The South Carolina Court of appeals recently affirmed a decision by the South Carolina Workers’ Compensation Commission that allowed an insurance carrier to rescind a workers’ compensation policy of insurance that was fraudulently obtained with the intent of covering an injury that occurred earlier the same day but was not disclosed by the employers. In affirming this decision, the Court rejected the argument that the policy had to be cancelled in accordance with statutory procedures regarding the cancellation of insurance.
In Bessinger v. R-N-M Builders & Associates, LLC, the claimant sustained a fall from a roof-top on which he had been working. His employers, with knowledge of the injury, proceeded to purchase a workers’ compensation policy later that same day that was effective as of 12:01 a.m. that day. The employers did not disclose the injury to the claimant on the application for coverage and subsequently sought to have the claim covered by the insurer. The South Carolina Commission ruled that the policy had been obtained by fraud and was, therefore, void ab initio. On appeal, the South Carolina Uninsured Employers’ Fund argued that South Carolina did not recognize the ability of a carrier to void a policy, but that a policy may only be cancelled in accordance with S.C. Code Ann. § 38-75-730 after notice to the insured and a waiting period. The South Carolina Court of Appeals affirmed the decision of the Commission.
In affirming this decision, the Court expressly held that South Carolina recognizes the difference between cancellation and rescission of a policy of insurance. Cancellation is the termination of a policy and requires the statutory procedure set forth in S.C. Code Ann. § 38-75-730 to be followed. Rescission, on the other hand, is the abrogation or undoing of a policy as if it never existed. The Court recognized that insurance policies involve the contractual allocation of risk of the possibility of a covered loss that is not contemplated when an applicant conceals the existence of a prior claim. Analyzing South Carolina precedent, as well as from other jurisdictions, the Court held that rescission was an appropriate remedy when a policy is obtained by fraud in order to provide coverage for a claim that has already occurred. The Court held that the requirements of S.C. Code Ann. § 38-75-730 are not required to void a policy obtained in this manner.
The insurer in this case was represented by R. Daniel Addison and Lee E. Dixon of Hedrick, Gardner, Kincheloe & Garofalo, LLP.
Please contact your Hedrick Gardner counsel with questions about this ruling.
The information published in the Hedrick Gardner Alert is general in nature and not intended to take the place of legal advice on any particular matter. © 2017 Hedrick Gardner Kincheloe & Garofalo LLP