Liars Never Prosper

Post 4982

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In Schibell, Mennie & Kentos, et al v. Allied World Insurance Company et al, No. A-3144-22, Superior Court of New Jersey, Appellate Division (December 20, 2024) resolved the disputes.

KEY FINDINGS

Material misrepresentations in an insurance application allow the insurer to void the policy ab initio.

1. A fact is material if it would influence the insurer’s judgment in issuing the policy.

2. New Jersey law permits contract rescission based on equitable fraud without needing to prove the defendant’s intent to deceive.

3. The Firm’s application and renewals contained material misrepresentations, leading to the policy being void from inception.

Since the policy was void at inception due to these misrepresentations, Allied is not liable.

FACTS

The state Office of Attorney Ethics (OAE) found Schibell lied.

A special ethics master (SEM) recommended the Court suspend Schibell’s license for six months. The Disciplinary Review Board (DRB) issued a thirty-six-page opinion affirming the SEM’s findings that Schibell’s unethical conduct was established by clear and convincing evidence.

Schibell admitted he omitted the disciplinary action on his policy application. On October 28, 2019, Allied rescinded the malpractice policy to the Firm.

OPINIONS

The Appellate Division concluded that the undisputed facts established plaintiffs’ representation in the malpractice policy application and renewals were material and false and voided the policy ab initio (from its inception).

A fact is material if it naturally and reasonably influenced the judgment of the underwriter.

Equitable fraud does not require insurer to need not establish the defendant’s scienter.

The insurance contract at issue is void at its inception based on the material misrepresentation by the Firm in the initial policy application and continued throughout the renewals. The Appellate Division concluded that the plaintiffs’ misrepresentations voided the policy from its inception.

ZALMA OPINION

Much to the surprise of some litigants and their lawyers the covenant of good faith and fair dealing applies equally to the insured as it applies to the insurer. In this case, the insured lawyer and law firm, misrepresented to its insurer that it had not been disciplined by the state with full knowledge that the statement was false. Rescission was proper because the insurer relied on the statements made by the insured lawyer and law firm.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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