{"id":892292,"date":"2017-06-07T11:39:07","date_gmt":"2017-06-07T17:39:07","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=892292"},"modified":"2017-06-07T11:39:07","modified_gmt":"2017-06-07T17:39:07","slug":"insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/","title":{"rendered":"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims"},"content":{"rendered":"

Kevin Pollack | Property Insurance Coverage Law Blog<\/a> | June 6, 2017<\/p>\n

After a claim is made, and despite the obligation to objectively, fairly, and reasonably investigate a claim with an eye toward providing coverage\u00a0and<\/strong><\/em>\u00a0without putting the insurance company\u2019s interests ahead of their insured\u2019s, some insurers actively look for ways to deny coverage. One of the ways some insurers do this is by using the claim investigation to search for information that the insured provided in its insurance application that is or was inaccurate.<\/p>\n

Insurers do this so they can rescind the policy on the ground that the insured made a material misrepresentation in the application. Insurers argue that the misrepresentation was material, and that had the insurer known the truth at the time\u00a0the<\/strong><\/em>\u00a0policy was issued, it would have charged more in premium and\/or would not have issued the policy. This strategy is referred to by some as post-claim underwriting because the insurer fails to do its due diligence during the underwriting process, gladly accepts premium, and then\u2014only after a claim is made\u2014looks to investigate the insured with a fine-toothed comb.<\/p>\n

A recent non-published decision by the Ninth Circuit Court of Appeals explains that insurers who fail to properly investigate an evaluate an insured during the underwriting process at the time the policy is issued cannot use information later obtained during a claim investigation to support rescission if the insurer had access to the information previously.1<\/sup><\/p>\n

Sunwest Metals owned a recycling plant that suffered a catastrophic fire. After it filed its insurance claim for the fire damage, Star Insurance Company denied the claim after it learned that Sunwest\u2019s insurance applications had misrepresented the extent of its paper and plastic operations. Star Insurance Company claimed that in practice, a policyholder deriving more than 15 percent of its annual revenue from paper or plastic products wouldn\u2019t be eligible for coverage under the scrap dealer program that Sunwest was insured under and through. Therefore, Star Insurance Company filed a lawsuit seeking to rescind Sunwest\u2019s insurance policy.<\/p>\n

The evidence presented in the lawsuit demonstrated that Sunwest\u2019s insurance agents made multiple misrepresentations on insurance applications, including stating that the company\u2019s annual sales were composed of 80 percent aluminum and 20 percent iron and steel, while nonmetals such as paper and plastic made up a negligible percentage of sales. However, Sunwest actually received a large percentage of its revenue from paper products. The evidence also showed that Sunwest did not review the representations on the applications before they were submitted to the insurer.<\/p>\n

The trial court ruled in favor of Sunwest because it found that Star Insurance Company and its agents had received several documents and communications calling into question the extent of Sunwest\u2019s paper and plastics business but failed to heed those \u201cred flags\u201d and investigate the company\u2019s business further before the fire loss. As a result,\u00a0the trial court ruled that Star Insurance Company had waived its right to rescind the policies<\/strong><\/em>.<\/p>\n

Star Insurance Company appealed, and the Ninth Circuit Court of Appeals upheld the trial court\u2019s decision. Its rationale was as follows:<\/p>\n

As a general rule, an insurer may \u201crely upon [the insured] . . . for such information as it desires\u201d in determining whether to provide coverage. Old Line
\nLife Ins. Co. v. Superior Court, 229 Cal. App. 3d 1600, 1604 (1991) (internal quotation marks omitted).\u00a0But it may not blindly ignore evidence of misrepresentation, collect premiums, and then opportunistically rescind once a claim is filed. Under California law, \u201c[t]he right to information of material facts may be waived . . . by neglect to make inquiries as to such facts, where they are distinctly implied in other facts of which information is communicated.\u201d Cal. Ins. Code \u00a7 336. Where an insurer has \u201cbefore it information that plainly indicate[s] that the insured\u2019s statements [are] not true,\u201d it has a \u201cduty of further inquiry\u201d to determine the \u201cpertinent facts.\u201d Rutherford v. Prudential Ins. Co. of Am., 234 Cal. App. 2d 719, 733\u201334 (1965). This includes a duty to investigate \u201cinformation which if pursued with reasonable diligence\u201d would reveal misrepresentations.<\/strong><\/em><\/p>\n

