Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00343/USCOURTS-caed-2_05-cv-00343-2/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

ADMIRAL INSURANCE COMPANY,

a Delaware corporation,

NO. CIV. S-05-343 FCD PAN

Plaintiff,

v. MEMORANDUM AND ORDER

J. DALE DEBBER, LORNA MARTIN,

DATA CONTROL CORPORATION, 

et al.,

Defendants.

----oo0oo----

This matter is before the court on (1) plaintiff Admiral

Insurance Company’s (“Admiral”) motion for summary adjudication,

on its first and second claims for relief, to rescind the 

employment practices liability insurance policies issued by

Admiral to defendant Data Control Corporation (“DCC”) (the

“Admiral EPLI Policies”) and (2) defendants DCC, J. Dale Debber

(“Debber”), Lorna Martin (“Martin”), Aristos Academy, Compline,

LLC (“Compline”), Providence Publications, LLC (“Providence”),

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1 Because oral argument will not be of material

assistance, the court orders the motions submitted on the briefs. 

E.D. Cal. L.R. 78-130(h).

2 Resolution of Admiral’s instant motion does not wholly

resolve this action. Admiral has also asserted claims against

defendants for “reimbursement of defense fees and costs” and

“reimbursement of Award Payment,” which were not the subject of

this motion. (First Am. Compl., filed Nov. 15, 2005, 3rd and 4th

Claims for Relief.)

2

Real Consulting & Software Development, LLC (“Real Consulting”)

and Debber Family Foundation’s (sometimes collectively,

“defendants”) cross-motion for summary adjudication on their

affirmative defense of laches.1 By its motion, Admiral seeks an

order rescinding the Admiral EPLI Policies because DCC failed to

disclose in its applications for the policies two prior lawsuits,

filed in Nevada County Superior Court by former DCC employees,

containing claims for sexual harassment and retaliation against

DCC and its Chief Executive Officer, defendant Debber, among

others. Defendants oppose the motion, arguing that they did not

fail to disclose material information in applying for the Admiral

EPLI Policies, and alternatively, seek a finding that the

doctrine of laches provides an absolute defense to Admiral’s

claims for rescission. 

For the reasons set forth below, the court GRANTS Admiral’s

motion; the Admiral EPLI Policies are rescinded and void ab

initio.2 Defendants’ cross-motion on their defense of laches is

DENIED; Admiral did not unreasonably delay moving to rescind the

Admiral EPLI Policies, and there is no substantial prejudice to

defendants.

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3 Except as otherwise stated by reference to the relevant

parties’ statement of undisputed and/or disputed facts, the facts

recited below are undisputed and/or the parties’ dispute with

regard to the fact is not material and thus, the court treats the

fact as undisputed. Likewise, the parties have submitted lengthy

evidentiary objections to the other side’s statement of

undisputed facts and underlying evidence; however, much of the

evidence objected to is immaterial to the court’s analysis of the

motions. To the extent that any objected-to-evidence is relevant

and relied on by the court herein, the court overrules any

asserted objections to that evidence.

4 Both parties describe in detail facts concerning

defendants’ prior EPLI coverage from Lloyd’s, London; however,

said facts are largely irrelevant to the issues presented by the

instant motions and thus, the court does not describe them

herein.

3

FACTUAL BACKGROUND3

A. DCC’s Application for the 2002 Policy

On November 26, 2002, Monitor Liability Managers, Inc.

(“Monitor”), underwriting agent for Admiral, provided a quotation

to DCC’s broker Swett & Crawford (“S&C”) for the issuance of an

Admiral EPLI policy to DCC.4 (Defs.’ Opp’n to Pl.’s Stmt. Of

Undisputed Facts [“SUF”], filed June 5, 2006, ¶ 8.) On December

13, 2002, S&C sent an e-mail to Monitor requesting Monitor to

bind EPLI coverage for DCC and stating a “completed application”

would be “forthcoming.” (SUF ¶ 9.) That same day, Monitor

issued a binder for an EPLI policy to DCC for the policy period

December 13, 2002 to December 13, 2003 which stated that a

condition precedent to coverage was Monitor’s “[r]eceipt, review

and underwriting acceptance of [a] properly completed, signed and

currently dated” original Admiral proposal form for an EPLI

policy. (SUF ¶ 10.)

On February 27, 2003, S&C provided Monitor with said

proposal form (the “2002 Application”). (SUF ¶ 11.) The 2002

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Application, dated February 11, 2003, was signed by Debber, as

Chief Executive Officer of DCC, and by defendant Martin, Chief

Technical Officer of DCC. (SUF ¶ 11-12.) Under the heading,

“Litigation and Claim Information,” Question No. 13 of the

application asked DCC whether “[i]n the last 5 years has any

current or former employee or third party made any Claim or

otherwise alleged discrimination, harassment, wrongful discharge

and/or Wrongful Employment Act(s) against the Insured Entity or

its directors, officers, or Employees.” (SUF ¶ 13.) Question

No. 13 specified that a “Claim” was “not limited to the filing of

a lawsuit or a complaint with the EEOC or similar state or local

agency,” but also included a “written demand or a threat by any

current or former Employee seeking relief in connection with an

employment related dispute or grievance.” (Id.) 

