United States District Court, N.D. California
October 7, 2005.
ATMEL CORPORATION, Plaintiff,
ST. PAUL FIRE & MARINE, Defendant.
The opinion of the court was delivered by: SUSAN ILLSTON, District Judge
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR
SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION TO STRIKE
SUPPLEMENTAL DECLARATION OF SHELLY KNOX
On October 7, 2005, the Court heard oral argument on
plaintiff's motion for partial summary judgment. For the reasons
set forth below, the Court hereby GRANTS in part and DENIES in
part plaintiff's motion, and DENIES defendant's motion to strike
the Supplemental Declaration of Shelly Knox.
Plaintiff Atmel Corporation("Atmel") is a company that
manufactures computer chips. Atmel obtained general liability and
errors and omissions insurance from defendant St. Paul Fire &
Marine Insurance Company ("St. Paul") beginning January 1, 2002.
This lawsuit arises out of St. Paul's refusal to defend Atmel in
a now-settled lawsuit brought by one of Atmel's customers,
Seagate Corporation. In that lawsuit, which the parties refer to
as the "Seagate Action," Seagate alleged that Atmel sold it
defective computer chips and that Seagate had notified Atmel of
the problems in the fall of 2001. St. Paul denied a defense in
the Seagate Action and unilaterally rescinded Atmel's insurance
policy on the ground that Atmel knew about the Seagate problems
before the policy was issued and failed to disclose them in its
applications for insurance.
Although the parties dispute virtually all of the facts
surrounding St. Paul's rescission of the insurance policy, it is
undisputed that Atmel did not identify any problems with Seagate
or the allegedly defective computer chips on its applications for insurance. The errors and
omissions application asked: "Does anyone in your organization
have knowledge or information of any act, error or omission which
might reasonably be expected to result in an Errors & Omissions
claim?" Runkel Decl., Ex. E. The general liability application
similarly asked Atmel to identify "all claims or occurrences that
may give rise to claims for the prior 5 years." Id. at Ex. F.
After it was sued in July of 2002, Atmel tendered the Seagate
Action to St. Paul and to its previous insurer, Royal Indemnity
Company, which had provided Atmel with insurance through December
31, 2001.*fn1 Atmel and St. Paul characterize the events
that followed the tender in markedly different ways. Atmel
contends that after St. Paul acknowledged notice of the lawsuit
on August 20, 2002, it began a "fishing expedition" by
unreasonably requesting more and more information while refusing
to defend in the meantime. St. Paul, in contrast, claims that
Atmel failed to cooperate with its investigation into the claim,
and that Atmel was not forthcoming about the extent or nature of
its knowledge of the problems with Seagate. It is undisputed that
Atmel provided St. Paul with two boxes of documents regarding the
Seagate Action in October 2003. The parties exchanged a series
of letters between February and July 2004 regarding whether St.
Paul had a duty to defend Atmel in the Seagate Action, and
relatedly whether St. Paul was entitled to rescind the policy
because Atmel should have disclosed any issues related to Seagate
on its insurance applications.
On September 27, 2004, Atmel filed the instant lawsuit seeking
damages and declaratory relief against St. Paul for breach of
contract and breach of the implied covenant of good faith and
fair dealing. St. Paul counterclaimed, alleging rescission,
breach of contract, intentional misrepresentation/concealment,
negligent misrepresentation, and breach of the implied covenant
of good faith and fair dealing. St. Paul has also raised
rescission as one of several affirmative defenses.
On November 2, 2004, after this lawsuit was filed, St. Paul
tendered rescission of the policy and offered Atmel a check for
the premiums paid to date, stating "St. Paul hereby rescinds the
above-referenced policies in their entirety, rendering them void
from inception." Cusack Decl., Ex. T. Atmel rejected the tender
of rescission on November 5, 2004, and returned the proffered
check. LEGAL STANDARD
Summary adjudication is proper when "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law." Fed.R.Civ.P.
In a motion for summary judgment, "[if] the moving party for
summary judgment meets its initial burden of identifying for the
court those portions of the materials on file that it believes
demonstrate the absence of any genuine issues of material fact,
the burden of production then shifts so that the non-moving party
must set forth, by affidavit or as otherwise provided in Rule 56,
specific facts showing that there is a genuine issue for trial."