The district court identified numerous pieces of evidence spanning nearly two years that \u201cdistinctly implied\u201d the falsity of information in Sunwest\u2019s insurance applications and subsequent communications with Star. For example, (i) Sunwest\u2019s website advertised paper and plastic recycling as a main part of its business; (ii) a September 2011 site inspection of Sunwest revealed that Sunwest \u201cfill[ed] large dumpster bins\u201d with, inter alia, paper products; and (iii) two other site inspections\u2014one in January 2012 and one in 2008, the report of which Star received in February 2012\u2014noted substantial paper processing. Star was clearly aware that the application information was inconsistent with these facts, as indicated by its repeated inquiries into Sunwest\u2019s operations. The answers Star received from Dunlap were non-responsive, and simply reiterated that 100 percent of Sunwest\u2019s annual revenue came from metal products.<\/p>\n

The district court did not clearly err in finding that Star had before it information that \u201cdistinctly implied\u201d material misrepresentations, and that it failed to satisfy its duty to investigate such evidence. The duty of inquiry requires an insurer to not only ask questions, but also to investigate answers. (citation omitted). Star made inquiries, but then ignored the inadequacy of the answers it received. Having turned a blind eye for nearly two years, Star waived its right to rescind when Sunwest filed a claim.<\/p><\/blockquote>\n

(Emphasis added).<\/p>\n

This is a powerful decision that, although unpublished, gives policyholders, public adjusters, and policyholder advocates a strong roadmap concerning how to avoid rescission where the insurer\u2019s position is nothing more than a blatant attempt to use post claim underwriting to avoid paying a claim.
\n__________
\n1<\/sup>\u00a0Star Ins. Co. v. Sunwest Metals Inc.<\/em>, No. 15-56562 & 15-56568, 2017 WL 2198969\u00a0(9th Cir. May 18, 2017).<\/p>\n","protected":false},"excerpt":{"rendered":"

