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Rescission Does Not Require Fraudulent Intent, and Allegations of Fraud Otherwise Ruled Sufficient

May 7, 2024Litigation & Dispute Resolution

A new, comprehensive, Appellate Division, Second Department decision confirms that the element of “intent” is not required for the remedy of rescission, and also adds other favorable commentary to sustain the subject fraud claim. The decision was in the case of Air-Sea Packing Group, Inc. v. Applied Underwriters, Inc., 2024 NY Slip Op 02032 (2d Dep’t Decided April 17, 2024).

Air-Sea Packing

The Air-Sea Packing decision arose from a worker’s compensation insurance product being challenged in many actions across the country based upon allegations of fraud. Plaintiff was a company involved in providing packing, shipping, storage, and transportation services. To comply with its legal obligation to provide workers’ compensation for its employees, plaintiff purchased what was called the EquityComp insurance program from defendants, affiliates of Berkshire Hathaway.

After plaintiff procured the insurance from defendants, the New York State Department of Financial Services (DFS) launched an investigation of defendants looking into whether they violated applicable New York law. Defendants later entered into a consent order with the DFS in which it was declared that defendants violated New York law by selling unauthorized and unlicensed insurance products, barred the continued sale of such and imposed a $3 million civil penalty on defendants.

Read the full blog here.