Filed 5/10/17 Certified for Publication 5/22/17 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

SOUTHERN INSURANCE COMPANY,

Petitioner,

v.

WORKERS‟ COMPENSATION 

APPEALS BOARD, EJ DISTRIBUTION 

CORPORATION et al.,

Respondents.

 B278412

 (WCAB No. ADJ6865421)

PROCEEDINGS to review a decision of the Workers‟ 

Compensation Appeals Board. Annulled and remanded with 

directions.

Stockwell, Harris, Woolverton & Muehl, Alexander G. 

Abdoulin and George Woolverton for Petitioner.

Margaret W. Hosel and Anne Schmitz for Respondent 

Workers‟ Compensation Appeals Board.

Department of Industrial Relations, Christopher Jagard, 

Steven A. McGinty, and Sarosh Qaiser for Respondent Christine 

Baker, Director of Industrial Relations as Administrator of the 

Uninsured Employers Benefits Trust Fund.

Glauber Berenson and Timothy Chan for Respondent David 

Berrios-Segovia.
2

A workers‟ compensation insurance policy was issued based 

on the express representation that the covered employer‟s 

employees did not travel out of state. After an employee was 

injured out of state, the insurer notified the employer that it was 

rescinding the policy because of the employer‟s misrepresentation 

and returned the premium. The issue of insurance coverage went 

to mandatory arbitration wherein the arbitrator concluded that, 

as a matter of law, the insurer could not rescind the policy and 

that the policy was in effect. The Workers‟ Compensation 

Appeals Board (appeals board) affirmed the arbitrator‟s decision.

Contrary to the arbitrator‟s ruling, a workers‟ 

compensation insurance policy may be rescinded. (Ins. Code, 

§ 650.) A rescission is enforced by a civil action for relief based on 

rescission (Civ. Code, § 1692) or by asserting rescission as a 

defense. (Resure, Inc. v. Superior Court (1996) 42 Cal.App.4th 

156, 165-166 (Resure).)1 Because the arbitrator and the appeals 

board did not address and determine whether rescission was a 

meritorious defense to the employee‟s claim, we annul the 

appeals board‟s decision and remand the case with directions to 

hear and determine whether the insurer was entitled to rescind, 

and did rescind, the policy.

FACTUAL BACKGROUND

Insurance procurement

On December 23, 2008, EJ Distribution Corporation (EJ) 

applied for workers‟ compensation insurance. The application 

indicated EJ‟s business as “Concession Trucking company moves 

containers, no whse [sic], no loading and unloading, under 50 mil 

________________________________________________________

1 “When a contract has been rescinded in whole or in part, 

any party to the contract may seek relief based upon such 

rescission by (a) bringing an action . . . or (b) asserting such 

rescission by way of defense or cross-complaint.” (Civ. Code, 

§ 1692.)
3

rt.” The application also indicated that EJ‟s employees did not 

travel out of state. The online application prepared by EJ‟s 

insurance agent described EJ‟s operations as “local hauling.” The 

online application also indicated that EJ‟s employees did not 

travel out of state and did not have a radius of travel greater 

than 200 miles.

Workers‟ compensation insurance policy number 

WSI0006904-01 (hereafter “the policy”) was issued by Southern 

Insurance Company2 for an annual period beginning on January 

1, 2009.

The subject claim

On April 6, 2009, EJ‟s employee, David Berrios-Segovia 

(Segovia), injured his back lifting a latch to his truck while on a 

trip to Tennessee for his employer EJ. Segovia filed a workers‟ 

compensation claim on May 13, 2009.

On June 12, 2009, Southern‟s attorneys sent a letter to EJ 

stating that “Southern is rescinding the policy.” The decision to 

rescind was based on material misrepresentations or the 

concealment of material facts by EJ in the application for the 

policy, specifically that its employees did not travel out of state 

and that its operations did not exceed a radius of travel of 200 

miles. The letter noted that Segovia‟s claim showed those 

representations were not true as Segovia‟s injury occurred in 

Tennessee. The letter also claimed Southern would not have 

issued the policy had the true facts been known. Southern 

returned the premiums paid by EJ in the sum of $19,743.03.

