Erie Ins. Exch. v. Lake – Case Brief Summary (Pennsylvania)

The Pennsylvania Supreme Court in Erie Ins. Exch. v. Lake (543 Pa. 363, 671 A.2d 681 [1996]), held that, an insurer may rescind a policy of insurance as to the actual perpetrator of the fraud, where the fraud could not reasonably have been discovered within the 60 day period immediately following issuance of the policy; limited to those instances where the undiscovered fraud was of such a nature that it is clear that an insurer would never have accepted the risk inherent in issuing the policy (id.).

Erie Ins. Exch. v. Lake, was a declaratory judgment action by an automobile insurer seeking entitlement to rescind the automobile policy ab initio due to the insured's fraud in procuring the policy (id.).

In that case, the court concluded that the insurer was entitled to rescind the policy ab initio due to the insured's fraud (id.).

However, the court held that as to third parties, although on the surface it appears harsh to force the insurance company to abide by a contract procured by fraud, it would be beyond harsh to preclude the third party appellees, who are innocent of trickery, and injured through no fault of their own, from receiving protection under the policy. Weighing all the factors, we are compelled to conclude that it is clearly the intent of the remedial legislation known as Act 78 to preclude recission of an insurance policy, as to third parties, beyond the 60 day grace period within the Act itself (id.).