at the option of the insurer. Where there is either concealment or false representation of a material fact, a proper remedy of the insurer is rescission which is accomplished by the return of premiums paid and the giving of notice to the insured. If a policy is thus void or voidable, there can be no recovery thereunder . . . since defendant [insurance company] has complied with the requirements of notice and tender of premiums paid.
Id. at 128. Likewise, Mt. Hawley Ins. v. Federal Sav. & Loan Ins. Corp., 695 F. Supp. 469 (C.D. Cal. 1987), the most recent federal district court case interpreting California law with relevance to this issue, stated:
Defendants argue that [the insurer] cannot now rescind the policy because it did not give the insureds timely notice. . . . . California Civil Code § 1689 allows a contract to be rescinded by a party where the party's consent thereto was obtained through fraud or mistake. To rescind a contract, the party must promptly, upon learning the facts entitling it to rescind, notify the other parties of the intent to rescind and return or offer to return everything of value received under the contract. See [California Civil Code] at § 1691. The California Insurance Code further provides that an insurer may rescind a contract of insurance if the insured conceals material information, Cal. Ins. Code § 331, or makes material misrepresentations, see id. at § 359.
Id. at 477. Therefore, Mt. Hawley indicates quite strongly that section 1691 of the Civil Code should be taken together with the Insurance Code as permitting an insurer to rescind, by notification and tender of premium, for material misrepresentations.
Moreover, California courts have clearly indicated that the California Insurance Code sections pertaining to rescission should be read in harmony with the Civil Code sections on rescission of contract, section 1689 et seq., which includes section 1691 governing how unilateral rescission is effected. Federal Life Ins. Co. v. Cary, 20 Cal. App. 2d 257, 261, 67 P.2d 129 (1937); Cole v. Calaway, 140 Cal. App. 2d 340, 348 , 295 P.2d 84 (1956). The Insurance Code provisions pertaining to insurance contracts must be "superimposed upon" and read with the California Code governing contracts. De Campos v. State Comp. Ins. Fund, 122 Cal. App. 2d 519, 529 (1954).
Where the procedural prerequisites of section 1691 are met, and there is a valid substantive ground for rescission, unilateral rescission occurs. It is not necessary to follow with a lawsuit in order to effectuate the rescission. Ito v. Watanabe , 213 Cal. 487, 488, 2 P.2d 799 (1931) (citing to section 1691); Leland v. Craddock, 83 Cal. App. 2d 84, 88, 187 P.2d 803 (1947).
Based upon the foregoing, the Court finds that if the contestability period had not expired as of March 14, 1991, and there was a valid statutory ground for rescission under the Insurance Code, such as concealment or misrepresentation, rescission was effected by the notification and tender of premiums by the defendant.
If the insurance policy was thereby voided, plaintiff cannot now raise the contestability provision in any form as a bar to defendant's assertion of rescission, based on fraud, as a defense. A determination of whether the rescission was valid, as a defense to plaintiff's suit, naturally imports the issue of whether the misrepresentations alleged are true and provided a legitimate substantive ground for the rescission.
As a result, a threshold issue to the question of whether the attempted rescission was effective is whether the contestability period had not expired because of a relationship between plaintiff's disability and alleged misrepresentation in his insurance application.
The burden rests upon defendant to submit sworn affidavits or declarations sufficient to create an issue of fact as to whether plaintiff's AIDS related to misrepresentations in his application, and therefore whether the contestability period had not expired before the attempted rescission. Defendant did not submit such affidavits in opposition to plaintiff's motion, as a more cautious advocate surely would have, but only in support of its counter-motion for summary judgment. Plaintiff refused to respond to this counter-motion on the ground that it was untimely.
The substantive merits of the instant lawsuit should not be obscured by the fact that defendant incautiously filed the Bitzer affidavit alleging misrepresentation only with its counter-motion, not its opposition. Therefore, the Court shall provide plaintiff with 30 days in which to respond to the affidavits and declarations in support of defendant's counter-motion for summary judgment to determine whether there is a genuine issue of material fact with respect to whether the contestability period had expired by March 14, 1991, or whether it was effectively tolled by a disability related to misrepresentations.
If there is a genuine issue of material fact, the Court contemplates a trial to resolve the issue and thereby provide a basis to determine whether defendant's attempted rescission was effective.
In conclusion, it is hereby ORDERED that plaintiff is granted thirty (30) days in which to respond to defendant's sworn affidavits and declarations, by objections, or by affidavits and declarations of their own, relevant to the issue of whether plaintiff's disability was related to misrepresentations in his insurance application.
In the alternative, should the parties so stipulate, the Court shall permit them to withdraw their summary judgment motion and counter-motion and file new motions addressing the following two issues and providing sworn affidavits and declarations in support thereof:
(1) whether the contestability period had expired as of March 14, 1991; and
(2) whether, in light of the answer to question one, defendant's attempted rescission was effective.
IT IS SO ORDERED.
September 5, 1991.
EUGENE F. LYNCH
United States District Judge