The Defense Must Go On: An Insurance Company's Rescission Defense Does Not Pre-empt Its Obligation to Defend Its Insured

Today's headlines are filled with stories about corporate scandals and trials of corporate executives accused of fraud, malfeasance, and incompetence. The natural fallout has been SEC investigations, hundreds of civil lawsuits, and criminal prosecutions. Directors' and officers' insurers ("D&amp;O insurers") have seen a dramatic increase in claims as a result of these events. The initial battleground relating to the corporate scandal claims is whether there is a duty to defend or pay defense costs. The D&amp;O insurers have asserted numerous defenses to providing a defense or paying defense costs. One defense that is being asserted frequently is rescission or "unilateral" rescission (collectively "rescission"). The rescission defense attempts to extinguish the policy by declaring it void <i>ab initio</i>. Recently, the majority of courts that have considered rescission have rejected it or deferred consideration of it, while ordering the D&amp;O insurer to pay for, or provide the policyholder with, a defense. This article discusses recent cases that have addressed insurers' rescission arguments and explores the arguments that rebut the rescission defense.

32 minute read May 01, 2004 at 12:30 AM

By

Andrew Reidy And Catherine Serafin