Question No. 14 of the 2002 Application asked DCC whether

“[d]uring the last 5 years, has the Insured Entity or any of its

directors, officers or Employees thereof known of, or been

involved in any lawsuit, charges, inquiries, investigations,

grievances, or other administrative hearings or proceedings

before any of the following agencies and/or under any of the

following forums[:]”--the National Labor Relations Board, Equal

Employment Opportunity Commission, Office of Federal Contract

Compliance Programs, U.S. Department of Labor, any state or local

government agency such as the Labor Department or fair employment

agency or “U.S. District or state court.” (SUF ¶ 14.) If the

answer to Question No. 13 or 14 was “yes,” the application

required the applicant to complete a claim supplemental form,

“even if such matter has since been settled or otherwise

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resolved.” (capitalization omitted.) (SUF ¶ 15.)

DCC, through Debber and Martin, answered “no” to both

Question No. 13 and 14. (SUF ¶ 17.) Martin attests that she was

instructed by DCC’s agent/broker to use a previous renewal

application for an EPLI policy from another carrier as a template

to complete the Admiral application. (Defs.’ Stmt. of Disputed

Facts (“DDF”), filed June 5, 2006, ¶ 30.) That renewal

application did not list any prior claims or lawsuits against

DCC, since DCC had previously described certain such claims and

lawsuits in the original application for coverage from the other

company, and the renewal application only requested information

about additional claims. (DDF ¶s 3, 6, 8.)

In answering and signing the Admiral application, Debber and

Martin, “declar[ed] to the best of their knowledge the statements

set forth [in the application] are true and correct and that

reasonable efforts have been made to obtain sufficient

information to facilitate the proper and accurate completion of

this Proposal Form.” (SUF ¶ 16.) They further agreed that “the

particulars and statements contained in the [application] and any

material submitted herewith are their representations and that

they are material and are the basis of the insurance contract.” 

(Id.) Finally, Debber and Martin agreed that “any Policy, if

issued, will be in reliance upon the truth of such

representations . . . .” (Id.)

On September 3, 2003, Monitor issued an EPLI policy to DCC

for the policy period December 13, 2002 to December 13, 2003,

bearing Policy No. 4343312/1 (the “2002 Policy”). (SUF ¶ 18.)

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B. DCC’s Renewal Application for the 2003 Policy

On December 4, 2003, Monitor received a faxed copy of a

proposal form for the renewal of the 2002 Policy. (SUF ¶ 20.) 

On December 15, 2003, Monitor issued a binder for the renewal of

the 2002 Policy for the policy period December 13, 2003 to

December 13, 2004 which stated that a condition precedent to

coverage was Monitor’s “[r]eceipt, review and underwriting

acceptance of [a] properly completed, signed and currently dated”

original Admiral proposal form for an Admiral EPLI renewal

policy. (SUF ¶ 21.) On December 22, 2003, F.C. Morgan and

Company Insurance Services, Inc. (“F.C. Morgan”), an insurance

broker, submitted to Monitor, on behalf of DCC, the signed

original Admiral EPLI proposal form for the renewal policy, dated

December 12, 2003 (the “Renewal Application”). (SUF ¶ 22.) 

Under the heading “Litigation and Claim Information,” the

Renewal Application contained Question No. 12 that was nearly

identical to Question No. 14 in the 2002 Application. Question

No. 12 asked DCC whether “[d]uring the last 5 years, has the

Insured Entity or any of its directors, officers or Employees

thereof known of, or been involved in any lawsuit, charges,

inquires, investigations, grievances or other administrative

hearings or proceedings before any of the following agencies

and/or in any of the following forums” including any “U.S.

District or state court.” (SUF ¶ 23.) Like the 2002

Application, if the answer to Question No. 12 was “yes,” the

applicant was required to provide a claim supplemental form, even

for those matters which had since been settled or otherwise

resolved. (SUF ¶ 24.) Finally, the Renewal Application

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contained the same representations by the undersigned(s) as the

2002 Application. (SUF ¶ 25.)

DCC, through Debber and Martin, answered “no” to Question

No. 12. (SUF ¶ 27.) Martin attests that prior to filling out

the Renewal Application, she provided complete details of DCC’s

claims and loss history to Karrie Branson of Placer Insurance

Agency (“Placer”), DCC’s agent/broker at the time, who then

communicated the information to F.C. Morgan (a wholesale

brokerage firm through which DCC and Placer were required to

route all of their communications with Admiral). (DDF ¶s 34, 35,

36, 39-42.) Ultimately, Martin declares that F.C. Morgan

confirmed Placer’s opinion that DCC’s prior claims did not have

to be listed on the Renewal Application because they were too old

(the claims were first made more than five years earlier) and

thus, no claim supplemental form was required. Martin states

that she filled out the Renewal Application consistent with

Placer and F.C. Morgan’s advice. (Martin Decl., filed June 5,

2006, ¶s 11-17.)

On January 27, 2004, Monitor issued an Admiral EPLI Policy

to DCC for the policy period December 13, 2003 to December 13,

2004, bearing Policy No. 4343312/2 (the “2003 Policy”). (SUF ¶

29.)