See T.W. Elec. Service, Inc., v. Pac. Elec. Contractors Ass'n,
809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 106 S. Ct. 317 (1986). In judging
evidence at the summary judgment stage, the Court does not make
credibility determinations or weigh conflicting evidence, and
draws all inferences in the light most favorable to the
non-moving party. See T.W. Electric, 809 F.2d at 630-31 (citing
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 106 S. Ct. 1348 (1986)); Ting v. United States,
927 F.2d 1504, 1509 (9th Cir. 1991). The evidence presented by the
parties must be admissible. Fed.R.Civ.P. 56(e). Conclusory,
speculative testimony in affidavits and moving papers is
insufficient to raise genuine issues of fact and defeat summary
judgment. Thornhill Publ'g Co., Inc. v. GTE Corp.,
594 F.2d 730, 738 (9th Cir. 1979).
Atmel seeks an order granting partial summary judgment on the
following three issues: (1) that St. Paul breached its duty to
defend Atmel in the Seagate action, notwithstanding St. Paul's
allegations of rescission, and is liable for Atmel's unreimbursed
defense costs unless and until it is adjudicated that the policy
is rescinded; (2) that Civil Code § 2860, which limits the rates
that insurers pay independent counsel when an insurer's
reservation of rights creates a conflict of interest, has no
relevance to the measure of Atmel's damages for St. Paul's breach
of its duty to defend; and (3) that the Fraud and
Misrepresentation clause contained in the policy requires St.
Paul to prove intentional fraud in order to rescind (and for this
reason St. Paul's cause of action for negligent misrepresentation should also be
1. Duty to Defend/Unilateral Rescission
Atmel contends it is entitled to summary judgment on the issue
of whether St. Paul violated its duty to defend Atmel in the
Seagate action. Atmel argues that the allegations of the
Seagate complaint, the terms of the St. Paul policy, and other
extrinsic evidence, created the potential for covered liability.
Therefore, Atmel argues, St. Paul was obligated to assume the
defense, under a reservation of rights if it wished, unless and
until it could conclusively establish its right to rescind. Atmel
contends that St. Paul was not entitled to unilaterally rescind
the policy and instead should have sought rescission judicially.
In response, St. Paul contends that it was entitled to
unilaterally rescind the policy due to Atmel's failure to
disclose the problems with Seagate in its application for
insurance, and thus the insurance contract was retroactively null
and void. St. Paul argues that the cases relied upon by Atmel
which discuss an insurer's duty to defend are distinguishable
because they all presume the existence of a valid contract. Here,
St. Paul contends, there was no valid contract because St. Paul
rescinded the policy. Thus, according to St. Paul, there is no
breach of the duty to defend unless the Court first sets aside
St. Paul's rescission as improper.
None of the cases cited by the parties are directly on point.
The cases relied on by Atmel provide that an insurer has a duty
to defend any time there is a potential for coverage, even if
coverage is ultimately found lacking. See, e.g., Montrose
Chemical Corp. v. Superior Court, 6 Cal.4th 287, 299 (1993);
Amato v. Mercury Cas. Co., 18 Cal. App. 4th 1784, 1791-92
(1993). These cases are distinguishable, however, because they
involved disputes over coverage, not disputes regarding the
underlying validity of the policies at issue. These cases do not
address the issue presented here regarding whether an insurer has
a duty to defend notwithstanding the fact that it has rescinded
an insurance policy, if the insured disputes the propriety of the
Although none of the authorities cited by the parties squarely
answer this question, case law, Civil Code § 1691, and the
Insurance Code suggest that there is no duty to defend if an
insurer has unilaterally rescinded a policy unless and until the
rescission has been set aside. The California Insurance Code
allows an insurer to rescind a policy if the insured has
concealed or misrepresented material facts in its application for
insurance. See Cal. Ins. Code § 331 ("Concealment, whether intentional or
unintentional, entitles the injured party to rescind
insurance."); § 359 ("If a representation is false in a material
point, whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time the representation
becomes false."). Civil Code § 1691 sets forth the procedure a
party must follow in order to effect a rescission of a contract.
See Cal. Civ. Code § 1691 (stating rescinding party must give
notice of rescission to the other party and restore, or offer to
restore, the consideration provided).
Where grounds for rescission exist and the insurer properly
exercises its right to rescind, the insured's contract rights are
extinguished ab initio (as if the policy had never existed).
See Cal. Ins. Code § 359; Imperial Cas. & Indem. Co. v.
