Opposition_msj_rescissionOppositionCal. Super. - 6th Dist.October 4, 2018B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18CV 335946 Santa Clara - Civil S. Ver; Alan L. Martini, SB No. 77316 Electronically Filed SHEUERMAN, MARTINI, TABARI by Superior Court of CA, ZENERE & GARVIN County of Santa Clara, A Professional Corporation on 5/19/2020 11:15 PM 1033 Willow Street Reviewed By: S. Vera San Jose, California 95125 Telephone: 408.288.9700 Case #18¢ Nasas0e Facsimile: 408.295.9900 MVEloRE: Email: amartini@smtlaw.com Attorneys for Plaintiff and Cross-Defendant, PAUL ELIAS, individually and dba APEC CONSTRUCTION SUPERIOR COURT OF CALIFORNIA IN AND FOR THE COUNTY OF SANTA CLARA PAUL ELIAS, individually and dba APEC )Case No. 18CV335946 CONSTRUCTION, ) YPLAINTIFEF’S OPPOSITION TO Plaintiff, )JDEFENDANT/CROSS-COMPLAINANT )JCOLONY INSURANCE COMPANY’S Vv. MOTION FOR SUMMARY JUDGMENT RE: )JCOLONY’S CROSS-COMPLAINT FOR INTERNATIONAL INSURANCE COMPANY )RESCISSION AND, IN THE ALTERNATIVE, OF HANNOVER SE; COLONY SPECIALTY )REQUEST TO CONTINUE THIS MOTION INSURANCE COMPANY; PREMIER CLAIMS )DUE TO THE NEED FOR DISCOVERY MANAGEMENT, LLC; AND DOES 1 - 25, ) INCLUSIVE, ) ) )Date: June 2, 2020 Defendants. )Time: 9:00 a.m. )Dept.: 21 RELATED CROSS-ACTION )Trial Date: ~~ None ) Complaint Filed: October 4, 2018 FAC Filed: March 5, 2019 A. Summary of Argument Colony Insurance Company (“CIC”) moves for summary judgment rescinding all of the policies it issued to plaintiff, Paul Elias, individually and dba Apec Construction, for the years 2016 through 2019 on the grounds that there were allegedly misrepresentations and concealments of 1 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY ph B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 material fact in Apec’s applications for insurance. Each application consisted of three documents which were submitted to a surplus lines broker in California, known as Scottish American General Insurance Agency. Since CIC is not licensed by the State of California Department of Insurance, and is known as a “surplus line insurer” or “non-admitted insurer” it must transact business in California through such an independent surplus line broker. Each application consisted of CIC’s own application form titled “Contractors - Artisan - Supplemental Application”, and two “ACORD” forms provided by and filled out by Apec Construction’s broker, Wallis & Wallis Insurance Brokers. CIC asserts that rescission of all the policies is permissible because of alleged material misrepresentations made by Apec in its applications for coverage in each year between March 17, 2016 and March 17, 2019. However, questions of fact exist as to whether there were any misrepresentations on the applications and, if so, whether they were material. In determining whether an insured’s misrepresentations entitle the insurer to rescind the policy in question, the court must first decide whether there are any such misrepresentations and secondly whether the misrepresentations were material. Imperial Cas & Indemnity Co. v. Sogomonian (1988) 198 Cal. App.3d 169, 179. A misrepresentation is material if “the insurer wass mislead into accepting the risk or fixing the premium of insurance.” While an insurer is entitled to know the facts relative to the object of the surance, [t]hat is not to say . . . that a mere incorrect answer on an insurance application will give 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 ‘postmortem’ testimony of an insurer’s agents that insurance would have been refused had the true facts been disclosed. Sogomonian, supra, 198 Cal.App.3d at 180-181. (Citations omitted.) There are questions of fact as to both the existence of misrepresentations and the materiality of any alleged misrepresentations. Here, there is no competent admissible evidence of materiality. What’s more, the fact is that after learning all of the relevant facts, and filing its cross-complaint for rescission, Colony renewed Apec’s policy with no additional premium, terms or conditions that previously existed. At the very least, there are questions of fact as to the materiality of the alleged misrepresentations. 