Insurer Seeks Rescission Due to Misrepresentation in an Application for Insurance – Court Rules that an Insurer is Required to not only Ask Questions but also to Investigate Answers

In Star Insurance Company v. Sunwest Metals, Inc., the court examined when an insurer waives its right to rescind a policy based on misrepresentations in an insurance application. Although insurers are generally entitled to rely on an applicant’s representations, the court held that this right is waived if the insurer ignores information that “distinctly implies” those representations are false and fails to conduct a reasonable investigation. Because Star Insurance had repeated notice suggesting Sunwest’s disclosures about its operations were inaccurate yet continued coverage without further inquiry, the court concluded that Star waived its right to rescind, underscoring that insurers may not overlook red flags and later deny coverage after a loss occurs.