C. The Altman Action

On May 11, 2004, Vickie Altman and her husband, Scott Altman

(the “Altmans”), filed a complaint in the Nevada County Superior

Court, entitled Vickie Altman, et al. v. J. Dale Debber, et al.,

Case No. 69850 (the “Altman Complaint”), against defendants

Debber, DCC, Martin, Aristos Academy, Compline, Providence, Real

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Consulting and Debber Family Foundation (sometimes collectively,

the “Altman defendants”). (SUF ¶ 33.) At the time, Debber was

Chief Executive Officer and a shareholder of DCC, Managing

Director and a shareholder of Compline, Providence and Real

Consulting, the Chairman of the Board of Advisors of Aristos

Academy and a co-trustee of the Debber Family Foundation. (SUF ¶

34.) 

The Altman Complaint alleged, among many other claims,

claims against the Altman defendants for sexual harassment and

retaliation in violation of FEHA and Title VII. (SUF ¶ 35.)

Specifically, in paragraphs 21 and 22 of the complaint, the

Altmans alleged that Vickie Altman had been hired as an executive

assistant to Debber and his wife, Janet, and that “beginning on

or about July 1, 2003, and continuing until March 1, 2004 (the

date of VICKIE’s termination) DEBBER continually and openly

sexually harassed VICKIE.” (SUF ¶s 36-37.) In paragraph 88, the

Altmans alleged that “DEBBER and DATA CONTROL have defended at

least three sexual harassment and retaliation lawsuits in Nevada

County since 1996" and that “the complaints for these lawsuits

contain strikingly similar allegations to those experienced and

set forth herein by VICKIE.” (SUF ¶ 38.) The Altmans alleged

that said lawsuits filed against Debber, et al. in Nevada County

Superior Court were: Jenise Whittle, et al. v. Dale Debber, Case

No. 58835, filed September 22, 1997 (“Whittle Action”); John

Atkinson, et al. v. Dale Debber, et al., Case No. 60533, filed

August 6, 1998 (“Atkinson Action”); and Barbara Hunyada v. J.

Dale Debber, et al., Case No. 60534, filed August 6, 1998

(“Hunyada Action”). (SUF ¶ 39.) Finally, in paragraph 103, the

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Altmans alleged that “defendants knew, or in the exercise of

reasonable diligence should have known, that DEBBER was a

habitual sexual harasser and that an undue risk to persons such

as VICKIE existed unless defendants adequately trained and

supervised DEBBER in the exercise of the tasks of his

employment.” (SUF ¶ 40.)

The Atkinson and Hunyada Actions, filed August 6, 1998, were

pending within five years of DCC’s application for the 2002

Policy, signed February 11, 2003. (SUF ¶ 56.) Ultimately, the

Atkinson Action was dismissed on February 24, 1999, and the

Hunyada Action settled and was dismissed on March 26, 2001. 

(Id.)

D. The Tender of the Altman Complaint to Admiral

On May 24, 2004, defendants tendered the Altman Complaint to

Monitor for defense and indemnity. (SUF ¶ 42.) On May 28, 2004,

Admiral agreed to defend the Altman action pursuant to the 2003

Policy, subject to a full and complete reservation of rights,

including but not limited to, the right to “file an action for a

judicial determination that [Admiral] is entitled to rescind the

Policy and that the Policy is void ab initio and provides no

coverage whatsoever to any person or entity.” (SUF ¶ 43.) In

accepting the defense, Admiral agreed to pay counsel of DCC’s

choice, Irell & Manella, at Admiral’s applicable panel rates. 

(Id.) Any difference between Irell & Manella’s rates and

Admiral’s panel rates was to be paid by defendants. (Pl.’s Opp’n

to Defs.’ Stmt. Of Undisputed Facts [“SUF II”], filed June 2,

2006, ¶ 15.) 

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5 Defendants rely on two separate internal Admiral

documents, Exhibits U and V to the Johnson Declaration, filed

June 5, 2006, to support this fact. Each is a one page Admiral

“declaratory judgment/rescission form” dated August 5, 2004. 

Both forms state “insured failure to disclose prior claims on its

policy application” as the basis for rescission, and both forms

circle an option labeled “declaratory judgment action seeking

rescission to be filed” as the action to be taken. The meeting

attendees are Jim Hill, Randy Mrozowicz, Jennifer Pearson and

Brandon Van Wormer. Admiral’s only response relating to these

documents is an objection that the August 5, 2004 decision to

rescind is immaterial and irrelevant. (DDF ¶ 52.) However, for

the reasons set forth below, Admiral’s objection is overruled;

the documents and Admiral’s August 5, 2004 decision are relevant

to the motions, particularly to defendants’ cross-motion.

10

Monitor provided Irell & Manella with certain “claims

management guidelines.” (SUF II ¶ 16.) Pursuant to these

guidelines, Irell & Manella sent approval requests to Monitor for

various staffing issues including sending an associate to

interview DCC employees and seeking approval of additional

partners to work on the litigation. (SUF II ¶ 19.) Monitor

approved these requests in June 2004. (SUF II ¶ 18.) On January

11, 2005, Irell & Manella sent a status report to Monitor at

Monitor’s request. (SUF II ¶ 25.) 

