Mitchell v. United National Ins. Co

In Mitchell v. United National Ins. Co. (2005) 127 Cal.App.4th 457, the plaintiff bought a warehouse and submitted an application for fire insurance that contained several misrepresentations. (Id. at p. 457.) The application misstated the size and financial worth of the building; asserted that the plaintiff used the warehouse for his own music business, although it was leased to a person in the garment trade; falsely described the building as in compliance with fire code regulations; asserted that it had a burglar alarm, when it had none; and denied that it was covered by an insurance policy, although it was insured by the California FAIR plan, an insurer of "'last resort.'" (Id. at p. 464.) After a fire occurred in the building and the plaintiff submitted a claim, the insurer rescinded the policy on the basis of the misrepresentations. (Id. at pp. 464-465.) When the plaintiff sued for breach of the policy and bad faith, the insurer sought summary judgment, contending that it had properly rescinded the policy. (Mitchell, supra, 127 Cal.App.4th at pp. 465-466.) In opposing summary judgment, the plaintiff admitted that the application contained incorrect information, but asserted that any such inaccuracies were unintentional and immaterial. (Id. at pp. 473-474.) In support of this contention, the plaintiff submitted a declaration stating that he had intended to use the warehouse for his music business, and that he did not know that the warehouse contained uncorrected code violations. (Id. at p. 466.) The plaintiff also presented a declaration from an expert, who opined that the plaintiff's misrepresentations were not material to the insurer. (Mitchell, supra, 127 Cal.App.4th at p. 466.) In granting summary judgment, the trial court excluded the expert's declaration, reasoning that the expert was incompetent to testify regarding the materiality of facts to the insurer. (Ibid.) The appellate court affirmed the grant of summary judgment in the insurer's favor, reasoning that the evidence unequivocally established that the misrepresentations on the application were material, as they "went directly to questions of insurability, risk, and premium," and the plaintiff had acknowledged that they might have affected the insurer's decision to issue the policy. (Mitchell, supra, 127 Cal.App.4th at pp. 475-476.) The court also concluded that sections 331 and 359 permitted the insurer to rescind the policy due to the material misrepresentations, even if they were "negligent or unintentional." (127 Cal.App.4th at p. 473.) The Court stated: "courts have applied sections 331 and 359 to permit rescission of an insurance policy based on an insured's negligent or inadvertent failure to disclose a material fact in the application for insurance . . . . One authority has noted that under sections 331 and 359, 'misstatement or concealment of "material" facts is ground for rescission even if unintentional. The insurer need not prove that the applicant-insured actually intended to deceive the insurer.' " (Mitchell, supra, 127 Cal.App.4th at p. 469.)