Southern‟s underwriting file included a document entitled 

“POLICY TERMINATION / CANCELLATION / 

________________________________________________________

2 The subject injury claim is administered by Markel doing 

business as FirstComp on behalf of Southern Insurance Company 

(collectively Southern).
4

REINSTATEMENT NOTICE” issued on June 15, 2009. The 

document stated:

“_ X _ Termination/Cancellation/Nonrenewal

The coverage provided by the policy number shown 

above is being __ __ nonrenewed or __X__ 

terminated/canceled, __X__ flat, __ __ pro rata, or __ 

__ short rate, effective 1/01/2009 12:01 a.m. standard 

time at the insured‟s mailing address for the 

following reason(s): Substantial change in risk or 

Increase in Hazard. Flat Cancel.”

In light of Southern‟s position that the policy was rescinded 

leaving EJ uninsured, the Uninsured Employers Benefits Trust 

Fund (UEBTF) was joined as a defendant in Segovia‟s workers‟ 

compensation claim.

PROCEDURAL HISTORY

The arbitration

The matter was submitted to mandatory arbitration as a 

dispute involving insurance coverage pursuant to Labor Code 

section 5275, subdivision (a)(1).3

Southern called an underwriter as a witness who testified 

that Southern never insured long-haul trucking in its business 

division. In addition, the underwriter testified that, had 

Southern known that EJ traveled outside of 200 miles or out of 

state, Southern would not have issued the policy. The 

underwriter, however, confirmed that the policy itself, in fact all 

workers‟ compensation policies, did not contain an exclusion 

based on location.

Southern also called as a witness a special investigator 

working for the insurer who testified that EJ exceeded the 

________________________________________________________

3

“(a) Disputes involving the following issues shall be 

submitted for arbitration: [¶] (1) Insurance coverage.” (Lab. 

Code, § 5275, subd. (a)(1).)
5

200-mile radius and that operations extending beyond the 200-

mile radius were not a recent development, but was something 

that had been done in the past. Prior to January of 2009, EJ 

engaged in trucking operations outside of the state of California 

with employees traveling to various states, such as Utah and 

Tennessee. The investigator testified that notes of a conversation 

with EJ by prior investigators confirmed that EJ engaged in outof-state operations before the inception of the policy on January 

1, 2009. However, the investigator did not have firsthand 

knowledge of EJ‟s operations at the time EJ filled out the 

application. The investigator stated that he did not uncover 

anything specific in his investigation as to EJ‟s operations at the 

time the application was submitted.

The rulings of the arbitrator and appeals board

The arbitrator found: There was “no retroactive rescission” 

of the policy; Segovia‟s claim for his April 6, 2009 injury was 

covered by the policy; and the policy was prospectively cancelled 

under Insurance Code section 676.8, subdivision (b)(5)4 as of June 

15, 2009, and not before. The arbitrator dismissed UEBTF as a 

defendant in the matter.

The arbitrator gave three reasons for his ruling that there 

was “no retroactive rescission” of the policy.

First, the arbitrator found that the “only remedy” for 

Southern upon discovering misrepresentation of out-of-state 

operations was cancellation of the policy pursuant to subdivision 

________________________________________________________

4

“(b) After a policy is in effect, no notice of cancellation shall 

be effective unless it complies with the notice requirements of 

this section and is based upon the occurrence, after the effective 

date of the policy, of one or more of the following: [¶] . . .[¶] (5) 

Material misrepresentation by the policyholder or its agent.” 

(Ins. Code, § 676.8, subd. (b)(5).) Further statutory references are 

to the Insurance Code unless indicated otherwise.
6

(b)(5) of section 676.8.5 The arbitrator ruled that there “is 

nothing in Insurance Code Section [676.8] that permits a 

workers‟ compensation insurer to retroactively rescind a policy 

that has been incepted from day one.” The arbitrator found that 

Southern did not comply with section 676.8 “when it unilaterally 

retroactively rescinded the policy to the inception date of the 

policy.”

Second, the arbitrator ruled that there is “no mechanism in 

place in California for a workers‟ compensation insurer to 

unilaterally retroactively rescind a policy especially if a claim is 

pending under that policy.” Not entirely excluding rescission of a 

workers‟ compensation policy, the arbitrator explained the 

insurer cannot “retroactively rescind a workers‟ compensation 

policy without authorization from a judge in Superior Court, a 

workers‟ compensation judge, or a WCAB arbitrator.”

Third, the arbitrator was concerned over leaving the 

injured employee without coverage by what the arbitrator termed 

a “unilateral, retroactive” rescission of the policy by the insurer.

As we explain below, each of the reasons given by the 

arbitrator is in error.