2 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Furthermore, plaintiff applies to the court, in connection with this motion, to continue the hearing due to the need for discovery relating to CIC’s underwriting guidelines and practices which CIC has refused to provide to date. B. Standard for Summary Judgment Motion A motion for summary judgment is properly granted only when “all the papers submitted show there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code of Civ. Proc., § 437c¢, subd. (c).) The evidence must be viewed in the light most favorable to the non-moving party. Roman v. Bre Properties, Inc. (2015) 237 Cal.App.4th 1040, 1050. The moving party bears the burden of showing the plaintiff has not established, and cannot reasonably expect to establish, a prima facie case. Miller v. Department of Corrections (2005) 36 Cal.4th 446, 460. As the moving party, CIC bears the burden of showing that plaintiff cannot reasonably expect to establish that there was a potentiality of coverage under the CIC policy for the underlying action or that there is a complete defense to the cause of action. Pipitone v Williams (2016) 244 Cal. App.4th 1437, 1449. Plaintiff has no evidentiary burden until defendant “shows” either a complete defense or that an essential element of plaintiff’s claim “cannot be established.” Until that time, defendant has not met its burden of production and plaintiff therefore has no burden to oppose. [See Code of Civ. Proc., § 437¢c(p)(2); Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 170. On a summary judgment motion where, as here, an insurer seeks to prevail on the ground that it did not have a duty to defend its insured against a third party lawsuit, the insurer must present undisputed facts establishing the absence of any potential for coverage. Whereas, the insured defeats such a motion by showing a potential for coverage exists - i.e., that the underlying claim may fall within the policy coverage. Albert v. Mid-Century Ins. Co. (2015) 236 Cal.App.4th 1281, 1290; Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th 287, 300. “[ W]hen an insurer seeks summary judgment on the ground the claim is excluded, the burden is on the insurer to prove that the claim falls within an exclusion.” Brodkin v. State Farm Fire & Casualty Co. (1989) 217 Cal. App.3d 210, 216. 3 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 C. The Alleged Incorrect Answers on Apec’s Insurance Applications 1. Whether Apec’s Characterization of Its Business as “Remodel - Small Jobs - No Condos or New Homes” was Accurate First, CIC argues that rescission is appropriate because Apec represented that the nature of its business as “remodel - small jobs - no condos or new homes.” Although CIC argues that this answer was “misrepresented”, it offers no competent admissible evidence that the statement was untrue. On the contrary, Paul Elias has provided his declaration attesting to the truth of the representation. (Paul Elias Declaration, 9 3.) 2 Whether Apec Correctly Provided Its “Loss History” CIC next contends that rescission is justified because Apec improperly provided information regarding its “Loss History” insofar as it did not disclose the “2015 Brassfield Complaint” on the 2016 application and did not disclose the 2015 and 2016 Brassfield Complaints on the 2017 applications and did not disclose the Brassfield 2015 and 2016 suits on the 2018 - 2019 applications. However, with regard to the 2016 application, it consisted of three separate documents: CIC’s own application form (“Contractors - Artisan - Supplemental Application), and ACORD form 125 (Commercial Insurance Application) and ACORD form 126 (Commercial General Liability Section). Of significance, CIC’s own application form under the heading “LOSS HISTORY” asks for “three years of loss history information on ACORD application.” (See, e.g., Exhibit 9) Since “Loss” clearly and unequivocally involves occurrences in which the applicant has paid a claim or a claim was paid on its behalf and that it deals with payment of claims. The term “loss” is generally defined in Merriam Webster’s Dictionary as “the amount of an insurer’s financial detriment by death or damage that the insurer is liable for.” That is the way Mr. Elias understood it. (Declaration of Paul Elias, 9 4,7). Apec, as directed, provided its “Loss History” for the prior three years on the ACORD 125 form and reported under “Loss History” the claim that had been paid by its insurer two years before. (Exhibit 7.) The heading on both CIC’s own application form, and the ACORD form in which Apec was directed to provide the information is sufficient to indicate that the requested information relates to “Loss History.” A provision should “be read and construed as a whole and, more particularly, that 7 PLAINTIFF'S OPPOSITION TO COLONY’S MSJ RE: COLONY’S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the caption of the [provision] is to be