How A Thorough Investigation Established Grounds For Rescission

By affirming the rescission of an insurance policy because of the misrepresentation or concealment of material fact by Mr. Mitchell. The court in Mitchell defeated an argument that statutory language in a policy of insurance changed the law of rescission.

The Court of Appeal summarized its holding as follows:

"[A]n insurer may, under Insurance Code sections 331 and 359 [of the California Insurance Code], rescind a fire insurance policy based on an insured’s negligent or unintentional misrepresentation of a material fact in an insurance application, notwithstanding the willful misrepresentation clause included in the required standard form fire insurance policy (Insurance Code sections 2070 and 2071)." [Emphasis added.]

Mitchell individually was the named insured under an insurance policy issued by United National that provided coverage for a commercial building owned by the Mitchell Family Trust in Los Angeles (the building).

During the policy period, the building was destroyed by an arson fire. The arsonist, an acquaintance of Mitchell’s, perished in the fire. In the ensuing investigation, United National discovered several misrepresentations in Mitchell’s application for insurance, rescinded the policy, and offered to return Mitchell’s premium. [Mitchell v. United National Ins. Co. (2005) 127 Cal. App.4th 457, 469]

“[An insurance company] has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks.” (Robinson v. Occidental Life Ins. Co. (1955) 131 Cal.App.2d 581, 586.) (Emphasis added.)