## Facts

- Charter Oak and Travelers issued primary commercial general liability and umbrella excess liability policies to American Capital for policy years 2006–2009.
- American Capital’s portfolio company, Scientific Protein Laboratories LLC (SPL), was involved in manufacturing heparin.
- Beginning in 2008, American Capital and SPL faced more than 100 lawsuits alleging injury from contaminated heparin.
- American Capital sought defense and indemnity coverage for the heparin suits under the policies.
- The insurers sued seeking rescission of the policies based on alleged material misrepresentations and omissions in the insurance applications, and alternatively sought reformation and declaratory relief limiting coverage.
- The insurers alleged, among other things, that American Capital’s applications understated or denied: the existence of subsidiaries for which coverage was later claimed; the acquisition of SPL; prior product-liability losses and pending heparin claims; product recalls; the use of foreign components (including processing in China); and joint-venture involvement tied to the heparin supply chain.
- American Capital and SPL moved to dismiss the insurers’ amended complaint.

## Issues

1. Whether the insurers stated a plausible rescission claim under Maryland law, including adequately pleading that they sought rescission promptly after discovering the alleged misrepresentations.
2. Whether the insurers’ alternative theories (including reformation and declaratory coverage-related claims) were sufficiently pleaded to survive a motion to dismiss.
3. Whether any of the insurers’ claims failed as a matter of law at the pleadings stage.

## Decision

- The court dismissed the insurers’ rescission count without prejudice because the complaint did not plead sufficient facts showing “prompt action” after discovery of the alleged misrepresentations.
- The court granted leave to amend the rescission claim to add facts addressing promptness.
- The court otherwise allowed the litigation to proceed on the insurers’ remaining coverage-related theories to the extent adequately pleaded.

## Legal Principles

- Under Maryland law, a party seeking rescission must plead and prove prompt action after learning of the grounds for rescission.
- A conclusory allegation that the rescinding party acted “promptly” is insufficient; the complaint must allege facts showing when the information was discovered and what actions were taken in response.
- Dismissal for inadequate pleading does not necessarily resolve the merits; leave to amend is appropriate where the defect concerns missing factual allegations rather than a legal bar to the remedy.

## Conclusion

The court treated promptness as an essential element of rescission and dismissed the insurers’ rescission claim for lack of specific factual allegations showing timely pursuit of that remedy, while permitting amendment and allowing the broader insurance coverage dispute—particularly non-rescission theories such as reformation and declaratory relief—to continue.


The Charter Oak Fire Ins. Co. v. Am. Capital, Ltd., No. 8:09-cv-00100, 2011 WL 856374 (D. Md. Mar. 9, 2011)