read and construed with the language of the [provision] itself.” Coit v. Jefferson Standard Life Ins. Co. (1946) 28 Cal.2d 1, 11. Indeed, a heading can be used in interpreting a provision. Hervey v. Mercury Casualty Co. (2010) 185 Cal. App.4th 954, 965. See also People v. Garfield (1985) 40 Cal.3d 192, 199 which analogously held that a chapter heading may be a “useful guide” to statutory interpretation. It is only when a contract has no ambiguity that an otherwise contradictory heading should not be understood to create any. Coit v. Jefferson Standard Life Ins. Co., supra, 28 Cal.2d at 11. Here, construing the heading and request for “Loss History” on CIC’s application (Exhibit 9) with the heading “Loss History” on the ACORD 125 form as a coherent whole shows that CIC was looking for information about claims that had been paid in the past (a “LOSS”), which is how Apec responded to CIC’s specific request on its own application form. It is reasonable to conclude that when CIC asked on its supplemental application for “Loss History” and requested that the information be provided on an “ACORD” application, which also bears a heading “Loss History” the application is reasonably interpreted to call only for claims resulting in losses. Furthermore, the fact that CIC’s own application requests only “Loss History” for the prior three years bears on the materiality of any additional information, including “claims” for which no payment had been made which CIC claims should have been disclosed. The fact that CIC only requested three years of “Loss History” on its on own application form indicates that that is what was material to itself and its underwriters, not additional information that may be requested on another form provided by Elias’s own broker. CIC’s conduct in limiting its request to “Loss History” to be provided on an ACORD form, will estop CIC from now claiming that it expected more information than just “Loss History.” See Waller v. Truck Ins. Exch., Inc. (1995) 11 Cal.4th 1, 33. 3. Whether Apec’s Operations Include Excavation, Tunneling, Underground Work or Earth Moving CIC also contends that rescission is justified because Apec answered the question “do any operations include excavation, tunneling, underground work or earth moving? “No.” However, not 5 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 only did CIC fail to provide any competent admissible evidence that Apec’s response was inaccurate, Apec’s principal, Paul Elias, provided a declaration indicating that the statement was correct. (Elias Declaration, 9 7.) 4. Whether Apec Performed below Grade Work That Exceeds 36 Inches CIC also contends that Apec misrepresented its “exposures” by failing to check the box indicating that it performs below grade work that exceeds 36 inches, although it fails to provide any competent admissible evidence that Apec’s operations included such work. On the contrary, Mr. Elias has provided a declaration that it did not. (Elias Declaration, 9 5.) S. Whether Apec “Discontinued Operations” As a General Contractor in the Past 10 years. CIC also argues that the 2016 Supplemental Application asked in the “Discontinued Operations” section that the applicant check the box if it acted in the capacity of a general contractor for new ground up residential construction within the past ten years. Although Apec had not performed any new ground up construction since it finished the Brassfield home sometime in 2006, it had not discontinued such operations. (Elias Declaration, 49 3 and 7.) The box was therefore inapplicable. Furthermore, CIC offers no competent admissible evidence that the residence was completed in January 2007 as it contends. (See Opposing Party’s Response and Supporting Evidence to UMF Nos. 20 and 21.) D. The Materiality of the Alleged Inaccuracies in Apec’s Insurance Applications are Triable Issues of Fact and CIC failed to provide evidence of Materiality CIC attempts to distort the laws governing materiality by citing to case law where materiality was correctly determined as a matter of law, while glossing over the fact that it did not provide the requisite evidence essential for a materiality determination. The general rules applicable to a determination of materiality were well summarized by the California Supreme Court in Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 915-916. The materiality of questions and answers in an insurance application is determined by the probable and reasonable influence which truthful answers would have had upon the insurer. An incorrect