A California federal district court granted in part and denied in part various motions involving Star Insurance’s action seeking to rescind an insurance policy based upon certain alleged material misrepresentations concerning the nature of the insured’s business. The insured, Sunwest Metals, Inc., incurred substantial damage to its property following an arson fire. After Star advanced certain benefits to Sunwest, Star sued to rescind the policy based upon certain alleged misrepresentations which Sunwest, through its agent, made on the insurance application which underreported the percentage of income from Sunwest’s recycling business. The parties did not dispute that the misrepresentations were false. In defense, Sunwest argued the misrepresentations were unintentional and not material. Sunwest counterclaimed against Star and cross-claimed against its agent as well as against Star’s surplus lines broker, G. J. Sullivan. The parties cross-moved for judgment.

First, the court denied Sunwest’s motion for judgment on the pleadings, rejecting Sunwest’s argument that Star was required to plead and prove that Sunwest’s intentionally mispresented the income from its recycling operations on the aapplication. As a matter of law, California law allows an insurer to rescind a policy based upon an insured’s negligent or intentional concealment or misrepresentation of a material fact.

Next, the court denied in part Star’s motion for summary judgment. Sunwest raised genuine issues of material fact as to whether Star had inquiry notice of the misrepresentations. Specifically, Star’s underwriters had seen Sunwest’s website which prominently displayed Sunwest’s recycling business and reviewed a report which should have put it on notice to further investigate Sunwest’s annual revenue breakdown. Moreover, because a genuine issue of material fact existed as to when Star should have been on notice of Sunwest’s actual income, the court determined that genuine issues of material fact also existed as to whether or not Star waived the misrepresentation by allegedly unduly delaying its rescission. While it agreed with Sunwest that genuine issues of material fact existed as to inquiry notice and waiver, the court found as a matter of law that the misrepresentations were indeed material.

Finally, the Court granted Sullivan’s motion for summary judgment. The parties did not dispute Sullivan acted as Star’s agent. The issue became whether Sullivan acted in a capacity as a dual agent which could have given rise to a cause of action by Sunwest against Sullivan. The court rejected Sunwest’s argument, finding that a reasonable jury could only conclude that Sullivan was not a dual agent. Star Insurance Co. v. Sunwest Metals, Inc., Case No. SACV 13-1930 DOC(DFMx) (C.D. Cal. Dec. 29, 2014)