Following defendants’ tender of the Altman Complaint to

Admiral, Admiral investigated various coverage issues related to

the complaint. (SUF II ¶ 11.) On August 5, 2004, Admiral made a

decision to file an action to rescind defendants’ policies based

on defendants’ failure to disclose prior legal claims.5 (DDF ¶

52.) 

E. Litigation of the Altman Action

On June 2, 2004, the Altman defendants removed the action to

the United States District Court for the Eastern District of

California. (SUF ¶ 44.) On August 23, 2004, the Altman

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defendants’ motion to compel arbitration was granted and the

action was dismissed. (SUF ¶ 45.) On August 11, 2005, Monitor

consented to counsel’s request to serve the Altmans with an offer

of judgment pursuant to Rule 68 of the Federal Rules of Civil

Procedure. (SUF ¶ 49.) In so consenting, Monitor expressly

reserved all rights to seek to rescind the Admiral EPLI Policies

and also to seek to recover from the Altman defendants any

payment by Admiral in connection with the offer of judgment. 

(SUF ¶ 50.) On or about August 18, 2005, the Altmans accepted

the offer and thereafter obtained an arbitration award in the

amount of the offer. (SUF ¶ 52.) On September 26, 2005, Admiral

issued a payment (“Award Payment”) to the Altmans for the full

amount of the award, subject to its reservation of rights to seek

to rescind the Admiral EPLI Policies and to seek to recover the

Award Payment from defendants in this action. (SUF ¶ 52.)

F. The Instant Action

On February 22, 2005, Admiral filed the complaint in this

action seeking rescission of the Admiral EPLI Policies and for

reimbursement of defense payments pursuant to those policies. 

(SUF ¶ 46.) On March 1, 2005, counsel for Admiral sent a letter

to counsel for the Altman defendants tendering a check for

$19,132.00 for the return of the premiums paid by DCC for the

EPLI policies and requested that DCC agree to the rescission of

the policies in lieu of litigating this action. (SUF ¶ 47.) On

April 7, 2005, counsel for the Altman defendants rejected the

requested rescission and returned the check for the premiums. 

(SUF ¶ 48.) In April or May of 2005, defendants secured Dempsey

& Johnson P.C. as new counsel for the Altman action and the

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instant action. (SUF II ¶ 26.)

On November 15, 2005, Admiral filed a first amended

complaint, pursuant to stipulation of the parties, adding a claim

for relief for reimbursement of the Award Payment. (SUF ¶ 54.) 

On December 2, 2005, defendants answered the first amended

complaint. (SUF ¶ 55.)

STANDARD

Federal Rule of Civil Procedure 56 allows a court to grant

summary adjudication on part of a claim or defense. See Fed. R.

Civ. P. 56(a) (“A party seeking to recover upon a claim . . . may

. . . move . . . for a summary judgment in the party's favor upon

all or any part thereof.”); see also Allstate Ins. Co. v. Madan,

889 F. Supp. 374, 378-79 (C.D. Cal. 1995). The standard applied

to a motion for summary adjudication is the same as that applied

to a motion for summary judgment. See Fed. R. Civ. P. 56(a),

(c); Mora v. Chem-Tronics, Inc., 16 F. Supp. 2d 1192, 1200 (S.D.

Cal. 1998). Thus, summary adjudication is appropriate when the

moving party demonstrates that there exists no genuine issue as

to any material fact, entitling it to a ruling in its favor as a

matter of law. See Fed. R. Civ. P. 56(c); Adickes v. S.H. Kress

& Co., 398 U.S. 144, 157 (1970). 

When parties submit cross-motions for summary judgment, the

court must review the evidence submitted in support of each

cross-motion and consider each party’s motion on its own merits. 

Fair Housing Council of Riverside County, Inc. v. Riverside Two,

249 F.3d 1132, 1136 (9th Cir. 2001). The court must examine each

set of evidence in the light most favorable to the non-moving

party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).

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The moving party “always bears the initial responsibility of

informing the district court of the basis for its motion, and

identifying those portions of ‘the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any,’ which it believes demonstrate the

absence of a genuine issue of material fact.” Celotex Corp. v.

Catrett, 477 U.S. 317, 323 (1986). If the moving party meets its

initial responsibility, the burden then shifts to the opposing

party to establish that a genuine issue as to any material fact

actually does exist. Matsushita Elec. Indust. Co., Ltd. v.

Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); First Nat'l Bank

of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-289 (1968). 

Genuine factual issues must exist that “can be resolved only by a

finder of fact, because they may reasonably be resolved in favor

of either party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

256 (1986). 

In judging evidence at the summary judgment stage, the court

does not make credibility determinations or weigh conflicting

evidence. See T.W. Elec. Serv., Inc. v. Pacific Elec.

