Claims Made Bites: The Insured CANNOT Get the Application Question Wrong

Lessons from Mount Vernon Fire Insurance Company v. The Kelemen Company Inc.

For agents, brokers and underwriters, it is paramount that our insureds understand application questions and answer them correctly. A recent federal court decision to rescind all of an insured’s policies serves as a stark reminder of what happens when material misrepresentations occur on renewal applications.

The Case: Mount Vernon Fire Insurance Company v. The Kelemen Company Inc.

In May 2025, the U.S. District Court for the Central District of California granted summary judgment allowing Mount Vernon Fire Insurance Company to rescind five consecutive Employment Practices Liability policies based on material misrepresentation. The court also awarded the insurer reimbursement of all attorney fees incurred in defending the insured.

The Critical Application Question

The renewal application included this detailed question:

“Within the last 5 years, has any employment related, or third party discrimination, or third party harassment inquiry, complaint, notice of hearing, claim or suit been made against any entity for insurance or any person proposed for insurance in the capacity of either director, officer, member (if an LLC), or employee of any entity proposed for insurance?”

The insured’s answer: “NO”

The reality: This was false.

What Actually Happened

The Operations Manager, Tam Doan, completed the renewal application for the firm’s Employment Practices Liability coverage. She marked “NO” to the warranty question, indicating they weren’t aware of any executive team members being named in employment-related suits within the specified timeframe.

Except that wasn’t true.

One of their executives, Tibor Kelemen, had been accused of sexual harassment at his former company (Wind Water Realty Inc.) in 2015. Under the broad language of the application question, this prior allegation at a different company still required disclosure since it involved “any person proposed for insurance in the capacity of director, officer…or employee.”

The Smoking Gun Evidence

You might think the Operations Manager wasn’t aware of this executive’s legal history – that she answered “NO” incorrectly due to ignorance.

Court documents revealed otherwise. Email evidence showed that Doan had disclosed the situation to their insurance broker, stating that “the reason [they were] getting the policy in the first place” was due to the allegations against Kelemen. She knew about the prior harassment allegations when she signed the application.

So why did she mark “NO”?

The court didn’t speculate on her motivations. Perhaps she thought the question referred only to new situations. Maybe she assumed the carrier was already aware. Regardless of her reasoning, the application contained a material misrepresentation, and the legal consequences were severe.

Legal Framework: Material Misrepresentation and Rescission

Rescission voids the policy ab initio (from the beginning), as if it never existed – and courts will uphold rescission when insureds make material misrepresentations that affect coverage decisions.

Industry Implications by Professional Role

For Underwriters:
When insureds answer “YES” to prior claims, probe for all executives’ histories and ask specifically about claims at former companies involving current personnel.

For Claims Professionals:
Examine email communications and internal documents during discovery to look for evidence that insureds had knowledge of unreported situations.

For Brokers:
Conduct detailed application interviews rather than simply forwarding forms. Explain the broad scope of “any person proposed for insurance” language and document disclosure conversations in writing.

Current Market Context

The EPL market has become increasingly scrutinized, making accurate disclosure more critical than ever.

Risk Management Framework

Who Should Complete Applications:
Organizations should involve senior executives and legal counsel rather than delegating to operations managers.

Ongoing Disclosure Obligations:
Many insureds mistakenly believe disclosure is a one-time requirement. Best practices include implementing mid-term notification procedures for material changes and establishing protocols for immediate carrier notification of new claims.

Key Takeaways for the Industry

1. Application accuracy is non-negotiable – Even well-intentioned mistakes can void coverage entirely
2. Knowledge attribution matters – If anyone completing the application knows relevant facts, disclosure is required
3. Documentation is critical – Email evidence can prove knowledge and intent in rescission cases

Conclusion: Building a Sustainable Framework

The Mount Vernon case demonstrates that transparency benefits everyone in the insurance ecosystem. Brokers who push clients to disclose everything, underwriters who price risks accurately based on full information, and claims professionals who can handle matters without rescission surprises – this creates a sustainable market for challenging risks.

When application questions are answered incorrectly, whether intentionally or through misunderstanding, the consequences extend beyond individual cases. They erode market confidence and reduce capacity for legitimate risks that need coverage.

Let’s work together to ensure that when claims arise, everyone is on the same page and the claims process develops without surprises or hitches. The alternative, as Mount Vernon v. Kelemen demonstrates, leaves insureds with no coverage and no recourse when they need protection most.

The author provides this analysis for educational purposes. Specific coverage questions should be directed to qualified insurance professionals and legal counsel.

Meet the Author

Lucas Roberts

Wholesale Broker, Anzen

Lucas Roberts is a professional lines specialist with experience in both underwriting and wholesale brokerage. He maintains an active LinkedIn presence, regularly sharing insights on professional liability developments. This blog takes a deeper dive into developments that have far-reaching consequences for the professional liability market.

You can see more of Lucas’s Claims Made Bites on his LinkedIn.