Sogomonian, 198 Cal. App. 3d 169, 182 (1988). An insurer may
avoid any liability for benefits provided under the policy, even
on pending claims: "[A] Rescission effectively renders the policy
totally unenforceable from the outset, so that there never was
any coverage, and therefore no benefits are payable."
Sogomonian, 198 Cal. App. 3d at 182; see also Cigna Prop. &
Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412, 419 (9th
Cir. 1998) ("The district court correctly determined as a matter
of law that if Cigna prevailed on its rescission claim, Polaris'
counterclaims [for breach of insurance contract] necessarily
would be defeated.").
The California Court of Appeals' decision in Sogomonian,
authored by Justice Walter Croskey, is particularly instructive.
In that case, the court found that defendant homeowners had made
material misrepresentations in their application for homeowners
insurance, and held that the insurance company was entitled to
rescission. 198 Cal. App. 3d at 181-82. The court noted that
rescission is retroactive to the time that the representation
became false, and thus avoids liability even on pending claims.
Id. at 182. The court rejected the defendants' argument,
similar to plaintiff's position here, that the insurance company
had statutory obligations notwithstanding a rescission. The
defendant insureds in Sogomonian argued that the insurance
company had violated its statutory obligations under Insurance
Code § 790.03, and that the defendants' right to recover damages
for such violations transcended rescission of the policy. The
court noted that "[t]here is some authority for the proposition
that an insurer owes a duty to the insured under section 790.03,
subdivision (h) even where it is established that there is no
coverage and thus no duty either to indemnify or defend. However,
this may well be appropriate where the dispute is limited to the
question of coverage as to a particular claim, since there still remains viable the underlying
relationship of insurer-insured. But what of the circumstance
where the dispute between the insurer and the insured goes beyond
the issue of coverage and results in the rescission of the entire
contract of insurance?" The court continued,
A contract is extinguished by its rescission. The
consequence of rescission is not only the termination
of further liability, but also the restoration of the
parties to their former positions by requiring each
to return whatever consideration has been received.
Here, this would require the refund by Imperial of
any premiums and the repayment by the defendants of
any proceed advance which they may have received. The
policy would be "extinguished" ab initio, as though
it had never existed. In other words, defendants, in
law, never were insureds under a policy of insurance.
That status cannot exist in a vacuum, but must
necessarily depend upon the existence of a valid
policy of insurance. No compelling reason has been
suggested to us, nor can we conceive of any, as to
why defendants, having obtained the policy upon the
basis of material concealment, should now have a
greater right under section 790.03, subdivision (h)
than a party whom Imperial may have declined to
insure because of truthful answers in a policy
Id. at 183-84 (internal quotations and citations omitted).
Plaintiff contends that St. Paul had a duty to defend unless
and until a court enforced its rescission of the policy. However,
neither the Insurance Code nor case law imposes such a
requirement. See Golden Eagle Ins. Co. v. Foremost Ins. Co.,
20 Cal. App. 4th 1372, 1389 (1993) ("Absent grounds for rescission,
there is nothing the insurer can unilaterally do to avoid
liability under the policy once the contingency insured against
occurs.") (emphasis added); Harrison v. Connecticut Mut. Life
Ins. Co., 771 F. Supp. 1053, 1056 (N.D. Cal. 1991) ("Where the
procedural prerequisites of section 1691 are met, and there is
valid substantive ground for rescission, unilateral rescission
occurs. It is not necessary to follow with a lawsuit in order to
effectuate the rescission.").
The cases cited by plaintiff do not hold otherwise. In 909
Geary Street, LLC v. Admiral Insurance Company, 2002 WL 253946
(N.D. Cal. Feb. 8, 2002), and Perini Corporation v. Orion
Insurance Company, 331 F. Supp. 453 (E.D. Cal. 1971), the courts
enforced "service of suit" clauses in insurance policies which
allowed the plaintiff insureds to select the forum for
litigation. The courts enforced the clauses and remanded the
cases to state court, and in so doing rejected the insurers'
arguments that because the insurance companies had rescinded the
policies, the "service of suit" clauses were ineffective. See
909 Geary St., 2002 WL at *2; Perini Corp.,
331 F. Supp. at 457. Both courts, however, explicitly noted that they were not
addressing the merits of the insurer's rescission defenses. Id.
Although these cases provide some support for plaintiff's
position that the contract is still in effect and enforceable
unless and until a court has ruled otherwise, neither case holds that an insurance company may be
found substantively liable under a rescinded policy, which is
the finding that plaintiff seeks here. Instead, the courts in
909 Geary Street and Perini enforced procedural clauses
regarding the forum for litigation, and both courts specifically
noted that the decision to remand was not a decision on the
substantive merits of the insurer's rescission claim. Id.