answer on an insurance application does not give rise to the defense of fraud where the true facts, if known, would not have made the contract less 6 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 desirable to the insurer. (/d.) Moreover, the trier of fact is not required to believe the postmortem testimony of an insurer’s agents that insurance would have been refused had the true facts been disclosed. (/d.) Courts use a subjective test in order to determine if the misrepresentation would have made the contract less desirable to the insurer. Imperial Casualty & Indemnity Co. v. Sogomonian, supra, 198 Cal.App.3d 169, 181. Thus, information is material if it would have caused this insurer’s underwriter to reject the application or to charge a higher premium for the policy or to amend the policy terms. Imperial Cas. & Indemnity Co. v. Sogomonian, supra, 198 Cal.App.3d at 181; Mitchell v. United Nat.’l Ins. Co. (2005) 127 Cal.App.4th 457, 474; [holding “the test for materiality is whether the information would have caused the underwriter to reject the application, charge a higher premium, or amend the policy terms, had the underwriter known the true facts]; LA Sound U.S.A., Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1268-1269 [indicating that materiality may be shown by the effect truthful response would have had on the insurance company]. Typically, to meet its burden of materiality, the insured has the specific underwriter that reviewed the application in question testify that he or she would have rejected the application had they known the facts misstated or omitted. (See Mitchell v. United Nat.’ Ins. Co., supra, 127 Cal. App.4th at 465 [insurer presented declaration of actual underwriter who received application and underwrote policy in support of its summary judgment motion].) In contrast, CIC did not present any pertinent evidence to support its assertion that the misrepresentations would have impacted their decision. The one and only piece of evidence offered by CIC to support its argument that the alleged misrepresentations in the applications for insurance were material was a declaration of Tracy Byrum, currently Assistant Vice President in Underwriting for CIC, who acknowledges in the second paragraph of her declaration that another company, 9 <6 “Scottish American” “underwrote these policies on CIC’s behalf.” The California Code of Civil Procedure requires that ‘[s]upporting and opposing affidavits or declarations shall be made by a person on personal knowledge, shall set forth admissible evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated in the affidavits or deliberations.” (Cal. Civ. Code Proc., § 437¢(d).) 7 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Ms. Byrum is not the underwriter that reviewed Apec’s applications, and she did not even work for Scottish American, CIC’s underwriter who reviewed Apec’s applications. There is not even any indication as to whether she worked for CIC in March of 2016, when the first policy was issued to Apec. As such, Ms. Byrum is unqualified to present her opinion because it lacks foundation and is not based on her personal knowledge. (See Objection to Declaration of Tracy Byrum filed herewith. She has no actual knowledge of Scottish American’s policies or practices at the time the insurance policy in question was issued. CIC thus failed to present credible evidence that the alleged misrepresentations in this case would have impacted its decision or would have made the contract less desirable. E. CIC’s Actions, When it Discovered the Alleged Inaccuracies Demonstrated That it Did Not Deem Them to Be Material CIC not only failed to provide evidence that the alleged inaccuracies in Apec’s applications were material, but also failed to negate the presented evidence that suggests that the alleged misrepresentations and concealments were immaterial and would not have impacted its decision to insure Apec at all. Claims of materiality may be attacked by showing the insurer failed to treat the alleged information as important when it first became aware of it. Croskey, Heesman, Imre & Ehrlich, Cal Practice Guide: Insurance Litigation (The Rutter Group 2018), p. 5:227, P 5-70, citing Olson v. Standard Marine Ins. Co. (1952) 109 Cal. App.2d 130, 137-139. It is undisputed that by March of 2020, CIC learned all of the information that it now claims was concealed from it or misrepresented. In light of this knowledge, CIC renewed the policy, and made no further inquiries. The fact that CIC was willing to issue the