The insured, a commercial insulation contractor that previously utilized asbestos in its work, applied for and received an excess insurance policy from the plaintiff insurer. In its insurance application, the insured disclosed current open claims against it involving asbestos. Six weeks after the policy expired, the insured’s agent notified the excess insurer of bodily injury claims against the insured involving asbestos. Twelve years later, the insured notified the excess insurer that the underlying primary policy had been exhausted, and demanded defense and indemnity under the excess policy. The following year, the excess insurer filed a declaratory judgment action against the insured seeking to rescind the excess insurance policy on the ground that the insured had filed a misleading application that misrepresented both its involvement with asbestos and its awareness of asbestos actions that had been filed against it. The insured counterclaimed, seeking a declaration that the insurer had a contractual duty to indemnify and defend. The trial court rejected the insurer’s rescission claim and granted judgment for the insured.
On appeal, the appellate division affirmed the judgment of the trial court. In support of its decision, the appellate division emphasized the thirteen years that passed between first notice and the insurer’s filing of the rescission action, opining that the passage of time “spoke volumes” about what the insurer knew at the time the policy was issued. With regard to the insurer’s claims concerning the “known loss” and “loss in progress” doctrines, the court also held in favor of the insured, opining that knowledge of potential liability alone will not necessarily preclude coverage under the known loss doctrine. By way of further explanation, the court stated that, despite the insured’s receipt of a limited number of asbestos claims prior to when it made its application for coverage, which it disclosed on its application and for which it did not seek coverage, the insured could not have known at that time about the number of future claims against it, its liability for those future claims, or the extent of losses that such future claims might entail.