Write Like You Mean It


By: Melina Shahbazian

The First Appellate District of the California Court of Appeal in Duarte v Pacific Specialty Insurance Company (2017) 13 Cal.App.4th 45, recently sent this message to an insurance carrier who attempted to rescind an insurance policy due to a material misrepresentation. In Duarte, the owner of rental property applied for a landlord insurance policy with Pacific Specialty Insurance Company by filling out an electronic application, and Pacific issued a policy the same day. Few months later, a tenant filed a lawsuit against Duarte alleging habitability defects, and Duarte tendered to Pacific. Pacific denied coverage and then sought to rescind the policy based on material misrepresentation on the application. Duarte filed a motion for summary judgment on his claim for declaratory relief and argued that he was entitled to a ruling that Pacific owed him a duty to defend the tenant lawsuit. Pacific filed a motion for summary judgment and argued that it was entitled to rescind the policy.

At issue were Question No. 4 and Question No. 9 of the insurance application. Question No. 4 asked Duarte “Has damage remained unrepaired from previous claim and/or pending claims, and/or known or potential (a) defects, (b) claim disputes, (c) property disputes, and/or (d) lawsuit?”, and Question No. 9 asked Duarte “Is there any type of business conducted on the premises?”. Duarte answered no to both questions.

The Court of Appeal reviewed the grant of the motion for summary judgments de novo, and held that Duarte reasonably interpreted Question No. 4 to be asking whether there were previous or pending insurance claims, and Question No. 9 to be asking whether there was regular and ongoing business activity on the premises, to which he answered “no”. The Court further held that Pacific could not rescind the policy based on misrepresentation because the questions contained “garble syntax” and were utterly ambiguous, and the insured’s interpretation of those questions were reasonable.

While the Court of Appeal held that ambiguous application questions precluded summary judgment on the insurer’s claim that they were entitled to rescission, the Court did affirm that the procedure used by the insurer was supportable and that an insurer may seek rescission by asserting rescission as an affirmative defense to its insured’s lawsuit and to do so the insurer is not required to file a cross-complaint for rescission.

If you have any questions or would like more information, please contact Melina Shahbazian at [email protected].