Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_09-cv-00856/USCOURTS-cand-4_09-cv-00856-5/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

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CAROLINA CASUALTY INSURANCE COMPANY,

Plaintiff,

 v.

RDD, INC.; DDR DANVILLE, INC.; and

DARIN DEVINCENZI,

Defendants. /

No. C 09-00856 CW

ORDER GRANTING

PLAINTIFF’S MOTION

FOR SUMMARY JUDGMENT

AND DENYING

DEFENDANTS’ MOTION

FOR CONTINUANCE

UNDER RULE 56(F) 

Plaintiff Carolina Casualty Insurance has moved for summary

judgment, arguing that the insurance policy it issued to Defendants

RDD, Inc., DDR Danville, Inc. and Darin Devincenzi should be

rescinded because of alleged false representations made by

Defendants in their application for the policy. Defendants crossmoved under Federal Rule of Civil Procedure 56(f) to continue the

hearing date of Plaintiff’s summary judgment motion, arguing that

they have not had sufficient time to conduct all discovery needed

to oppose Plaintiff’s motion. Having considered the papers filed

by the parties, the Court grants Plaintiff’s summary judgment

motion and denies Defendants’ motion for a continuance under Rule

56(f). 

BACKGROUND

This action stems from Sarah Lemke’s employment as a waitress

at Forbes Mill Steakhouse, operated by Defendants, in Danville

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United States District Court

For the Northern District of California

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1The relationship between Defendants RDD, DDR and Darin

Devincenzi is not clear. According to Plaintiff’s complaint, RDD

“operates” Forbes Mill Steakhouse and Devincenzi is the “President

or Chief Executive Officer of RDD.” First Amended Complaint (FAC),

¶¶ 2, 15. The insurance application at issue refers to RDD as “RDD

LP dba Forbes Mill Steakhouse,” and states that Devincenzi is a

“partner.” Exhs. A, B. The parties point to no document that

describes DDR and its relationship to the matter, except that RDD,

DDR and Devincenzi’s moving papers state that they should

collectively be referred to as “Defendants.” Motion at 1. 

Therefore, the Court will refer to RDD, DDR and Devincenzi

collectively as such. 

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California.1 On April 3, 2008, Lemke took temporary leave for

undisclosed medical reasons. On April 14, 2008, Lemke’s attorney

contacted Defendants to obtain various documents related to her

employment and benefits package. At this point, Lemke did not

disclose the reason for her leave or ask anything of her employer. 

In a letter dated April 28, 2008, Lemke quit her job with

Forbes Mill Steakhouse. She wrote, “Please accept this as notice

of my immediate resignation. I apologize for not giving two weeks

notice . . . I must resigned [sic] because I was subject to sexual

harassment by senior managers, peers and even owner’s [sic] of the

restaurant on nearly a weekly basis in the last year or so of my

employment.” Devincenzi Decl., Exh. 2. Lemke stated that when she

“complained, I was retaliated against, my shifts changed, rude and

mean comments were made to me and others who attempted to help me

also suffered. I was so distressed I felt hopeless.” Id. Lemke

also wrote, “Ultimately, the sexual harassment and retaliation

negatively harmed my mental and physical health causing my doctor

to ordered [sic] me to take medical leave. My doctor now tells me

that I cannot return to this work place as it would be utterly

devastating to my health.” Id.

On April 29, 2008, the day after Defendants received this

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For the Northern District of California

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letter, they contacted their insurance broker, Harrington Insurance

Agency, to obtain employment practices liability insurance. 

Defendants’ counsel claims that Defendants “informed Harrington of

the facts it then had regarding the Lemke circumstances. And

Harrington informed NIA of those same facts.” Zatulovsky Decl.

¶ 4. Defendants do not state in any more detail the “facts” they

conveyed to Harrington. Harrington completed an application for

such a policy with Carolina Casualty Insurance Company and

submitted it to Networked Insurance Agency, an intermediary

insurance agent-broker. The application contained two questions

particularly relevant to the instant action:

21. During 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 Acts against any Insured?

A Claim is not limited to the filing of a lawsuit or

comlaint with the Equal Employment Opportunity

Commission or similar state or local agency. A

Claim may also include a written demand by any

current or former Employee seeking relief in

connection with an employment-related dispute or

grievance.

