CACI 2308 Affirmative Defense—Misrepresentation or Concealment in Insurance Application

New September 2003; Revised April 2004, October 2004, June 2015, May 2020

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This instruction presents an insurer’s affirmative defense to a claim for coverage. The defense is based on a misrepresentation or omission made by the insured in the application for the insurance. (See Douglas v. Fid. Nat’l Ins. Co. (2014) 229 Cal.App.4th 392, 408 [177 Cal.Rptr.3d 271].) If the policy at issue is a standard fire insurance policy, replace “intentionally or unintentionally” in element 2 with “willfully.” (See Ins. Code, § 2071.) Otherwise, the insurer is not required to prove an intent to deceive; negligence or inadvertence is enough if the misrepresentation or omission is material. (Douglas, supra, 229 Cal.App.4th at p. 408.) Element 5 expresses materiality.

Element 3 applies only if plaintiff omitted information, not if the plaintiff misrepresented information.

While no intent to mislead is required, the insured must know the facts that constitute the omission or misrepresentation (see element 4). For example, if the application does not disclose that property on which insurance is sought is being used commercially, the applicant must have known that the property is being used commercially. (See Ins. Code, § 332.) It is not a defense, however, if the insured gave incorrect or incomplete responses on the application because the insured failed to appreciate the significance of some information known to him or her. (See Thompson v. Occidental Life Insurance Co. of California (1973) 9 Cal.3d 904, 916 [109 Cal.Rptr. 473, 513 P.2d 353].)

If it is alleged that omission occurred in circumstances other than a written application, this instruction should be modified accordingly.

•Rescission of Contract. Civil Code section 1689(b)(1).

•Time of Insurer’s Rescission of Policy. Insurance Code section 650.

•Concealment by Failure to Communicate. Insurance Code section 330.

•Concealment Entitles Insurer to Rescind. Insurance Code section 331.

•Duty to Communicate in Good Faith. Insurance Code section 332.

•Materiality. Insurance Code section 334.

•Intentional Omission of Information Tending to Prove Falsity. Insurance Code section 338.

•False Representation: Time for Rescission. Insurance Code section 359.

•“It is well established that material misrepresentations or concealment of material facts in an application for insurance entitle an insurer to rescind an insurance policy, even if the misrepresentations are not intentionally made. Additionally, ‘[a] misrepresentation or concealment of a material fact in an insurance application also establishes a complete defense in an action on the policy. [Citations.] As with rescission, an insurer seeking to invalidate a policy based on a material misrepresentation or concealment as a defense need not show an intent to deceive. [Citations.]’ ” (Douglas, supra, 229 Cal.App.4th at p. 408, internal citations omitted.)

•“When the [automobile] insurer fails … to conduct … a reasonable investigation [of insurability] it cannot assert … a right of rescission” under section 650 of the Insurance Code as an affirmative defense to an action by an injured third party. (Barrera v. State Farm Mutual Automobile Insurance Co. (1969) 71 Cal.2d 659, 678 [79 Cal.Rptr. 106, 456 P.2d 674].)

•“[A]n insurer has a right to know all that the applicant for insurance knows regarding the state of his health and medical history. Material misrepresentation or concealment of such facts [is] grounds for rescission of the policy, and an actual intent to deceive need not be shown. Materiality is determined solely by the probable and reasonable effect [that] truthful answers would have had upon the insurer. The fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law.” (Thompson, supra, 9 Cal.3d at pp. 915–916, internal citations omitted.)

•“[A]lthough an insurer generally ‘has the right to rely on the applicant’s answers without verifying their accuracy[,] … [¶] … [t]he insurer cannot rely on answers given where the applicant-insured was misled by vague or ambiguous questions.’ ” (Duarte v. Pacific Specialty Ins. Co. (2017) 13 Cal.App.5th 45, 54 [220 Cal.Rptr.3d 170], original italics.)

•“[I]f the applicant for insurance had no present knowledge of the facts sought, or failed to appreciate the significance of information related to him, his incorrect or incomplete responses would not constitute grounds for rescission. Moreover, ‘[questions] concerning illness or disease do not relate to minor indispositions but are to be construed as referring to serious ailments which undermine the general health.’ Finally, as the misrepresentation must be a material one, ‘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 desirable to the insurer.’ And the trier of fact is not required to believe the ‘post mortem’ testimony of an insurer’s agents that insurance would have been refused had the true facts been disclosed.” (Thompson, supra, 9 Cal.3d at p. 916, internal citations omitted.)

•“[T]he burden of proving misrepresentation [for purposes of rescission] rests upon the insurer.” (Thompson, supra, 9 Cal.3d at p. 919.)

•“To prevail, the insurer must prove that the insured made a material ‘false representation’ in an insurance application. ‘A representation is false when the facts fail to correspond with its assertions or stipulations.’ The test for materiality of the misrepresentation or concealment is the same as it is for rescission, ‘a misrepresentation or concealment is material if a truthful statement would have affected the insurer’s underwriting decision.’ ” (Douglas, supra, 229 Cal.App.4th at p. 408, internal citations omitted.)

•“The materiality of a representation made in an application for a contract of insurance is determined by a subjective standard (i.e., its effect on the particular insurer to whom it was made) and rescission will be allowed even though the misrepresentation was the result of negligence or the product of innocence. On the other hand, in order to void a policy based upon the insured’s violation of the standard fraud and concealment clause … , the false statement must have been knowingly and wilfully made with the intent (express or implied) of deceiving the insurer. The materiality of the statement will be determined by the objective standard of its effect upon a reasonable insurer.” (Cummings v. Fire Insurance Exchange (1988) 202 Cal.App.3d 1407, 1415, fn.7 [249 Cal.Rptr. 568], original italics, internal citation omitted.)

•“The insurer is not required to show a causal relationship between the material misrepresentation or concealment of material fact and the nature of the claim.” (Duarte, supra, 13 Cal.App.5th at p. 53.)

•“Cancellation and rescission are not synonymous. One is prospective, while the other is retroactive.” (Fireman’s Fund American Insurance Co. v. Escobedo (1978) 80 Cal.App.3d 610, 619 [145 Cal.Rptr. 785].)

•“[U]pon a rescission of a policy of insurance, based upon a material concealment or misrepresentation, all rights of the insured thereunder (except the right to recover any consideration paid in the purchase of the policy) are extinguished … .” (Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 184 [243 Cal.Rptr. 639].)

•“The consequence of rescission is not only the termination of further liability, but also the restoration of the parties to their former positions by requiring each to return whatever consideration has been received. … [T]his would require the refund by [the insurer] of any premiums and the repayment by the defendants of any proceed advance which they may have received.” (Imperial Casualty & Indemnity Co., supra, 198 Cal.App.3d at p. 184, internal citation omitted.)