The opinion of the court was delivered by: United States District Judge Dean D. Pregerson
ORDER FOR ENTRY OF JUDGMENT FOLLOWING APPEAL AND REMAND [Dkt. No. 173]
Before the court is Plaintiff Wells Fargo Bank, N.A., as Trustee for Benjamin Cabal 2007 Insurance Trust (the "Insurance Trust")'s Motion for Entry of Judgment Following Appeal and Remand. Having considered the parties' submissions, the court adopts the following order.
The undisputed facts of this case were stated as follows in this court's Order of April 4, 2010. (Dkt. No. 115). The Insurance Trust owns a $4 million life insurance policy (the "Policy") insuring the life of Benjamin Cabal, which defendant and counterclaim plaintiff American National Life Insurance Company ("ANICO") issued on October 16, 2007. (Statement of Uncontroverted Facts ("SUF") ¶¶ 1-2.) The Insurance Trust is the beneficiary of the Policy. (Id. ¶ 4.) When the Insurance Trust was formed, and when the Policy was issued to the Insurance Trust, Mr. Cabal's wife, Thelma Cabal, was the beneficiary of the Insurance Trust. (Id. ¶ 22.) The beneficial interest in the Insurance Trust was sold to The CAP Accumulation Trust on January 15, 2008, in exchange for $133,988.07. (Id. ¶¶ 23-25.)
At some point, The CAP Accumulation Trust discovered that the Financial Statement Questionnaire submitted with Mr. Cabal's application for the Policy contained several misrepresentations that vastly overstated Mr. Cabal's assets and income. (Id. ¶¶ 14-20.) The insurance agent who procured the Policy was Tigran Khrlobian of Prolinks Insurance. (Id. ¶ 9.)
On June 30, 2008, The CAP Accumulation Trust commenced a lawsuit against various defendants alleging that it had purchased the beneficial interest in the Insurance Trust, along with forty-eight other insurance trusts owning life insurance policies, in reliance upon material misrepresentations by insurance agents Mr. Khrlobian, Razmik Kachatourians, and their insurance agency Prolinks Insurance (and affiliated companies). (Id. ¶¶ 27-28.) It also alleged that Mr. Khrlobian, Mr. Kachatourians, and Prolinks Insurance had submitted life insurance applications containing material misrepresentations about the financial condition of Mr. Cabal and the other people whose lives were insured by the policies owned by the various other insurance trusts. (Id. ¶ 29.)
On September 18, 2008, counsel for the Insurance Trust and The CAP Accumulation Trust sent a letter to ANICO notifying it about the lawsuit and demanding "consensual rescission of the insurance policy and a return of all premiums paid to American National." (Rappaport Decl. Ex. 5 at p.2.) Following this letter, and in response to a request by ANICO, counsel for the Insurance Trust and The CAP Accumulation Trust provided ANICO with additional information supporting its belief that the application for the Policy contained material misrepresentations about Mr. Cabal's financial condition. (SUF ¶ 34.)
On March 18, 2009, Wells Fargo, as Trustee for the Insurance Trust, filed this lawsuit against ANICO. The Complaint alleges that "based upon the material misrepresentations and concealments of fact by Prolinks, Khachatourians and Khrlobian, the Insurance Trust has a right to demand rescission of the Policy and American National must return to the Insurance Trust all premiums paid to date for the Policy, with interest." (Compl. ¶ 16.) Wells Fargo prayed for a judicial declaration that:
(i) the Policy is rescinded and American National is obligated to return to the Insurance Trust all premiums paid for the Policy, with interest; or (ii) the Policy is in force and American National may not refuse to pay benefits or seek rescission of the Policy based upon purported material misrepresentations in the insurance application. (Id. 5:25-6:3.)
ANICO filed an Answer to the Complaint on April 13, 2009, asserting rescission as an affirmative defense:
By reason of the falsity and untruth of the statements and representations and concealment of material facts, ANICO has and hereby does rescind the Policy and hereby tenders all premiums paid on account of the Policy, subject to an offset, in the Court's discretion, for such sums paid by ANICO in commissions, the cost of providing insurance, and other costs relating and directly connected to the issuance of the Policy. (Answer ¶ 11.) In addition, ANICO filed a Counterclaim against Wells Fargo on April 20, 2009, asserting a single cause of action for declaratory relief and rescission on the grounds that (1) the Policy was procured based on Mr. Cabal's misrepresentations and (2) the Policy is void ab initio for lack of an insurable interest. ANICO prayed for a declaratory judgment stating that (1) the Policy is rescinded due to Mr. Cabal's misrepresentations, or (2) the Policy is void ab initio because it lacked an insurable interest, and (3) ANICO must refund premiums paid "with an offset, in the Court's discretion, for such sums reasonably paid by ANICO in commissions, the cost of procuring and providing the insurance, and other costs associated with the Policy." (Counterclaim 7:16-27.)
Wells Fargo filed a motion to strike from the pleadings ANICO's request to retain an "offset" from any premiums it must return to the Insurance Trust. On August 12, 2009, the Court granted the motion to strike, holding that "the rescission of an insurance contract results in the full return of premiums." (Aug. 12, 2009 Order 6:17-20 ...