22. Is any Insured aware of any fact, circumstance or

situation involving any Insureds that might

reasonably be expected to result in a Claim,

including, but not limited to, situations involving:

(a) Threats by any current or former Employee to

third party to take legal or other action

against any Insured, or a demand or request by

any current or former Employee for monetary or

non-monetary relief, arising out of any alleged

discrimination, harassment, wrongful

termination, constructive discharge, or other

Wrongful Acts?

(b) Knowledge that any current or former Employee

is engaging in, or has engaged in, acts of

discrimination, harassment, or other Wrongful

Acts?

(c) Complaints or accusations by other Employees or

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third parties that a current or former Employee

is engaging in, or has engaged in, acts of

discrimination, harassment, or other Wrongful

Acts?

(d) Warnings, reprimands, or other disciplinary

measures taken against any current or former

Employee for acts of discrimination,

harassment, or other Wrongful Acts? 

Zatulovsky Decl., Exh. M. Defendants answered “no” to these

questions. 

Immediately above the signature line, the application

contained the following language:

The undersigned, acting on behalf of all Insureds, declare

that the statements set forth herein are true and correct

and . . . agree that the particulars and statements

contained in the Proposal Form and any material submitted

herewith are their representations and that they are

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

If the Chairperson of the Board of Directors, President,

Chief Executive Officer, or Chief Financial Officer of the

Insured Entity knew as of the policy inception date that

such declarations and statements contained in the Proposal

Form(s) were untrue, inaccurate or incomplete, then this

Policy will be void as to that person or persons and the

Insured Entity. 

FAC, Exhs. A at 17, B at 27. Darin Devincenzi signed the agreement

on the line above, “President, Chief Executive Officer, or

equivalent position.” Id. 

On April 30, Harrington notified Networked that one of

Defendants’ former employees had retained counsel, but that

Harrington did not have any information about the reason for the

retention, or the name of the employee who had retained counsel. 

Specifically, the email that Harrington sent to Networked stated,

in full:

The owner of Forbes notified us this morning that a prior

employee has hired counsel. The details or more information

is unknown at this time. Once we get the details I will

make sure to inform you of them. Should you have any

questions please feel free to contact our office. 

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Zatulovsky Decl., Exh. N. Neither party presented evidence that,

at any point in the future, Harrington learned of further details

about this employee or that such information was passed on to

Network. 

On the same date, Plaintiff provided a price quote to

Networked for employment coverage for Defendants. On May 2, 2008,

Networked notified Plaintiff that the original application

incorrectly reported the number of Defendants’ employees. On May

5, 2008, Plaintiff issued a revised price quote for employment

coverage. On May 7, 2008, Devincenzi signed Defendants’

application for the policy. On July 15, 2008, Plaintiff issued the

employment policy to cover Defendants from May 5, 2008 to May 5,

2009. 

One week earlier, on July 9, 2008, Lemke filed a complaint

that contained causes of action against Devincenzi and Forbes Mill

Steakhouse for sexual harassment in violation of the Fair

Employment and Housing Act (FEHA); discrimination based on gender

in violation of FEHA; failure to investigate discrimination,

harassment and retaliation in violation of FEHA; wrongful

constructive termination in violation of public policy; intentional

infliction of emotional distress; sexual assault; sexual battery;

negligent supervision; defamation; and declaratory relief. On

August 8, 2008, Defendants tendered this claim to Plaintiff under

the policy. Plaintiff defended the claim under a reservation of

rights. On April 1, 2009, Plaintiff paid $50,000 to settle the

Lemke action, which was dismissed with prejudice on April 20, 2009.

Plaintiff alleges that, on February 2, 2009, it first learned

of Lemke’s April 28, 2008 resignation letter. On February 27,

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2009, Plaintiff filed the instant lawsuit to rescind the insurance

policy and for reimbursement of defense fees and costs incurred in

the Lemke action. 

LEGAL STANDARD

Summary judgment is properly granted when no genuine and

disputed issues of material fact remain, and when, viewing the

evidence most favorably to the non-moving party, the movant is

clearly entitled to prevail as a matter of law. Fed. R. Civ. P.

56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);

Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir.

1987).

The moving party bears the burden of showing that there is no

material factual dispute. Therefore, the court must regard as true

the opposing party's evidence, if supported by affidavits or other

evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815

F.2d at 1289. The court must draw all reasonable inferences in

favor of the party against whom summary judgment is sought. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d

1551, 1558 (9th Cir. 1991). 