Contractors Ass’n, 809 F.2d 626, 630-31 (9th Cir. 1987) (citing

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 587 (1986)). The evidence presented by the parties must be

admissible. Fed. R. Civ. P. 56(e). Conclusory, speculative

testimony in affidavits and moving papers is insufficient to

raise genuine issues of fact and defeat summary judgment. See

Falls Riverway Realty, Inc. v. City of Niagara Falls, 754 F.2d

49, 57 (2d Cir. 1985); Thornhill Publ’g Co., Inc. v. GTE Corp.,

594 F.2d 730, 738 (9th Cir. 1979).

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ANALYSIS

I. Admiral’s Motion to Rescind the Admiral EPLI Policies

A. Applicable Law on Rescission

An insurance company has the right to select those whom it

will insure and in so deciding, it may rely upon applicants for

such information as the company desires as a basis for selecting

its risks. Merced County Mutual Fire Insur. Co. v. California,

233 Cal. App. 3d 765, 773 (1991). California Insurance Code

section 332 provides that each party to a contract of insurance

must communicate to the other, in good faith, all facts within

his knowledge which are, or to which he believes to be, material

to the contract. As such, a material misrepresentation or

concealment in an insurance application, whether intentional or

unintentional, entitles the insurer to rescind the insurance

policy ab initio. West Coast Life Insur. Co. v. Ward, 132 Cal.

App. 4th 181, 187 (2005); Cal. Insur. Code § 331. California

Insurance Code section 330 defines “concealment” as “[n]eglect to

communicate that which a party knows, and ought to communicate.” 

Section 359 of the California Insurance Code expressly authorizes

rescission of a policy where “a representation is false in a

material point, whether affirmative or promissory, . . . .” Such

rescission of a policy applies to all insureds under the

contract, unless the contract provides otherwise. Cal. Insur.

Code § 650.

To establish that a misrepresentation or concealment on an

insurance application is material, the insurer need not prove an

actual intent to deceive; an unintentional but material

misrepresentation or concealment is sufficient. West Coast Life

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Insur. Co., 132 Cal. App. 4th at 187. The purpose of the

materiality inquiry is to make certain that the risk insured is

the same risk covered by the policy agreed upon. Old Line Life

Insur. Co. v. Sup. Ct., 229 Cal. App. 3d 1600, 1604 (1991). 

Therefore, materiality is to be determined “solely by the

probable and reasonable effect which truthful answers would have

had upon the insurer.” Thompson v. Occidental Life Insur. Co. Of

California, 9 Cal.3d 904, 916 (1973); West Coast Life Insur. Co.,

132 Cal. App. 4th at 187; Cal. Insur. Code § 334.

The fact that an insurer has demanded answers to specific

questions in an insurance application “usually [is] sufficient”

to establish the materiality of those questions as a matter of

law. Imperial Casualty & Indemnity Co. v. Sogomonian, 198 Cal.

App. 3d 169, 179 (1988); Thompson, 9 Cal.3d at 916. Courts have

recognized that specifically, an insurance applicant’s loss

history is a fact material to the insurance risk. Wilson v.

Western Nat’l Life Insur. Co., 235 Cal. App. 3d 981, 993 (1991);

Certain Underwriters at Lloyd’s v. Montford, 52 F.3d 219, 222

(9th Cir. 1995) (an insured’s misrepresentations of prior loss

history on its insurance application sufficient to void policy).

Finally, an insurer has the right to rely on the insured’s

answers to the questions in the insurance application without

verifying their accuracy. Robinson v. Occidental Life Insur.

Co., 131 Cal. App. 2d 581, 585 (1955) (“It was not incumbent upon

[the insurer] to investigate [the insured’s] statements made to

the examiner . . . it was [the insured’s] duty to divulge fully

all he knew.”).

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6 Even Debber acknowledged in his deposition that the

2002 Application which he signed was not accurate as to the

company’s claim history; in his words, DCC had “screwed up” on

that application in not disclosing prior claims and/or

litigation.” (Debber Depo., April 19, 2006, 92:15-93:22.)

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B. The 2002 Policy

Despite being filed on August 6, 1998, within five years of

the date Debber and Martin signed the 2002 Application (February

11, 2003), DCC did not disclose the Atkinson and Hunyada Actions

on its 2002 Admiral application. Instead, DCC answered “no” to

Questions 13 and 14 of the 2002 Application, specifically

requesting information on any employment discrimination,

harassment or wrongful discharge claims or litigation against the

company and/or its officers, directors, or employees within the

prior five years. 

The requested information was certainly material to the

contract.6 Indeed, courts have recognized that where specific

questions are asked of the insured, the answers to those

questions are normally deemed material to the contract. 

Sogomonian, 198 Cal. App. 3d at 179. Regarding specifically an

applicant’s loss history, courts have found such facts material

to the insurance contract. Wilson, 235 Cal. App. 3d at 993. In

this case, the Admiral application made the import of the subject

answers abundantly clear: it provided that the applicant’s

representations made therein are “material and are the basis of

the insurance contract” and the company issues the policy “in

reliance upon the truth of such representations.” (SUF ¶ 16,

25.) 

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Defendants’ alleged reasons for the non-disclosure do not

alter the analysis. Martin declared that at DCC’s agent/broker’s

recommendation, she used a former insurance renewal application

from another company, which did not disclose the prior claims, as

a template for filling out the Admiral application. However,

even an unintentional non-disclosure is sufficient to support

rescission of an insurance contract, if the non-disclosed

information was material to the contract. West Coast Life Insur.

Co., 132 Cal. App. 4th at 187. Here, for the reasons set forth

above, DCC’s loss history was material information to the

contract. The non-disclosure of the information merits

rescission of the contract.

