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The cancellation of an automobile policy of insurance can only be effected prospectively, not retroactively. Disclaimer, issued three months after gaining knowledge for the basis is untimely as a matter of law.
SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT

November 18, 2008

Insurance carrier's right to rescind ab initio or retroactively cancel a policy of insurance is superseded by the New York State Vehicle and Traffic. The cancellation of an automobile policy of insurance can only be effected prospectively. Disclaimer of coverage, issued approximately three months after obtaining sufficient knowledge for the basis of said disclaimer, was untimely as a matter of law.

General Assurance Company, Petitioner-Appellant, v Siomik Rahmanov, Respondent, Sadiki McKain, et al., Additional Respondents, State Farm Mutual Automobile Insurance Company, Additional Respondent-Respondent.

November 18, 2008, Decided

COUNSEL

The Law Offices of David J. Tetlak, P.C. (Albert J. Galatan of counsel), for General Assurance.

Rivkin Radler LLP (Stuart M. Bodoff of counsel), for State Farm

JUDGES

Tom, J.P., Andrias, Friedman, Catterson, Acosta, JJ.

Background
Rahmanov was involved in a car accident with a vehicle registered to McKain and operated by McDaniels. General Assurance insured Rahmanov's vehicle. State Farm insured the McDaniels car. State Farm’s investigation revealed that McKain was the subject of identity theft and had not procured the subject policy. State Farm had denied coverage to McDaniels on the grounds of non-cooperation and fraud. Rahmanov filed a claim for uninsured motorist benefits with General Assurance. General Assurance moved to stay the UM arbitration claiming that the McDaniels care was insured. The trial court granted the petition and determined that the vehicle operated by McDaniels was uninsured and that State Farm's disclaimer of coverage was valid. General Assurance, by the Law Offices of David J. Tetlak, P.C., Appealed.

Opinion
The Appellate Division overturned the trial court’s decision and ruled that State Farm’s disclaimer was invalid. The evidence established that State Farm did not cancel the subject policy before the date of the accident, and there was no indication that Rahmanov participated in the fraud in obtaining the State Farm policy in McKain's name. Under these circumstances, State Farm was precluded from denying coverage on the ground that the policy was fraudulently obtained. An auto insurer is precluded from rescinding coverage retroactively where mandatory coverage is permitted. Its option is to cancel the policy prospectively. Furthermore, the disclaimer of coverage, issued approximately three months after State Farm had sufficient knowledge of the reasons why it was disclaiming coverage, was untimely as a matter of law.


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