CHICAGO — A panel of Illinois appellate judges has reversed a circuit court’s ruling, finding an insurance company was within its rights to rescind an insurance policy when it learned of misrepresentations in the policyholder's application, even though it had already allowed the insured to open an accident claim under the policy.

American Heartland Insurance Company (AHIC) had filed a declaratory action against Winford Cowart, the insured, and Jordan Zawideh, a bicyclist whom Cowart had struck while driving on Sept. 10, 2014. The insurer sought the court’s confirmation that Cowart’s policy and claim were void, and that AHIC did not have to pay for the claim.

Both AHIC and Zawideh filed motions for summary judgment. AHIC argued it was correct to rescind Cowart's policy. Zawideh claimed the company had waived its right to do so because of inconsistent conduct. A Cook County judge sided with Zawideh. AHIC appealed.

Justice Eileen O’Neill Burke penned the Sept. 14 decision for the Illinois First District Appellate Court. Justices Margaret McBride and David Ellis concurred. The justices determined the circuit court had erred in its finding and reversed the decision.

Zawideh’s argument hinged on AHIC’s conduct after learning of misrepresentations on Cowart’s application for insurance. According to the appellate court opinion, Cowart’s policy went into effect on Apr. 24, 2014, and the company learned on July 11, 2014, of an undisclosed automobile accident he had been involved in while it was working on a claim he had submitted for the incident involving Zawideh. 

AHIC did not immediately rescind the policy and opened the claim for the accident with Zawideh on Sept. 10, 2014. On Sept. 17, AHIC learned of an undisclosed speeding ticket and that Cowart had been the at-fault driver in the undisclosed accident, and subsequently informed him his policy would be rescinded. 

Zawideh contended that when AHIC opened the claim for the accident after learning about the undisclosed accident, the company waived its right to rescind the policy.

While the circuit court accepted this argument, the appellate justices disagreed. 

“Although AHIC became aware of the prior undisclosed automobile accident while resolving his uninsured motorist claim, it continued to research Cowart’s driving record and eventually became aware of Cowart’s undisclosed speeding ticket and the fact that he was at fault in the undisclosed automobile accident,” Burke said in the decision. “We find that AHIC’s conduct was not sufficient to constitute [a] waiver of the right to rescind based on the material misrepresentations Cowart made on his application. Our research has revealed no authority which indicates that an insurer must move to rescind the policy and cease all contact with the insured as soon as any potentially material misrepresentation comes to light.”

Burke found that because AHIC had rescinded the policy within the one-year legal limit of it being issued, the insurer was within its rights to rescind the policy and is entitled to summary judgment. 

The court filed this decision as an unpublished order issued under Supreme Court Rule 23, which limits its use as precedent.

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