Material facts which would preclude entry of summary judgment

are those which, under applicable substantive law, may affect the

outcome of the case. The substantive law will identify which facts

are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986).

 “Federal Rule of Civil Procedure 56(f) provides for litigants

to avoid summary judgment when they have not had sufficient time to

develop affirmative evidence.” United States v. Kitsap Physicians

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Serv., 314 F.3d 995, 1000 (9th Cir. 2002). The moving party “must

show: (1) it has set forth in affidavit form the specific facts it

hopes to elicit from further discovery; (2) the facts sought exist;

and (3) the sought-after facts are essential to oppose summary

judgment.” Family Home and Finance Center, Inc. v. Federal Home

Loan Mortgage Corp., 525 F.3d 772, 779 (9th Cir. 2008). 

DISCUSSION

I. Defendants’ Rule 56(f) Motion

Following the Court’s instructions at the July 14, 2009 case

management conference, Plaintiff filed an early summary judgment

motion for rescission. In this motion, Plaintiff argues that the

insurance policy it issued to Defendants should be rescinded

because, prior to issuance, Defendants failed to disclose to

Plaintiff the facts concerning Lemke’s resignation. Plaintiff

asserts that this information would have been material to its

decision to issue employment insurance to Defendants. 

Defendants respond by arguing that they notified Networked

about the circumstances surrounding Lemke’s resignation before

purchasing the policy from Plaintiff. Defendants assert that

Networked was Plaintiff’s agent and that, therefore, knowledge of

any information it provided to Networked was imputed to Plaintiff

by law. However, Defendants claimed that, at the time their

opposition to Plaintiff’s summary judgment motion was due, they

were not able to support this theory with evidence because they had

several outstanding discovery requests pertaining to the alleged

agency relationship between Networked and Plaintiff. Defendants

claimed that this agency relationship would provide a valid defense

to Plaintiff’s summary judgment motion. 

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At the hearing on the motions, Defendants represented that the

necessary discovery was complete and requested leave to file a

supplemental brief. The Court granted this request and allowed

Plaintiff to respond. Therefore, Defendants no longer have a need,

under Rule 56(f), to continue Plaintiff’s summary judgment motion. 

Accordingly, Defendants’ motion is denied. 

II. Plaintiff’s Summary Judgment Motion

Plaintiff argues that it should be awarded summary judgment

because Defendants submitted false answers to questions twenty-one

and twenty-two of the policy application. The Court agrees.

Question twenty-one required Defendants to disclose whether in

the past five years any current or former employee had “made any

Claim, or otherwise alleged . . . harassment.” Question twenty-two

similarly asks whether Defendants were aware of any fact,

circumstance or situation involving Defendants that might

reasonably be expected to result in a Claim, such as “complaints or

accusations by other Employees or third parties that a current or

former Employee is engaging in, or has engaged in, acts of

discrimination, harassment, or other Wrongful Acts.” Defendants

answered “no” to these questions, even though Lemke’s resignation

letter, received the day before Defendants submitted the insurance

application, expressly referred to being “subject to sexual

harassment by senior managers, peers and even owner’s [sic] of the

restaurant on nearly a weekly basis in the last year or so of my

employment.” Devincenzi Decl., Exh. 2. The “sexual harassment and

retaliation harmed [Lemke’s] mental and physical health” such that

she could no longer work for Defendants. Id. 

Defendants argue that their “no” answers to questions twentyCase 4:09-cv-00856-CW Document 66 Filed 02/17/10 Page 8 of 12
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one and twenty-two were accurate at the time, because it wasn’t

until March 28, 2008, when they received a Department of Fair

Employment and Housing right to sue letter, that they become aware

that a “former employee” had filed a “claim” against them. 

Defendants’ narrow interpretation of the word “claim” in questions

twenty-one and twenty-two is amiss. The questions asked Defendants

whether any current or past employees “made any Claim, or otherwise

alleged discrimination, harassment, wrongful discharge and/or

Wrongful Acts against any Insured.” Zatulovsky Decl., Exh. M

(emphasis added). The clear language of the questions obliged

Defendants to disclose Lemke’s allegations of sexual harassment,

retaliation and infliction of emotional distress. Defendants

failed to do so and falsely denied that any such allegations had

been made. 