In opposition, defendants do not argue the immateriality of

the subject information (because under the applicable law they

cannot), but instead first contend that the 2002 Policy is

“irrelevant” to the action because no claim was tendered against

that policy--the Altman Complaint was tendered against the 2003

Policy. Defendants’ argument is wholly without merit. If the

Atkinson and Hunyada Actions had been disclosed in the 2002

Application, no policy would have been issued to DCC in the first

instance (let alone any renewal policy). (Pearson Decl., filed

April 14, 2006, ¶ 35.); Wallace v. World Fire & Marine Insur. Co.

Of Hartford, Conn., 70 F. Supp. 193, 196 (S.D. Cal. 1947)

(misrepresentation in original application provides basis for

rescinding renewal policy). To allow an insured to conceal two

sexual harassment and retaliation lawsuits clearly filed within

five years of the original application and then claim upon 

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renewal of the policy that those suits are outside the five year

period is, understandably, unsupported in law. Id.

Defendants next argue that the court should not permit

rescission of the 2002 Policy because Admiral “could not have

relied on DCC’s [2002 Application]” in issuing the policy since

it issued the binder without receipt of a completed Admiral

application and did not provide DCC with an original Admiral

application until February 2003. According to defendants, that

Admiral did not review defendants’ completed original application

until September 2003 is fatal to its claim for rescission. 

Again, defendants’ argument is unavailing. Monitor’s binder for

an EPLI policy, issued December 13, 2002, expressly stated that

it was conditioned upon the “receipt, review and underwriting

acceptance of the properly completed, signed and currently dated

ORIGINAL [Admiral] proposal form for an [EPLI] policy.” (Decls.

of Pearson, et al., filed April 13, 2006, Ex. F at 29.) Said

binder further stated,

 upon receipt and review of the Proposal Form . . . ,

 Monitor reserves the right to cancel, modify or limit 

 the coverage for this binder” and that in the event 

 that “Monitor determines that it will not issue a policy

 because the Proposal Form and any related information

 . . . have either not been received or have been 

 received and are unacceptable, then this binder will 

 be null and void from its inception. 

(Id. at 31 [emphasis added].) Defendants ignore these

provisions. Moreover, as a matter of law, a binder is not an

insurance policy. Ahern v. Dillenback, 1 Cal. App. 4th 36, 48

(1991) (binder only effective until application is rejected or

policy issued). Here, no policy issued until September 3, 2003

following Monitor’s approval of DCC’s proposal form (the 2002

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7 The 2002 Policy was issued on September 3, 2003 largely

due to delays in Monitor receiving responses to questions

regarding the proposal form. Specifically, on March 12, 2003,

Monitor acknowledged receipt of DCC’s 2002 Application and

requested an “explanation of Question No. 6 regarding senior

management changes.” (Id. at Ex. H.) On June 11, 2003, Monitor

advised S&C in response to an inquiry regarding the status of the

2002 Policy that Monitor had not received the requested

information on the senior management changes. (Id. at Ex. I.) 

On July 25, 2003, S&C provided an explanation on the issue. (Id.

at Ex. J.) On September 3, 2003, the 2002 Policy issued, with

the responsible underwriter noting on the EPLI final checklist

that there had been no prior claims. (Id. at Ex. K.)

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Application). (Decls. of Pearson, et al., filed June 9, 2006,

Ex. R.)7

Additionally, defendants argue that Admiral cannot assert

that it would not have issued coverage in the event of prior

claims when the conditional binder contained an express exclusion

designed to address and deal with prior claims. The binder

issued December 13, 2002 provided: “As coverage has been bound

prior to receipt and acceptance of the Admiral Proposal Form, a

Past Acts Exclusion has been attached as of the Policy inception

date. Consideration will be given to removing this exclusion

after review of the Proposal Form.” (Decls. of Pearson, et al.,

filed April 13, 2006, Ex. F.) However, the Past Acts Exclusion

was intended to preclude coverage for any claims, including

future claims, arising out of or relating to any “Wrongful

Employment Acts” that occurred before the inception of an Admiral

EPLI policy issued to an applicant. (Pearson Decl., filed April

13, 2006, ¶ 13.) An applicant’s responses to questions in the

proposal form concerning its claim history were still required

for the underwriting determination of whether to insure the

applicant. Based upon the plain language of the 2002 Application

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itself, Admiral clearly relied on DCC’s responses to the loss

history questions in deciding to issue coverage. 

Finally, defendants argue that the court should not permit

rescission of the contract when Admiral issued the policy without

“even verifying DCC’s claims and loss history.” Clearly, as

noted above, Monitor had no obligation to investigate the

veracity of DCC’s responses to questions in the 2002 Application. 

Robinson, 131 Cal. App. 2d at 585.

C. The 2003 Policy

Turning next to the 2003 Policy, rescission of the policy is

supported under the same analysis as the 2002 Policy. Simply

stated, DCC answered “no,” to Question No. 12 of the Renewal

Application, disclaiming any involvement in litigation within the

prior five years involving claims of sexual harassment and

retaliation, yet the Atkinson and Hunyada Actions were ongoing

during that period (the Atkinson Action was dismissed on February

24, 1999 and the Hunyada Action settled and was dismissed on

March 26, 2001). For the same reasons as set forth above, the

response to Question No. 12 was material to the contract, and

DCC’s false answer thereto justifies rescission of the policy.

