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Thomas Thompson, An Individual v. Avigators Insurance Company

April 30, 2012


The opinion of the court was delivered by: Jeffrey T Millle Judge United District District Judge



In February of 2011, Navigators Insurance Company ("Navigators") filed a complaint seeking rescission of its insurance contract with Thompson Builders, Inc. ("TBI"). Both parties now seek summary judgment. For the reasons stated below, the motions are DENIED.


TBI submitted an application for commercial general liability insurance in December 2009. Shortly thereafter, TBI began repair work on a commercial structure in National City, California that had previously been damaged by fire. Colin Butler, an employee of Vanderbuilt Construction ("Vanderbuilt"), was injured when he fell through a hole in the roof of the building; Thomas Thompson was also performing work on the roof on the day of the accident. Butler is seeking damages from both TBI and Thomas Thompson in California state court ("Butler litigation").

Navigators rescinded TBI's insurance coverage on February 18, 2011, claiming that TBI had made material misrepresentations in its application for the policy. It refused to defend TBI or Thompson in the Butler litigation. Navigators brought this action seeking rescission of its insurance contract with TBI and/or a declaration that Butler's injury is not covered under the insurance policy.


Navigators' arguments in favor of summary judgment fall into two general categories. First, it asserts that rescission of the contract was permissible because of material misrepresentations made by TBI in its application for insurance. Second, it argues that even if the contract had not been rescinded, the accident in question did not fall within the policy's scope of coverage.

A. Standards of Insurance Contract Interpretation

Interpretation of an insurance contract is a matter of law, and thus can be decided on summary judgment when facts are undisputed. Barnett v. State Farm General Ins. Co., 200 Cal.App.4th 536, 543 (2011). Thus, courts can decide questions of insurance coverage based on the terms of the policy unless the terms are capable of two or more reasonable constructions. Powerine Oil Co., Inc. v. Superior Court, 37 Cal.4th 377, 390 (2005). Disagreement over the meaning of a term does not necessarily make it ambiguous; instead, courts should look to the language and context of the entire policy. Id. at 390-91. A party's expectation of coverage cannot create an ambiguity, but does become relevant if the court finds that an ambiguity exists. California Traditions, Inc. v. Claremont Liability Ins. Co., 197 Cal.App.4th 410, 420-421 (2011). If a term is ambiguous, it is usually construed against the insurer. Powerine, 37 Cal. 4th at 391.

B. Rescission

In determining whether an insured's misrepresentations entitle the insurer to rescind the policy in question, the court must decide whether the misrepresentations were material. Imperial Cas. & Indem. Co. v. Sogomonian, 198 Cal.App.3d 169, 179 (1988). A misrepresentation is material if "the insurer was misled into accepting the risk or fixing the premium of insurance." Holz Rubber Co., Inc. v. American Star Ins. Co., 14 Cal.3d 45, 61 (1975). While an insurer is entitled to know the facts relative to the object of the insurance, [t]hat is not to say . . . that a mere incorrect answer on an insurance application will give rise to a defense of fraud, where the true facts, if known, would not have made the contract less desirable to the insurer. Moreover, the trier of fact is not required to believe the 'post mortem' testimony of an insurer's agents that insurance would have been refused had the true facts been disclosed. Sogomonian, 198 Cal. App. 3d at 180-181 (citations omitted).

1. Whether TBI Performed Demolition Work

First, Navigators argues that rescission is appropriate because TBI represented that it had not performed demolition work in the last ten years and did not plan to do so in the future. Ins. App. at 6. According to Navigators, TBI began to work on the project prior to the date of application and continued afterward. It points to deposition testimony in which Thompson admits that his invoice contained the words "demo roof," purportedly indicating that he performed demolition work. Lindell Decl. Ex. C p. 238.

TBI's arguments are largely based on the supposedly ambiguous definition of the term "demolition." First, it notes that the question in the application asked if TBI engaged in "[d]emolition of a residence or commercial building." TBI states that industry usage commonly refers to "demo" or "demolition" as removing any existing material on a job, and it was clear to Navigators that TBI, a remodeler, would often need to remove some existing parts of structures in order to complete its jobs. Under TBI's view, the phrasing of the question leads to the conclusion that Navigators was asking whether TBI would ever take down entire structures.

Navigators is correct that "the mere fact that a term is undefined does not require a finding of ambiguity." Nav. Reply at 3.1 Regardless of that fact, TBI has sufficiently demonstrated that the term "demolition" is ambiguous. Even if Navigators is correct that under TBI's definition, the term "structural" would be superfluous in the insurance application, that does not establish that the question is free from ambiguity, given the multitude of definitions that could attach to "structural demolition." Navigators has not provided a satisfactory definition of the term "demolition." Because of the ambiguity, summary judgment in favor of Navigators on this issue is inappropriate.

2. Whether TBI Performed Roofing Work

Navigators also contends that rescission was justified because TBI stated it would not perform roofing work. The application asked whether there had been or would be "[r]oofing performed by applicant (not subcontracted)," and TBI answered "No." Ins. App. at 6. Again, TBI disputes Navigators' definition of the term at issue. TBI argues that it simply performed carpentry work to create the frame of the roof while a separate roofing company was hired to perform the actual "roofing" work. TBI contends that the trade definition of the term only includes what essentially amounts to the "waterproofing system" that keeps the rest of the structure (including the wooden frame) dry.

Here also, there is a genuine question as to whether TBI's work on the project should be understood as "roofing" as referred to in the application. Navigators does not address this issue head-on and does not attempt to set forth a clear definition of what type of work should be included in the term "roofing." Instead, its reply concerns the ...

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