A New York appeals court has backed an insurer's move to cancel coverage over false statements in a commercial liability application, cutting off defense and payout duties.
On June 24, the Appellate Division, First Department affirmed a lower court’s decision allowing Associated Industries Insurance Company, Inc. to rescind a policy it had issued to Joseph Farahnik, who operated as Joseph Farahnik Consulting Engineer. The court found the policy was never valid to begin with because Farahnik didn’t tell the truth in his insurance application.
Farahnik never responded to the lawsuit, which led to a default judgment. That meant the court treated the insurer’s allegations—that he had made serious misstatements—as fact. Under New York law, that’s enough to wipe out the policy from the start.
The decision didn’t just affect Farahnik. Halpern & Pintel, Inc., a firm named as an additional insured under the policy, was also left without coverage in a separate personal injury case. The court ruled that because the policy was void from the beginning, Halpern & Pintel couldn’t contest the findings about the misstatements or ask the insurer to provide coverage.
The firm tried to argue that Associated had waived its right to cancel the policy by keeping part of the premium. But the court wasn’t persuaded. It said there was no sign the insurer knew about the misstatements while accepting payment. After a claim was filed, things changed, and Associated was within its rights to seek a legal ruling before returning all the money.
This decision underscores how misstatements on insurance applications can ripple out, voiding coverage not only for the policyholder but also for any partners or firms named under the policy.