Again, defendants’ reasons for the non-disclosure do not

affect the analysis. Defendants provide a detailed explanation

of their communications with Placer, who in turn communicated

with F.C. Morgan, regarding DCC’s loss history and the need to

report it on the Renewal Application. (Opp’n to Pl.’s MSJ, filed

June 5, 2006, at 21-22.) Even assuming the truth of these facts,

i.e., that DCC responded “no,” to Question No. 12 on the “advice

of its broker,” such reliance is no defense to an action for

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rescission based on DCC’s representations in the Renewal

Application. Indeed, defendants cite no case law, nor is the

court aware of any, supporting such a defense. It is DCC,

through Debber and Martin, that signed the application attesting

to the truth of the various representations made therein. 

Certain of those representations, as outlined above, are the

basis of Admiral’s instant action and support rescission of the

2003 Policy because the responses were both material and false.

Defendants’ contention that Question No. 12 should be

construed to mean solely “new” lawsuits “first” made in the prior

five years is untenable. The next question on the Renewal

Application (No. 13) specifically asked whether any claims had

been first made in the last five years. (Decls. of Pearson, et

al., filed June 9, 2006, Ex. P at 76.) Under defendants’ selfserving interpretation, the two consecutive questions would be

redundant, rendering one superfluous. Based on their plain

meanings, Question No. 12 pertains to an applicant’s knowledge of

or involvement in lawsuits in the prior five years, and Question

No. 13 relates to claims that had been first made in the prior

five years. (Id.)

II. Defendants’ Cross-Motion on Laches Defense

Defendants cross-move for summary adjudication on the ground

that the doctrine of laches provides a complete defense to

Admiral’s claims for rescission. Specifically, defendants argue

Admiral unreasonably delayed rescinding the EPLI policies,

causing them substantial prejudice, thus warranting the grant of

their motion. 

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California law requires a party seeking to rescind a

contract to give notice to the other party promptly upon

discovering the facts which entitle him to rescind. Cal. Civ.

Code § 1691. The California Insurance Code section 650 further

provides that the right of rescission of an insurance policy may

be exercised at any time prior to the commencement of an action

on the contract. California courts read these statutes together

as a requirement that rescission must occur before an action on

the policy and within a reasonable time from discovering an error

in the policy. Cole v. A.A. Calaway, 140 Cal. App. 2d 340, 347-

348 (1956). The determination of a “reasonable time” depends on

the particular facts of each case. Id. 

To prevail on a defense of laches, the defendant must also

demonstrate substantial prejudice resulting from the delay. 

Conti v. Board of Civil Serv. Comm’ners, 1 Cal.3d 351, 359-60

(1969) (“If the delay has caused no material change in status

quo, ante, i.e., no detriment suffered by the party pleading the

laches, his plea is in vain.”) (internal quotations omitted). 

The existence of prejudice to the defendant under California

Civil Code section 1693 depends on the specific facts of the

case. In re Consolidated Pretrial Proceedings in Air West Sec.

Litig. v. Air West Inc., 436 F. Supp. 1281, 1290 (N.D. Cal.

1977). The burden of affirmatively demonstrating substantial

prejudice lies with the party asserting laches. Miller v.

Eisenhower Med. Ctr., 27 Cal.3d 614, 624 (1980). 

“Generally speaking, the existence of laches is a question

of fact to be determined by the trial court in light of all of

the applicable circumstances . . . .” Id. However, where, as

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here, the issues of fact are undisputed, the court may

appropriately decide the issue on summary judgment. See

generally Celotex Corp. v. Catrett, 477 U.S. 317 (1986). 

Defendants first argue that Admiral unreasonably delayed in

acting to rescind the policies. On May 24, 2004, defendants

tendered the Altman Complaint to Admiral, which contained the 

information on the prior legal claims against DCC and Debber. On

August 5, 2004, Admiral staff met and decided to file an action

to rescind the policies based upon DCC’s non-disclosure of the

prior claims. However, Admiral did not file the instant action

to rescind until February 22, 2005 and did not specifically

notify defendants of the action until March 1, 2005. Thus, there

was a nine month period from the time Admiral learned about the

basis for rescission to the actual filing of an action to

rescind. There was also a period of approximately seven months

from the time Admiral apparently made the decision to rescind and

the actual filing of the instant complaint. 

An insurer is entitled to a reasonable time period to

investigate and act upon information regarding its right to

rescind a policy. Here, in an environment of multiple and

ongoing litigation, nine months is not an unreasonable period of

time for an insurance company to investigate and act upon

information supporting rescission of a policy. See, e.g.,

Jaunich II v. National Union Fire Ins. Co., 647 F. Supp. 209,

216-17 (N.D. Cal. 1996) (finding approximately three month period

from receiving all information to time of action to rescind

reasonable); Civil Serv. Employees Insur. Co. v. Blake, 245 Cal.

App. 2d 196, 200-02 (1966) (finding approximate four month period

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from date of auto policy issuance to date of action to rescind

reasonable); State Farm Fire & Casualty. Insur. v. McDevitt, 2001

WL 637419 *9 (N.D. Cal. May 21, 2001) (finding period of one year

from discovery of misrepresentations to action to rescind not

unreasonable). 