Plaintiff's reliance on Maniar v. Capital Bank of California,
1993 WL 515880 (N.D. Cal. Dec. 6, 1993), is also unavailing. In
that case, a party attempted to rescind a contract, and after the
non-rescinding party refused to take back the consideration, the
rescinding party sought judicial enforcement. The Maniar court
held that in those circumstances, the contract was "voidable" but
not yet void, and the unilateral rescission is revocable until
effectuated by the court: "[T]he possibility remains that the
court may find insufficient grounds for rescission . . . and
conclude that the contract has in fact not been rescinded." Id.
at *3. The court concluded that the rescission was improper, and
found in favor of the non-rescinding party. Notably, the Maniar
court did not, as plaintiff asks this Court to do, first analyze
whether the rescinding party had breached its obligations under
the contract and then determine whether the rescission was
Plaintiff contends that allowing unilateral rescission without
judicial approval would allow for an anomalous result: the
carrier could delay defending just by alleging grounds for
rescission, then when the insured files suit, it could tender
rescission and vitiate not only its duty to defend but also the
insured's declaratory relief and breach of contract duties.
However, the Sogomonian court rejected a similar argument,
stating "[o]ur conclusion here should not result in an assumption
by insurers that policy liability can, with impunity, be avoided
or delayed by assertion of a claim for rescission. That is a
tactic which is fraught with peril. Where no valid ground for
rescission exists, the threat or attempt to seek such relief may
itself constitute (1) a breach of the covenant of good faith and
fair dealing which is implied in the policy and/or (2) the
commission of one or more of the unfair claims settlement
practices proscribed by Insurance Code section 790.03,
subdivision (h)." Sogomonian, 198 Cal. App. 3d at 185 n.
Here, it may be the case that St. Paul's rescission was
improper and that Atmel is entitled to relief. However, plaintiff
asks this Court to skip the necessary first step of determining
whether the rescission was valid. Unless and until the Court concludes that defendant's
rescission was improper, it is premature to evaluate whether
defendant breached any obligations under the policy. Maniar
does not compela finding that St. Paul breached its duty under
the policy independent of analyzing whether St. Paul's rescission
of the policy was proper. To the contrary, Maniar simply holds
in a situation where the non-rescinding party objects to a
rescission as is the case here the rescission is not
finalized and may be set aside as improper by a court. As in
Maniar, this Court may later conclude that St. Paul's
rescission of the policy was improper, and at that time the Court
would set aside the rescission and determine the parties' rights
and obligations under the policy.*fn3
Here, St. Paul argues that there never was a valid contract
between Atmel and St. Paul because Atmel failed to disclose
material facts about problems with Seagate. If this is true, and
St. Paul was entitled to rescission, then the legal duty to
defend was never triggered. Because the parties dispute virtually
all of the facts surrounding the propriety of St. Paul's
rescission and whether Atmel improperly failed to disclose the
Seagate issues on its insurance application, summary judgment
is not appropriate.*fn4
2. Damages and Civil Code § 2860
Atmel seeks a ruling from the Court that California Civil Code
§ 2860 has no relevance to the measure of Atmel's damages for St.
Paul's breach of its duty to defend. Civil Code § 2860 addresses
a carrier's obligations to provide independent counsel to defend
its insured when the carrier's reservation of rights creates a
conflict. Section 2860(c) provides, among other things, that
"[t]he insurer's obligations to pay fees to the independent
counsel selected by the insured is limited to the rates which are
actually paid by the insurer to attorneys retained by it in the ordinary course of business in
the defense of similar actions in the community where the claim
arose or is being defended." Cal. Civ. Code § 2860(c). Plaintiff
contends that because St. Paul did not defend it in the Seagate
Action, if St. Paul breached its duty to defend it cannot take
advantage of the rate limitations set forth in § 2860(c).
St. Paul contends that it is premature for the Court to address
this issue because there is no contract of insurance, and thus no
breach of the duty to defend, unless and until the Court sets
aside St. Paul's rescission. Although the Court has not yet made
any finding regarding whether defendant breached a duty to
defend, the Court nevertheless concludes that the issue of
whether damages are limited by Civil Code § 2860 presents a pure
legal question appropriate for summary judgment, and that the
resolution of this issue may help focus discovery and the
remaining litigation of this case.
