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May 2018

Gordon & Rees Los Angeles Team Wins Summary Judgment on Rescission Claim

Gordon Rees Scully Mansukhani Los Angeles partners Asim Desai and Margret Parke recently won summary judgment on a claim for rescission by an insurance client of the firm. The commercial general liability policy was issued by the insurer based on an application submitted by the insured’s broker. The application consisted of an Acord application as well as an Artisan Supplemental application.  Prior to completing the application, the insured was performing repairs inside a railway tunnel when a 200 foot section of the tunnel collapsed. The insured agreed to perform repairs to clear the earth debris. 

Notwithstanding the scope of the repair he agreed to perform, the insured represented in the application that his company’s operations did not include earth moving activities and that the work involved digging “shallow” holes at depths of 12 to 18 inches to install soil nails. Based on the representations made by the insured in the application, the insurer issued the policy.

In fact, the work the insured had agreed to perform and for which the policy was secured involved “excavating an entire hillside” according to the insured in deposition testimony. Further, the insured admitted that the holes to install the soil nails were no less than 12 feet deep.

Less than three months after the policy took effect, the slopes in the area on which the insured was working collapsed onto the tunnel and surrounding area. The railway sued the insured for damages resulting from both the tunnel collapse before the policy took effect, and after from the slope failure. The insurer agreed to provide a defense under a reservation of rights. Thereafter, the insurer filed its complaint for rescission based on the misrepresentations in the application. The insurer moved for summary judgment on its claim for rescission based on undisputed evidence from deposition testimony by the insured and the broker that the information contained in the application was inaccurate regarding the scope of the insured’s operations. The motion included the declaration by the insurer’s underwriter representing that the policy would not have been issued had the application truthfully represented the scope of the excavating work the insured had contracted to perform.

The court granted the insurer summary judgment on its claim for rescission finding that the misrepresentations in the application were material to the insurer. The court rejected the insured’s argument that information that was disclosed in the application should have required the insurer to investigate further. Rather, the responses on the application were not inconsistent and the insurer was entitled to rely upon responses in the Supplemental Artisan application to evaluate whether the nature of the insured’s excavation activities fell outside the scope of the coverage the insurer could provide.  

Asim K. Desai
Margret G. Parke