TLS&S Partners Stephen D. Straus and Eric D. Suben Successfully Obtain Jury Verdict Granting Policy Rescission in Favor of Insurance Company
December 05, 2011

At issue in Landmark American Insurance Company v. S&S Pub, Inc. dba: Dublin Pub, was an application for liquor liability insurance submitted by the Insured, S&S, to TLS&S's client, Landmark. Question 43 in the application asked, "Have you received any citations for liquor law violations within the past five (5) years." The answer "No" was checked next to this question. While investigating a dram shop claim under the policy, Landmark learned that S&S actually had five citations and three violations in the five years before the application was signed and submitted to the insurer. Landmark informed S&S it was rescinding the policy and returned the premium, which was rejected by the Insured. Landmark then filed suit in United States District Court for the Eastern District of New York seeking a verdict enforcing the rescission.

At trial, S&S tried to show that the misrepresentation of its history of liquor law citations and violations was not "material." The Insured sought to distinguish the application question from the applicable underwriting guidelines. The guidelines provide that an applicant with more than two liquor law "violations" in the past five years is a prohibited risk, whereas the application asked only about "citations." On direct examination by Mr. Straus, the underwriting manager and managing general agent for the insurer respectively testified that if Question 43 had been answered truthfully an investigation would have ensued and the violations would have been discovered. The policy then would not have been issued because it was a prohibited risk under the guidelines.

S&S also presented evidence that it had appealed certain of the penalties it received, in an attempt to show that these did not constitute "violations" at the time of the application. However, on cross-examination by Mr. Straus, S&S' president admitted the citations and violations existed at the time the application was signed and that the violations were upheld such that three violations existed when the policy was issued.

S&S's president also testified that he did not sign the application and had never before seen the form on which it was printed. He conceded when confronted with proof of citations and violations that the answer to Question 43 was not truthful. On cross-examination, Mr. Straus confronted the witness with the prior year's application, which he admitted signing. That application was printed on the same form as the application for the policy at issue and contained the same untruthful response to Question 43.

The Insured also attempted to cast blame for the misrepresentation elsewhere by claiming that the broker must have signed the Insured's president's name to the application, a contention the broker denied on the stand. Moreover, the Insured admitted that the broker was its agent and was authorized to submit applications for coverage on behalf of the Insured.

In an effort to establish that Landmark had waived its right to rescind the policy, S&S attempted to show that Landmark had prior knowledge of liquor law violations yet waited nearly three years to rescind. Specifically, there was evidence that during a premium audit of the prior year's policy, the auditor obtained information from the Insured's accountant that S&S had been shut down for underage drinking. Landmark requested further information, and S&S denied any such closure in writing. The managing general agent testified that this resolved the issue. Landmark did not learn of the actual citations and violations until it researched the Insured's background in connection with defending the dram shop action.

The trial lasted one week and the case was submitted to the jury at the conclusion of Mr. Straus's intensive cross-examination of the Insured's final witness, its president. The jury found for Landmark on all elements of the rescission claim after deliberating less than two hours, which included one hour allotted for lunch.