Furthermore, the court likewise finds that the seven months

following Admiral’s apparent decision to rescind the policy is

not an unreasonable period of time. Administrative procedures

and reevaluations regarding the propriety of the decision could

easily account for this delay. Indeed, it is more reasonable for

Admiral to take time to ensure proper grounds for rescission than

to act prematurely in a manner that could prejudice defendants. 

The court is unpersuaded by defendants’ assertion that Admiral’s

review period was excessive.

Defendants also argue they sustained substantial prejudice

from Admiral’s actions. Defendants assert they relied on

Admiral’s defense to cover litigation expenses, while formulating

an “aggressive” strategy for the Altman action. This reliance,

defendants claim, caused them to retain higher priced attorneys. 

This argument is unpersuasive. Defendants were on notice since

May 28, 2004, pursuant to Admiral’s reservation of rights letter,

that Admiral may later seek to rescind the contract. In fact,

contrary to defendants’ assertion that said letter contains

dense, complicated “boilerplate” language, the letter is simple,

straightforward and two pages. The second paragraph states

clearly that, “Monitor is currently in the process of

investigating certain coverage issues.” The fifth paragraph

states specifically that Admiral’s defense of the Altman action

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pursuant to the policy is subject to a full and complete

reservation of rights, including the right to “file an action for

a judicial determination that [Admiral] is entitled to rescind

the Policy and that the Policy is void ab initio . . . .” (SUF ¶

43.) This letter should have prompted defendants to at least

consider a litigation strategy that did not include Admiral’s

support. While defendants may have made decisions hoping that

Admiral would continue to provide coverage, those decisions

amount to a calculated risk on their part. 

As further support for their argument, defendants emphasize

that while originally, the firm Irell & Manella represented

defendants, shortly after learning of Admiral’s intent to

rescind, defendants switched to the purportedly less expensive

counsel of Dempsey & Johnson P.C. These facts do not

sufficiently assuage defendants’ burden to show substantial

prejudice. Aside from defendants’ bald assertions, there is no

evidence that they would have adopted a less expensive legal

strategy earlier, if Admiral had acted more quickly to rescind. 

Admiral agreed to pay defendants’ counsel, of their choice, based

on panel rates. There is no evidence that Admiral made any

attempt to influence defendants’ choice of counsel. Neither did

Admiral compel DCC to take an aggressive litigation stance. 

Defendants made those decisions, with the advice of the counsel

of their choice, without any coercion or influence from Admiral. 

Defendants also argue Admiral’s involvement in the

litigation created additional legal expenses. These costs

included consent for staffing and travel which required

defendants’ counsel to draft written requests. Defendants’

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counsel also prepared a three page summary report with attached

documents. Defendants do not offer a quantified amount for these

costs, and Admiral suggests defendants’ counsel billed less than

an hour for these actions. In any case, defendants have not

provided sufficient evidence to show substantial prejudice. The

preparation of short letters in response to routine

communications does not rise to the level of a substantial

burden. See, e.g., State Farm Fire & Casualty, 2001 WL 637419 at

*10 (finding increased attorney’s fees insufficient for showing

substantial prejudice). 

Finally, defendants assert Admiral waived its right to

rescind the policy because Admiral agreed to defend the Altman

action after learning about defendants’ prior undisclosed claims. 

This argument is unavailing. To find waiver, California law

requires an insurer to intentionally relinquish its rights. 

Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 31 (1995);

see, e.g., Ringler Assoc., Inc. v. Maryland Cas. Co., 80 Cal.

App. 4th 1165, 1188-89 (2000) (finding that insurer’s payment of

defense costs for over two years did not constitute a waiver of

the right to contest a duty to defend).

Defendants’ reliance on Neet v. Holmes is misplaced. 25

Cal.2d 447 (1944). In Neet, the party seeking to rescind

continued to accept royalty payments on a mining lease after

giving notice of rescission. By accepting benefits under the

contract, the plaintiffs acted as if the contract was still in

existence, thereby waiving their right to rescind. Admiral’s

actions here are certainly distinguishable. Admiral agreed to

defend the Altman action pursuant to a complete reservation of

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rights, expressly claiming the right to rescind. Admiral did not

garner a benefit by assuming the defense of the Altman action,

and it attempted to return defendants’ premiums upon notice of

rescission. If Admiral had refused to defend the Altman action

from the outset, before undertaking an investigation of the

issues, Admiral may have been subject to claims for breach of

contract. The court will not impose an intention of waiver on

Admiral for properly defending the matter until the basis for

rescission was ascertained and investigated. 

In sum, defendants fail to identify sufficient facts to

support a finding that Admiral unreasonably delayed seeking to

rescind the contract, or that it caused defendants substantial

prejudice. Therefore, as a matter of law, the defense of laches

fails, and defendants’ cross-motion for summary adjudication is

DENIED. 

CONCLUSION

For the foregoing reasons, Admiral’s motion for summary

adjudication on its first and second claims for relief to rescind

the subject Admiral EPLI Policies is GRANTED. Defendants’ crossmotion on their defense of laches is DENIED.

IT IS SO ORDERED.

DATED: July 19, 2006

/s/ Frank C. Damrell Jr. 

FRANK C. DAMRELL, Jr.

UNITED STATES DISTRICT JUDGE

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