Southern petitioned for reconsideration.

________________________________________________________

5 Section 676.8 provides in pertinent part: “(a) This section 

applies only to policies of workers' compensation insurance. [¶] 

(b) After a policy is in effect, no notice of cancellation shall be 

effective unless it complies with the notice requirements of this 

section and is based upon the occurrence, after the effective date 

of the policy, of one or more of the following: [¶] . . . [¶] (5) 

Material misrepresentation by the policyholder or its agent. 

[¶] . . .[¶] (c) A policy shall not be canceled for the conditions 

specified in paragraph (1), (2), (5), or (6) of subdivision (b) except 

upon 10 days' written notice to the policyholder by the insurer.”
7

The arbitrator recommended that reconsideration be 

denied. In addition to quoting from his opinion on the decision, 

the arbitrator noted that the employer‟s representation that its 

truck drivers did not travel outside of the State of California 

became false only upon Segovia‟s filing of his claim in May of 

2009. The arbitrator was not convinced by the testimony of 

Southern‟s investigator that EJ had its non-owner employees 

drive outside the State of California at the time the policy was 

applied for in December 2008. Relying on section 359‟s 

entitlement to rescind the contract “„from the time the 

representation becomes false,‟” the arbitrator found that 

Southern could only rescind the policy prospectively. The 

arbitrator stated that the record did not indicate when EJ began 

sending its truck drivers out of state, meaning the falsity of the 

policy application may not have occurred until Segovia‟s injury in 

Tennessee on April 6, 2009.

The appeals board adopted and incorporated the 

arbitrator‟s report, with the exception of the finding that 

Southern had waived the jurisdictional issue, and denied 

reconsideration.

Petition for a writ of review

Defendant Southern petitioned this court for a writ of 

review on October 20, 2016. The petition presented four 

questions for review:

“1. Whether Labor Code [section] 5275 

provides the Workers Compensation Appeals Board 

with Subject Matter Jurisdiction over rescission of a 

Workers Compensation Insurance Policy?

“2. Whether Rescission of a Workers 

Compensation Insurance Policy is Permitted and if 

so, How is it Effectuated?
8

“3. Do Cancellation Statutes Under Insurance 

Code [section] 676.8 Control Rescission of a Workers‟ 

Compensation Policy or Prevent Rescission of Such 

Policy?

“4. Whether the Statutory Scheme or Public 

Policy Considerations Warrant Preclusion of Contract 

Rescission in Workers Compensation Claims?”

We granted the petition for a writ of review on January 10, 

2017. We requested that the parties brief issues relating to the 

rescission of the policy in this case.6

DISCUSSION

I. Subject matter jurisdiction

Section 4 of article XIV of the California Constitution vests 

plenary power in the Legislature to create and enforce a complete 

system of workers‟ compensation.7 Based upon this 

________________________________________________________

6 These issues were: “1. Can a workers‟ compensation 

insurance policy be rescinded under the authority of Insurance 

Code section 650? [¶] 2. In this case, the applicant filed the 

claim before the insurer attempted to rescind the contract. 

Insurance Code section 650 provides that the right to rescind 

may be exercised at any time previous to the commencement of 

an action on the contract. Does this provision preclude the 

insurer‟s attempted rescission? [¶] 3. May the insurer assert 

rescission as a defense to the applicant‟s claim? (Civ. Code, 

§ 1692, subd. (b).)”

7 “The Legislature is hereby expressly vested with plenary 

power, unlimited by any provision of this Constitution, to create, 

and enforce a complete system of workers‟ compensation, by 

appropriate legislation . . . to compensate any or all of their 

workers for injury or disability, and their dependents for death 

incurred or sustained by the said workers in the course of their 

employment, irrespective of the fault of any party.” (Cal. Const., 

art. XIV, § 4.)
9

constitutional mandate, the Legislature enacted section 5300 of 

the Labor Code, which provides the appeals board with exclusive 

jurisdiction over actions to enforce against the employer or an 

insurer any liability for compensation imposed upon the 

employer. (Lab. Code, § 5300, subd. (b).) “The appeals board is 

vested with full power, authority and jurisdiction to try and 

determine finally all the matters specified in Section 5300 subject 

only to the review by the courts as specified in this division.” 

(Lab. Code, § 5301.) “The Workers‟ Compensation Appeals Board 

. . . shall exercise all judicial powers vested in it under this code.” 