The Court concludes that if plaintiff is able to establish a
breach of the duty to defend, its damages are not limited by
California Civil Code § 2860. St. Paul argues that § 2860 applies
because if it had defended Atmel in the Seagate Action, it
would have done so under a reservation of rights. This argument
misses the point, however, because as numerous courts have
recognized, "[t]o take advantage of the provisions of § 2860, an
insurer must meet its duty to defend and accept tender of the
insured's defense, subject to a reservation of rights." Concept
Enterprises, Inc. v. Hartford Ins. Co. of the Midwest, 2001 WL
34050685, at *3 (C.D. Cal. May 22, 2001); see also California v.
Pacific Indem. Co., 63 Cal. App. 4th 1535, 1544 (1998) (noting
the trial court's unchallenged finding "that [the insurer] had
materially breached its duty to defend, and therefore had
forfeited its right to participate in or control the . . .
defense, whether based on Civil Code section 2860 or
otherwise. . . ."); Foxfire, Inc. v. New Hampshire Ins. Co., 1994
WL 361815, at *3 (N.D. Cal. July 1, 1994). Here, it is undisputed
that St. Paul did not defend Atmel in the Seagate Action, and
thus the Court concludes defendant cannot avail itself of the
protections and limitations set forth in § 2860.
Relatedly, St. Paul contends that if Atmel's damages are not
limited by § 2860, then Atmel will be allowed a double recovery
and will be placed in a position better than it would have been
in the absence of any breach by St. Paul. St. Paul contends that
if it had defended Atmel subject to a reservation of rights,
St. Paul and Royal would have shared the defense costs under §
2860; allowing St. Paul to recover damages above and beyond what
Royal has already paid, St. Paul argues, will compensate Atmel
beyond just contract damages and instead is akin to a punitive award.
However, as discussed above, St. Paul's argument is premised
upon what would have happened if it had defended Atmel subject
to a reservation of rights. St. Paul may very well be correct
that if it had defended Atmel subject to a reservation of rights,
St. Paul and Royal would have shared the § 2860 costs.*fn5
However, St. Paul did not defend Atmel. The cases cited by St.
Paul do not support its position; instead, they simply hold that
where an insured is covered by multiple insurance companies, the
insured is not entitled to more than 100% of the total defense
costs. See Emerald Bay Community Ass'n v. Golden Eagle Ins.
Corp., 130 Cal. App. 4th 1078, 1088-89 (2005) (holding insured
did not have contract damages because 100% of defense costs paid
by two insurers; also stating that "[t]he general measure of
damages for a breach of the duty to defend an insured, even if it
is ultimately determined there is no coverage under the policy,
are the costs and attorney fees expended by the insured defending
the underlying action."); Prichard v. Liberty Mut. Ins. Co.,
84 Cal. App. 4th 890, 909 (2000) (holding where multiple insurers
potentially provide coverage, insured cannot insist the insurers
should each pay the whole of attorneys' bill); cf. Fireman's
Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 1283
(1998) ("[W]here there are several policies of insurance on the
same risk and the insured has recovered the full amount of its
loss from one or more, but not all, of the insurance carriers,
the insured has no further rights against the insurers who have
not contributed to its recovery."). Here, it is undisputed that
Atmel has unreimbursed defense costs.
St. Paul has also moved to strike plaintiff's Supplemental
Declaration of Shelley Knox under Federal Rules of Evidence 401
and 403 as irrelevant and confusing. The Court DENIES the motion
to strike the declaration, because the amount that Atmel paid to
defend the Seagate Action, and the amount covered by Royal, is
not irrelevant to an eventual determination of damages, should
the Court ever reach that issue.
3. The Fraud and Misrepresentation Clause
Plaintiff contends that a "Fraud and Misrepresentation" clause
contained in the insurance policy requires St. Paul to prove intentional fraud in order to rescind the
policy. The Fraud and Misrepresentation clause in the policy
This policy is void if you or any other protected
person hide any important information from us,
mislead us, or attempt to defraud or lie to us about
any matter concerning this insurance either before
or after a loss. Of course, everyone makes mistakes.
Unintentional errors or omissions won't affect your
rights under this policy.
Cusack Decl., Ex. F.
