A firm of civil engineers, working under contract with an architectural firm that was hired by the University of Pennsylvania to design a large conference center on campus, was sued by the university along with four other companies involved in the project. The complaint alleged negligent design and construction that resulted in leaking in the brickwork, water infiltration through the masonry and interior damage.

The engineering firm sent a copy of the complaint to the Lloyd's broker that arranged its professional liability coverage under a master policy held by the American Society of Civil Engineers. The insurer sought recission of the firm's coverage because of an "intentional material misrepresentation" in the application for it. Insured and insurer moved for summary judgment. The events leading to legal action were as follows.

The owner of the engineering firm attended a meeting with the other construction participants where the university expressed concern about leakage. He received notice from the university's counsel of its preparations for legal action. He applied for civil engineers professional liability insurance three months later under the ASCE plan, and was provided with a specimen of the policy upon acceptance.

The university filed its complaint six months afterward. The owner of the newly insured firm promptly sent a copy of its notice of the filing to the insurer which, upon investigation, took steps for recission. It based its action on negative answers the firm's owner had given to two questions in the application: "Are you aware of any circumstances which may result in a claim being made against you?....Have any claims been made or legal actions been brought against you in the past five years?"

The engineer acknowledged that his response to the questions was deliberate and was made after discussions with an attorney and the architect with whom he was associated on the project. He was convinced that his firm had nothing to do with the problem and that it would be relieved from responsibility. Accordingly, he did not mention the action taken by the university or his knowledge of the problem when completing the application for insurance.

The insured's appraisal of absence of responsibility notwithstanding, the federal court concluded that the insured's failure to provide information about the university's preliminary legal notice and concern over leakage in the application was material misrepresentation. Accordingly, the insurer's motion for summary judgment was granted. The coverage was rescinded. (BOOKER, Plaintiff v. BLACKBURN ET AL., Defendants. United States District Court, New Jersey. No. 95 5368. November 1, 1996. CCH 1997 Fire and Casualty Cases, Paragraph 6090.)