(Lab. Code, § 111.)

Given these broad powers, and the specific statutory 

authority providing for arbitration of coverage disputes (see fn. 

3), Southern concedes that insurance coverage is within the 

jurisdiction of the appeals board. Nonetheless, Southern asserts 

that the appeals board does not have subject matter jurisdiction 

over a contractual dispute between an insurer and its insured. 

However, where, as here, coverage is disputed on the ground that 

there is no longer a contract of insurance in existence, it is 

obviously necessary to rule on the defense asserted in order to 

determine whether there is coverage. “There can be no doubt but 

that the Commission is vested by constitutional and legislative 

power to hear and determine every issue raised by the parties to 

this controversy, including the validity of the policy and the 

question of fraud alleged in its procurement and that the parties 

are not required to invoke either a court of law or equity in the 

determination of said questions. [Citations.]” (General Acci. Fire 

& Life Assurance Corp. v. Industrial Acci. Com. (1925) 196 Cal. 

179, 190-191.) Thus, while Southern is free to litigate 

contractual disputes with its insured in a court of law, if 

Southern disputes workers‟ compensation insurance coverage 

because it claims there is no contract, it must submit to the 
10

jurisdiction of the appeals board on the issue of coverage even if 

that entails a ruling on whether the insurance contract is (or 

was) in effect.

II. Rescission of a workers’ compensation insurance 

policy

A. The statutory framework

Section 676.8 is contained in chapter 11, part 1, division 1 

of the Insurance Code. Chapter 11 is entitled Cancellation and 

Failure to Renew Certain Property Insurance. Section 676.8 is 

specifically limited to workers‟ compensation insurance and it 

addresses only the cancellation of a policy. It does not even 

inferentially address rescission.

Chapter 9 of part 1, division 1 of the Insurance Code is 

entitled Rescission. Chapter 9 has only two sections, one of 

which (section 650) applies to this case.8 Section 650 provides 

that “[w]henever a right to rescind a contract of insurance is 

given to the insurer by any provision of this part such right may 

be exercised at any time previous to the commencement of an 

action on the contract. The rescission shall apply to all insureds 

under the contract, including additional insureds, unless the

contract provides otherwise.”

Section 650 applies to workers‟ compensation insurance 

policies. Addressing section 650, as we must, in its context and 

within the overall statutory scheme (People v. Canty (2004) 32 

Cal.4th 1266, 1276) we find that there are three reasons for this.

First, there is nothing in chapter 9 or in section 650 

specifically that provides that section 650 does not apply to 

workers‟ compensation insurance policies. By contrast, 

subdivision (a) of section 675 specifically exempts workers‟

________________________________________________________

8 The second section in the rescission chapter applies only to 

the rescission of an automobile liability policy. (§ 651.)
11

compensation insurance from the provisions of chapter 11 which 

deal with the cancellation of certain insurance policies.

Second, chapter 9 and section 650 do not single out workers 

compensation insurance for special treatment. Section 676.8, on 

the other hand, specifically governs the cancellation of such 

policies. This is indicative of the intent that the general 

provisions regarding rescission set forth in section 650 should 

govern workers‟ compensation insurance policies.

Third, there is no provision anywhere in the pertinent 

statutes that can be construed to preclude the rescission of 

workers‟ compensation insurance policies.

UEBTF claims that the right to rescind is protected by 

section 6759 but that workers‟ compensation insurance is 

specifically excluded from section 675.10 Based upon this 

interpretation of section 675, UEBTF contends that a workers‟ 

compensation insurance policy cannot be rescinded. The premise 

of this argument, however, is in error since rescission is provided 

for in chapter 9, not chapter 3, and section 675 makes no mention 

of chapter 9.

UEBTF also contends that rescission is precluded because 

section 676.8 does not provide for protection of the right to 

rescind a workers‟ compensation insurance policy. However, 

________________________________________________________

9 “This chapter shall not be construed so as to modify or 

negate any of the provisions of Chapter 3 (commencing with 

Section 330) of Part 1 of Division 1, nor to destroy any rights or 

remedies therein provided.” (§ 675, subd. (b).) Chapter 3 deals 

with concealment and recognizes the right to rescind a policy 

upon a showing of concealment. (§ 331.)

10 Subdivision (a) of section 675 excludes workers‟ 

compensation insurance from the provisions of chapter 11.
12

section 676.8 deals with cancellation only and is in a chapter that 

governs cancellation, not rescission.

