescission was barred by either ratification or Continental’s unreasonable delay.
- District court granted summary judgment for Continental on the ratification defense and submitted the delay (waiver) issue to a jury.
- A jury found Continental did not unreasonably delay in bringing its rescission action; district court entered judgment rescinding the policy.
- Intervenors appealed, arguing (1) several acts by Continental amounted to ratification and (2) erroneous jury instructions and burden allocation on the delay/waiver issue.
Issues
| Issue | Plaintiff's Argument (Continental) | Defendant's Argument (Boughton / Northstar) | Held |
|---|---|---|---|
| Whether insurer’s acts constituted ratification of the policy | Continental: its acts were required by law or were ministerial and therefore not affirming | Intervenors: specific acts (coverage-denial letter, name/address amendment, defense-cost payment, offer of extended reporting period, non-renewal notice) ratified the policy | No ratification; district court summary judgment for Continental affirmed |
| Whether payment of defense costs before seeking rescission ratified the policy | Continental: payment was legally compelled and required to continue until rescission adjudicated | Intervenors: paying defense costs prior to filing rescission manifests affirmation | Payment did not ratify because New York law required continuing defense payments until rescission adjudicated |
| Whether offering extended reporting period or amending insured name/address ratified the policy | Continental: these acts were ministerial or legally required | Intervenors: such acts show affirmation of coverage | No; ministerial changes and statutorily required offer of reporting period do not ratify |
| Whether Continental unreasonably delayed in filing for rescission and whether jury instructions/burden allocation were erroneous | Continental: it acted promptly once it had a reasonable factual basis; jury instruction was proper | Intervenors: district court misdescribed when duty to act arises and shifted burden to Intervenors | Instructions were not reversible error; any burden-allocation error would be harmless given trial evidence and quick jury verdict; jury finding for Continental affirmed |
Key Cases Cited
- Agristor Leasing-II v. Pangburn, 557 N.Y.S.2d 183 (4th Dep’t 1990) (insurer cannot rescind after affirming act once aware of fraud)
- Brennan v. Nat’l Equitable Inv. Co., 247 N.Y. 486 (1928) (early New York authority on rescission and affirmation)
- Urbont v. Sony Music Entm’t, 831 F.3d 80 (2d Cir. 2016) (standard of de novo review for summary judgment)
- Fed. Ins. Co. v. Kozlowski, 792 N.Y.S.2d 397 (1st Dep’t 2005) (insurer must continue to fulfill defense obligations until rescission adjudicated)
- Stein v. Sec. Mut. Ins. Co., 832 N.Y.S.2d 679 (3d Dep’t 2007) (cancellation with a future effective date can indicate continued present coverage)
- In re WorldCom, Inc. Sec. Litig., 354 F. Supp. 2d 455 (S.D.N.Y. 2005) (duty to pay defense costs remains until rescission resolved)