Kevin Pollack | Property Insurance Coverage Law Blog | June 6, 2017 After a claim is made, and despite the obligation to objectively, fairly, and reasonably investigate a claim with an eye toward providing coverage\u00a0and\u00a0without putting the insurance company\u2019s interests ahead of their insured\u2019s, some insurers actively look for ways to deny coverage. One of… Continue reading Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[3,9914],"tags":[9895,3,23,10105],"class_list":["post-892292","post","type-post","status-publish","format-standard","hentry","category-insurance-claims","category-insurance-coverage","tag-advise-consult","tag-insurance-claims","tag-insurance-coverage","tag-rescission","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nInsurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims - Advise & Consult, Inc.<\/title>\n<meta name=\"description\" content=\"This is a powerful decision that gives a strong roadmap concerning how to avoid rescission where the insurer\u2019s position is to avoid paying a claim\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims - Advise & Consult, Inc.\" \/>\n<meta property=\"og:description\" content=\"This is a powerful decision that gives a strong roadmap concerning how to avoid rescission where the insurer\u2019s position is to avoid paying a claim\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/\" \/>\n<meta property=\"og:site_name\" content=\"Advise & Consult, Inc.\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Advise-Consult-Inc-126949043996790\/\" \/>\n<meta property=\"article:published_time\" content=\"2017-06-07T17:39:07+00:00\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@adviseconsult\" \/>\n<meta name=\"twitter:site\" content=\"@adviseconsult\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/\"},\"author\":{\"name\":\"admin\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/person\/0a11abe008083d5fb19c2b0feefe7bd7\"},\"headline\":\"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims\",\"datePublished\":\"2017-06-07T17:39:07+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/\"},\"wordCount\":970,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#organization\"},\"keywords\":[\"Advise & Consult\",\"Insurance Claims\",\"insurance coverage\",\"Rescission\"],\"articleSection\":[\"Insurance Claims\",\"Insurance Coverage\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/\",\"url\":\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/\",\"name\":\"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims - Advise & Consult, Inc.\",\"isPartOf\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#website\"},\"datePublished\":\"2017-06-07T17:39:07+00:00\",\"description\":\"This is a powerful decision that gives a strong roadmap concerning how to avoid rescission where the insurer\u2019s position is to avoid paying a claim\",\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/\"]}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#website\",\"url\":\"https:\/\/www.myconstructionexpert.com\/blog\/\",\"name\":\"Advise & Consult, Inc.\",\"description\":\"Construction Expert Witnesses\",\"publisher\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.myconstructionexpert.com\/blog\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#organization\",\"name\":\"Advise & Consult\",\"url\":\"https:\/\/www.myconstructionexpert.com\/blog\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.myconstructionexpert.com\/blog\/wp-content\/uploads\/2015\/11\/AC-Red-Logo.png\",\"contentUrl\":\"https:\/\/www.myconstructionexpert.com\/blog\/wp-content\/uploads\/2015\/11\/AC-Red-Logo.png\",\"width\":162,\"height\":75,\"caption\":\"Advise & Consult\"},\"image\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/logo\/image\/\"},\"sameAs\":[\"https:\/\/www.facebook.com\/Advise-Consult-Inc-126949043996790\/\",\"https:\/\/x.com\/adviseconsult\",\"https:\/\/www.linkedin.com\/company-beta\/204526\/\",\"https:\/\/www.youtube.com\/user\/MrConstructionExpert\"]},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/person\/0a11abe008083d5fb19c2b0feefe7bd7\",\"name\":\"admin\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/b01e71b7acadd7657af782b7ad1a30cc?s=96&d=mm&r=pg\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/b01e71b7acadd7657af782b7ad1a30cc?s=96&d=mm&r=pg\",\"caption\":\"admin\"},\"sameAs\":[\"http:\/\/www.expertwitnessinconstruction.com\"]}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims - Advise & Consult, Inc.","description":"This is a powerful decision that gives a strong roadmap concerning how to avoid rescission where the insurer\u2019s position is to avoid paying a claim","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/","og_locale":"en_US","og_type":"article","og_title":"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims - Advise & Consult, Inc.","og_description":"This is a powerful decision that gives a strong roadmap concerning how to avoid rescission where the insurer\u2019s position is to avoid paying a claim","og_url":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/","og_site_name":"Advise & Consult, Inc.","article_publisher":"https:\/\/www.facebook.com\/Advise-Consult-Inc-126949043996790\/","article_published_time":"2017-06-07T17:39:07+00:00","author":"admin","twitter_card":"summary_large_image","twitter_creator":"@adviseconsult","twitter_site":"@adviseconsult","twitter_misc":{"Written by":"admin","Est. reading time":"5 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/#article","isPartOf":{"@id":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/"},"author":{"name":"admin","@id":"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/person\/0a11abe008083d5fb19c2b0feefe7bd7"},"headline":"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims","datePublished":"2017-06-07T17:39:07+00:00","mainEntityOfPage":{"@id":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/"},"wordCount":970,"commentCount":0,"publisher":{"@id":"https:\/\/www.myconstructionexpert.com\/blog\/#organization"},"keywords":["Advise & Consult","Insurance Claims","insurance coverage","Rescission"],"articleSection":["Insurance Claims","Insurance Coverage"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/","url":"https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/","name":"Insurers Cannot Rely on Rescission if They Fail to Inquire and Investigate Insureds Before Claims - Advise & Consult, Inc.","isPartOf":{"@id":"https:\/\/www.myconstructionexpert.com\/blog\/#website"},"datePublished":"2017-06-07T17:39:07+00:00","description":"This is a powerful decision that gives a strong roadmap concerning how to avoid rescission where the insurer\u2019s position is to avoid paying a claim","inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.myconstructionexpert.com\/blog\/insurers-cannot-rely-rescission-fail-inquire-investigate-insureds-claims\/"]}]},{"@type":"WebSite","@id":"https:\/\/www.myconstructionexpert.com\/blog\/#website","url":"https:\/\/www.myconstructionexpert.com\/blog\/","name":"Advise & Consult, Inc.","description":"Construction Expert Witnesses","publisher":{"@id":"https:\/\/www.myconstructionexpert.com\/blog\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.myconstructionexpert.com\/blog\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.myconstructionexpert.com\/blog\/#organization","name":"Advise & Consult","url":"https:\/\/www.myconstructionexpert.com\/blog\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/logo\/image\/","url":"https:\/\/www.myconstructionexpert.com\/blog\/wp-content\/uploads\/2015\/11\/AC-Red-Logo.png","contentUrl":"https:\/\/www.myconstructionexpert.com\/blog\/wp-content\/uploads\/2015\/11\/AC-Red-Logo.png","width":162,"height":75,"caption":"Advise & Consult"},"image":{"@id":"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/www.facebook.com\/Advise-Consult-Inc-126949043996790\/","https:\/\/x.com\/adviseconsult","https:\/\/www.linkedin.com\/company-beta\/204526\/","https:\/\/www.youtube.com\/user\/MrConstructionExpert"]},{"@type":"Person","@id":"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/person\/0a11abe008083d5fb19c2b0feefe7bd7","name":"admin","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/b01e71b7acadd7657af782b7ad1a30cc?s=96&d=mm&r=pg","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/b01e71b7acadd7657af782b7ad1a30cc?s=96&d=mm&r=pg","caption":"admin"},"sameAs":["http:\/\/www.expertwitnessinconstruction.com"]}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p2ztG6-3K7O","jetpack_likes_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/posts\/892292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/comments?post=892292"}],"version-history":[{"count":1,"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/posts\/892292\/revisions"}],"predecessor-version":[{"id":892293,"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/posts\/892292\/revisions\/892293"}],"wp:attachment":[{"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/media?parent=892292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/categories?post=892292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myconstructionexpert.com\/blog\/wp-json\/wp\/v2\/tags?post=892292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}