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PHL Variable Insurance Co. v. Clifton Wright Family Insurance Trust

April 12, 2010

PHL VARIABLE INSURANCE COMPANY, PLAINTIFF,
v.
CLIFTON WRIGHT FAMILY INSURANCE TRUST, DEFENDANT.



The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge

ORDER DENYING MOTION TO STRIKE

Defendant Clifton Wright Family Insurance Trust, by and through its trustee Vincent M. Giordano, has filed a Motion to Strike Allegations in the Complaint [Doc. 7]. For the following reasons, the Court DENIES the Motion.

I. BACKGROUND

The following factual statements are allegations in the Complaint and not the Court's factual findings.

Plaintiff PHL Variable Insurance Company issued a life-insurance policy to Defendant Clifton Wright Family Insurance Trust, insuring the life of Clifton Wright. Plaintiff now asserts that the Trust made material misrepresentations in applying for the life-insurance policy and seeks to rescind it.

Plaintiff requests the following relief: (1) a declaration that the policy is void an initio; (2) an order requiring Plaintiff to deposit with the Clerk of the Court all premiums paid on the policy, plus any required interest; (3) an order directing the Clerk to return all premiums to Plaintiff, or to pay to Plaintiff an amount equal to commissions paid by Plaintiff and any other damages incurred by Plaintiff related to issuing the policy; (4) attorney's fees and costs; and (5) any other equitable relief.

Defendant has moved to strike part of Plaintiff's requested relief. Specifically, Defendant seeks to strike Plaintiff's request to keep all or part of the premiums which Defendant paid on the policy.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 12(f) permits the court to "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). The function of a Rule 12(f) motion is to avoid the expenditure of time and money that arises from litigating spurious issues. Fantasy Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993). Because striking a portion of a pleading is a drastic remedy and because it is often used as a dilatory tactic, motions to strike are disfavored. 5C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure, § 1380 (3d ed. 2004). In ruling on a motion to strike, the Court accepts as true the factual allegations underlying the claim. See Kelly v. Kosuga, 358 U.S. 516 (1959).

III. DISCUSSION

Defendant argues that the Court should strike the portion of the Complaint requesting that Plaintiff retain all or part of the premiums paid under the life-insurance policy. Defendant supports its argument by citing the general principle that when a party requests rescission of the contract-as Plaintiff does here-the party must restore all consideration paid under the contract to the other party, thus placing the parties in the same position they were in had the contract never existed. Based on this principle, Defendant contends that Plaintiff cannot simultaneously seek rescission of the contract and also seek to retain all or part of the premiums it received.

Under California law,*fn1 "to effect a rescission a party to the contract must . . . [r]estore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise . . . ." Cal. Civ. Code § 1691. "[T]he service of a pleading in an action or proceeding that seeks relief based on rescission shall be deemed to be" an "offer to restore the benefits received under the contract . . . ." Id. In the case of an insurer seeking to rescind an insurance policy, this general rule would require the insurer to return to the insured all premiums paid under the policy. Star Pac. Invs., Inc. v. Oro Hills Ranch, Inc., 121 Cal. App. 3d 446, 457 (1981); see also Cal. Ins. Code § 481(a).

But even if an insurer must return everything of value it received under the policy, it may still seek compensation for damages. Cal. Civ. Code § 1692 ("The aggrieved party shall be awarded complete relief . . . ."). For example, the insurer may seek damages from the insured as a consequence of the rescission of the policy. See id. And the "[insurer] shall be awarded complete relief, including . . . any consequential damages to which he is entitled . . . ." Id. (emphasis added). Lastly, in a rescission action the Court has discretion to "adjust the equities between the parties." Id. This is because the primary purpose of rescission is to "restore both parties to their former position as far as possible" and "to that end [the court] may grant any monetary relief necessary to do so." Runyan v. Pac. Air Inds., Inc., 2 Cal. 3d 304, 316 (1970) (quotations marks omitted) (citing Stewart v. Crowley, 213 Cal. 694, 701 (1931)).

In many cases, merely returning consideration paid under the contract will not restore the parties to their former positions. Runyan, 2 Cal. 3d at 316--17. This is especially true in actions for rescission based on fraud or misrepresentation by the non-rescinding party. Id. at 317. In these types of cases, courts have required the party that committed the fraud to pay damages in order to avoid unjust enrichment or to make the innocent party whole. See id. at 317."Relief given in rescission cases-restitution and in some cases consequential ...


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