policy for no additional premium and on no additional terms and conditions tends to prove that CIC did not consider the information to be material. The parties’ subsequent conduct provides extrinsic evidence as to their objective intent. Morey v. Vannucci (1998) 64 Cal. App.4th 904, 912. Circumstantial evidence of subsequent conduct is admissible to prove a prior intent. As indicated above, the issue of materiality is determined by a subjective test of whether the misrepresentations would have made the contract less desirable to the insurer. Imperial, supra, 198 8 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Cal.App.3d at p. 181. CIC’s conduct in failing to treat the information as important when it became aware of the alleged inaccuracies shows how immaterial the information was to CIC. CIC’s renewal of the policy is evidence that had the “correct” information been disclosed, it would not have changed or impacted the insurance policy CIC issued to Apec. F. The Court Is Requested to Deny or Continue this Motion Due to the Need for Discovery. CIC’s motion must be denied because there are disputed material facts. Among these disputed facts is whether CIC would have issued or renewed the policies had it known of the alleged misrepresentations and concealments on the applications or whether it would have issued or renewed the policies, despite such knowledge, as it actually did in March of 2020. Indeed, when asked in discovery for information and documents showing the identity of any other contractors in California who applied for insurance who disclosed more than one claim on their application who were issued a policy, CIC objected and refused to provide an answer. CIC was also asked to produce its underwriting manual, guidelines or other materials regarding its policies in this regard, CIC has also failed to produce anything. CIC instead interposed blanket objections to the Request for Admissions and Request for Production of Documents. (See Declaration of Alan L. Martini in Support of Application to Continue Summary Judgment Motion Due to Need for Discovery) Apparently, CIC expects this Court to grant summary judgment based on an alleged “undisputed” material fact of a significant defense solely on the declaration of its Assistant Vice President of Underwriting, Traci Byrum, when evidence of whether this fact was actually material to CIC has deliberately been withheld. See Imperial Casualty & Indemnity Co. v. Sogomonian, supra, 198 Cal.App.3d at 181 (the trier of fact is not required to believe the “postmortem” testimony of an insurer’s agents that insurance would have been refused had the true facts been disclosed). This disputed material fact alone compels denial of Cross-Complainant’s motion, or at least the Court to grant a continuance until Cross-Complainant complies with the discovery requests. Indeed, according to Croskey, Heesman, Imre & Ehrlich, Cal Practice Guide: Insurance Litigation (The Rutter Group 2018) at 5:203.1, a “practice pointer for policyholder’s counsel” is: 9 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY B w Oo 0 9 NN Wn 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Consider conducting discovery to prepare for opposing the insurer’s inevitable summary judgment motion on materiality: - Serve a request for production of the insurer’s underwriting file for the particular policy, its general underwriting policies and procedures, and (subject to appropriate privacy protections; citation omitted) all prior claims in which the materiality of the question at issue played any part in the rejection of an application or rescission of a policy. Due to the existence of questions of fact as to whether there were any misrepresentations on the applications and, if so, whether they were material, and given CIC’s failure to cooperate with discovery and produce relevant documents and information relating to their underwriting practices, the Court is respectfully requested to deny CIC’s motion for summary judgment, or, in the alternative, to continue the hearing to allow Cross-Defendant to obtain the necessary information by compelling CIC to respond to the legitimate discovery requests. Dated: May 19, 2020 By: SHEUERMAN, MARTINI, TABARYI, ZENERE & GARVIN ok ] I Mot / [fz n ALAN L. MARTINI Attorneys for Plaintiff and Cross-Defendant PAUL ELIAS, individually and dba APEC CONSTRUCTION 10 PLAINTIFF’S OPPOSITION TO COLONY’S MSJ RE: COLONY'S CROSS-COMPLAINT FOR RESCISSION AND, IN THE ALTERNATIVE, REQUEST TO CONTINUE THIS MOTION DUE TO THE NEED FOR DISCOVERY
