Course / Program Material 2007 TIPS 15th Annual Insurance Coverage Litigation Committee Program - Tucson AZ
Dan looks at the main types of severability provisions available and the arguments policyholders and insurers use to define the scope and meaning of the provision in different situations. He first tackles the situation where there is no severability clause, identifying policyholder arguments in support of finding severability, focusing on arguments used in connection with an insurer's attempt to assert the dishonesty exclusion. He then notes that these arguments have "not fared well" due to agency principles and the imputation of knowledge. Dan next reviews decisions concerning the application of "partial severability clauses", that is those clauses that limit the imputation of knowledge to specified insured for purposes of determining policy validity. Policyholder claims of ambiguity and public policy arguments in these clauses have not been successful and Dan explains the courts' rationale.
Finally, Dan surveys decisions interpreting full severability clauses, meaning clauses that declare the application to be a separate application for each insured and/or that expressly state that the knowledge of one insured cannot be imputed to another insured with respect to the validity of the policy. Frequently litigated is the issue of whether full severability clauses negate innocent misrepresentation as a basis for rescission in those jurisdictions that permit it and whether knowledge of falsity is now required for rescission. Also a hot topic, whether documents submitted as part of an application (i.e. SEC filings), because they are not statements, can be used to void the policy as innocent insureds.
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