Under California law, every party to an insurance contract

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

knowledge which are . . . material to the contract . . . and which

the other has not the means of ascertaining.” Cal. Ins. Code

§ 332. “Materiality” is determined by “the probable and reasonable

influence of the facts upon the party to whom the communication is

due. . . .” Id. § 334. When an insured has engaged in

“concealment,” which is defined by statute as the “[n]eglect to

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

id. § 330, the insurer may rescind the policy, even if the act of

concealment was unintentional. Id. § 331. Similarly, a materially

false representation at the time of, or before, issuance of a

policy may result in rescission of the policy. Id. § 359. 

Materiality is determined “by the probable and reasonable effect

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which truthful answers would have had upon the insurer.” Thompson

v. Occidental Life Ins. Co. of California, 9 Cal. 3d 904, 916

(1973). “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.” 

Id. The Court concludes that Defendants’ answers to questions

twenty-one and twenty-two were material false representations that

entitle Plaintiff to rescission of the insurance policy. 

In fact, Defendants do not dispute that Plaintiff would not

have issued the policy had either question been answered

differently. Rather, Defendants assert that Plaintiff waived its

right to rescission because it neglected its duty to investigate

whether Defendants accurately answered questions twenty-one and

twenty-two. The day after Defendants applied for coverage, they

notified Networked in an email that “a prior employee has hired

counsel.” Zatulovsky Decl., Exh. N. No further details were

provided. Defendants assert that this email should have caused

Plaintiff to investigate further Defendants’ false responses on the

policy application. The Court disagrees. The email is devoid of

any meaningful detail to put Plaintiff on notice to investigate

Defendants’ application further. The email does not state which

employee retained counsel nor does it speculate as to the reason

for the retention. Further, Defendants have not submitted any

other declarations to support the notion that they notified

Networked as to the specific circumstances of the “prior employee”

who “hired counsel.” Even their claim that they did not have any

details about why the unidentified employee had retained counsel

was false. Moreover, Defendants signed the application for the

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policy one week after they notified Harrington that a former

employee retained counsel. The Court concludes that Plaintiff did

not receive any information that Defendants’ responses to questions

twenty-one or twenty-two were false or may have been false before

it issued a policy to Defendants. Therefore, Plaintiff has not

waived its right to rescind the policy. 

Because Defendants’ waiver arguments fail and because

Defendants made material misrepresentations on their policy

application, the Court need not address whether Networked was

Plaintiff’s agent. Accordingly, the Court grants Plaintiff’s

motion for summary judgment. 

III. Claims Against Defendant Devincenzi

In Defendants’ supplemental brief, they argue, for the first

time, that Devincenzi cannot be personally liable as a matter of

law. Defendants cite United States Liaiblity Ins. Co. v.

Haidinger-Hayes, Inc., 1 Cal. 3d 586, 595 (Cal. 1970). There, the

court held that a corporate officer “does not incur personal

liability for torts of the corporation merely by reason of their

official position, unless they participate in the wrong or

authorize or direct that it be done” and that “more must be shown

than breach of the officer’s duty to his corporation to impose

personal liability to a third party upon him.” Here, Lemke alleged

that Devincenzi sexually harassed her, and Plaintiff defended and

settled Lemke’s claims pursuant to a reservation of rights. 

Moreover, Devincenzi signed the false application himself. 

Therefore, the present case is distinguishable from one in which

corporate officers are not liable solely by reason of their

official position. Accordingly, the Court denies this untimely

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2Plaintiff paid a total of $90,355.06 pursuant to the policy. 

This includes a $50,000 settlement to Lemke, $36,169.56 in defense

fees and costs and $4,165.50 for the deductible. This amount is

offset by $7,054 for the restoration of the premium paid for the

policy. The net reimbursement to Plaintiff after the rescission is

$83,281.06. 

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ground for opposition to Plaintiff’s motion for summary judgment. 

CONCLUSION

For the foregoing reasons, the Court grants Plaintiff’s motion

for summary judgment (docket no. 38) and denies Defendants’ crossmotion for a continuance under Rule 56(f) (docket no. 48). The

insurance policy between the parties is rescinded and the clerk

shall enter judgment for $83,281.062 in favor of Plaintiff and

jointly and severally against all Defendants. 

IT IS SO ORDERED.

Dated: 02/17/2010 

CLAUDIA WILKEN

United States District Judge

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