Atmel argues that this clause sets the standard for rescission
at intentional fraud. Atmel contends that notwithstanding the
various Insurance Code sections permitting rescission based on
unintentional or negligent misrepresentation or concealment in
connection with the application process, defendant waived its
right to material information through this clause pursuant to
Cal. Ins. Code § 336, which provides, "[t]he right to information
of material facts may be waived, either (a) by the terms of
insurance or (b) by neglect to make inquiries as to such facts,
where they are distinctly implied in other facts of which
information is communicated."
Plaintiff's argument is not persuasive. The plain language of
the Fraud and Misrepresentation clause does not waive St. Paul's
right to material information. Instead, the Fraud and
Misrepresentation clause simply states that a policy is void if
an insured or any other protected persons "hide any important
information from us, mislead us, or attempt to defraud or lie to
us about any matter concerning this insurance either before or
after a loss. . . . Unintentional errors or omissions won't
affect your right under this policy." An insurer's statement that
a party's rights will not be affected due to unintentional errors
or omissions is not tantamount to the insurer's waiver of its
statutory right to material information in the application
Moreover, as St. Paul notes, the questions in the application
and the certification Atmel was required to sign as part of the
application demonstrate that St. Paul did not waive its right to
any material information in the application process. See Runkel
Decl., Exs. E & F; see also Thompson v. Occidental Life Ins.
Co., 9 Cal.3d 904, 916 (1973) ("The fact that the insurer has
demanded answers to specific questions in an application for
insurance is in itself usually sufficient to establish
materiality as a matter of law.") (citations omitted).
California courts have held language similar to the Fraud and
Misrepresentation clause inapplicable to rescission of a policy
based on misrepresentation and concealment in a policy
application. In Mitchell v. United Nat'l Ins. Co., 127 Cal. App. 4th 457 (2005), the court
considered whether a standard "fraud and concealment" clause,
mandated by the California statutory fire insurance policy form,
and which requires intentional misrepresentation, precluded an
insurer from rescinding an insurance policy in the absence of
intentional fraud. The mandatory standard form policy at issue in
Mitchell is similar to the Fraud and Misrepresentation clause
in the insurance policy in this case. It stated,
Concealment, fraud: This entire policy shall be void
if, whether before or after a loss, the insured has
willfully concealed or misrepresented any material
fact or circumstance concerning this insurance or the
subject thereof, or the interest of the insured
therein, or in any case of any fraud or false
swearing by the insured relating thereto.
Id. at 470. See Cal. Ins. Code § 2071.
The Mitchell court concluded that this clause did not affect
or limit an insurer's rescission right sunder Insurance Code §§
331 and 359. The court noted that these sections govern
disclosure obligations "directed specifically at the formation of
the insurance contract," while § 2071 is intended to apply in
connection with a claim for policy benefits. See also Cummings
v. Fire Ins. Exch., 202 Cal. App. 3d 1407 (1988) (holding
insured had engaged in intentional fraud in connection with a
claim, and noting in dicta that "section 334 [defining
"materiality"] is not applicable to the instant case because it
relates to statements made in applications for insurance, not
statements made in an insured's claim. The materiality of a
representation made in an application for insurance is determined
by a subjective standard . . . and rescission will be allowed
even though the misrepresentation was the result of negligence or
the product of innocence.") (emphasis in original).
Plaintiff argues that Mitchell is distinguishable because the
concealment and fraud clause at issue in that case was
statutorily mandated, and thus the court was required to
reconcile that mandatory language with the rescission provisions
of Insurance Code §§ 331 and 359. Although plaintiff is correct
that the concealment and fraud clause in Mitchell was
statutorily mandated, there is nevertheless no persuasive or
logical reason to arrive at a different interpretation of a very
similar clause in this case. As St. Paul notes, common sense
dictates that the Fraud and Misrepresentation clause, which is
contained in the policy issued after the application has been
approved, does not apply to misrepresentation or concealment in
an insurance application.
The cases and statutes plaintiff relies on are in apposite. The
fact that the California Insurance Code permits or requires
carriers to limit their rescission rights in life insurance and
disability policies has no bearing on the interpretation of the
specific Fraud and Misrepresentation clause at issue in this
case. Similarly, the out-of-state authority plaintiff cites (on page 16 of the opening brief) is
not relevant because the courts in those cases were not
interpreting California law.
For the foregoing reasons and for good cause shown, the Court
hereby GRANTS in part and DENIES in part plaintiff's motion for
partial summary judgment [Docket # 73] and DENIES defendant's
motion to strike the Declaration of Shelly Knox [Docket # 167].
IT IS SO ORDERED.
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