The somewhat peculiar limitation of rescission to the period 

prior to the filing of an action on the insurance contract in section 

650, is explained by the fact that the former equitable suit for 

rescission, now abolished, could not be brought if there was an 

adequate remedy at law. The adequate remedy at law was an 

action on the insurance contract. That is, if the policy holder 

brought an action on the contract, the carrier could assert 

rescission as a defense in that action. (Resure, supra, 42 

Cal.App.4th at pp. 165-166.)11 Thus, section 650 is an echo of the 

________________________________________________________

11 “When Insurance Code section 650 was enacted, the 

distinction between an action on the contract at law and an 

action for equitable rescission was of great significance because of 

the artificial separation between law and equity. Equity would 

not assume jurisdiction when the plaintiff had a clear remedy at 

law. [Citations.] It followed that once an action to enforce a 

contract was commenced at law, the party holding a right to 

rescind was expected to raise that as a defense rather than bring 

a new action in equity. [Citation.] [¶] The rule that equitable 

rescission would not be permitted where there was an adequate 

remedy at law, taken together with the rule that an applicant‟s 

fraud could be raised as a defense to an action on the policy, 

clarifies what is meant by Insurance Code section 650‟s limitation 

on the right of an insurer to rescind the policy to the time 

„previous to the commencement of an action on the contract.‟ The 

Legislature intended that the insurer be precluded from 

rescinding once the insured had proceeded with an action to 

enforce the insurance contract at law. . . . The point was merely 

to guarantee that resort to equity was not needlessly made where 

the insurer had ample opportunity to raise the same issues in 

defense of the action on the policy. As we have indicated in our 

earlier discussion, California law affords that opportunity to 

insurers where the insured fires the first shot.” (Resure, supra, 

42 Cal.App.4th at p. 166.)
13

past reality that an equitable suit for rescission could not be 

brought in the face of a pending action at law. As Resure

explains, section 650 does not affect the current state of the law 

which is that rescission can always be asserted as a defense to 

the action on the contract. (See fn. 11.)

UEBTF contends that once a workers‟ compensation claim 

has been filed, section 650 precludes rescission. However, the 

filing of a workers‟ compensation claim is not the equivalent of an 

action on the contract. The function that an “action on the 

contract” serves in section 650 is a legal remedy that precludes 

the filing of an equitable suit for rescission. The action on the 

contract also serves as an appropriate vehicle for the assertion of 

rescission as a defense.

A workers compensation claim is not the equivalent of a 

remedy at law. For one, a workers‟ compensation claim is not 

filed, pursued or adjudicated in a law court making it different 

from a legal remedy.

We note that the arbitrator appears to have been 

unfavorably impressed by the fact that Southern‟s rescission was 

“unilateral,” though rescission is routinely a unilateral act. After 

the equitable action to have a rescission adjudged was abolished 

in 1961, “the statutes now deal solely with unilateral rescission 

by notice and offer to restore the consideration. [Citations.]” (1 

Witkin, Summary of Cal. Law (10th ed. 2005), Contracts, § 930, 

pp. 1026-1027, original italics, citing inter alia Runyan v. Pacific 

Air Indus. (1970) 2 Cal.3d 304, 312.) There is a difference 

between effecting a rescission and enforcing a rescission by a civil 

action. A party effecting a rescission necessarily does so 

unilaterally. We turn to this next.
14

B. Rescission as a defense

A rescission is effected under Civil Code section 1691 by 

giving notice of rescission and restoring, or offering to restore, 

everything of value received under the contract.12

Once a contract has been rescinded in accordance with the 

statutory procedure under Civil Code section 1691, any party to 

the contract may seek legal or equitable relief based upon the 

rescission. (Runyan v. Pac. Air Indus. (1970) 2 Cal.3d 304, 313-

314 & Paularena v. Superior Court of San Diego County (1965) 

231 Cal.App.2d 906, 913 both citing to 3 Cal. Law Revision Com. 

Rep. (1961) p. D-7.) Civil Code section 1692 sets forth the 

remedies available in an action to enforce a rescission.13

The arbitrator seemed to conflate the effectuation of a 

rescission under Civil Code section 1691 with an action for relief 

based on the rescission. In this case, Southern effected a 

rescission but did not file an action for relief based on the 

rescission, as it might have, for declaratory relief, to name one 

________________________________________________________

12 “Subject to Section 1693, to effect a rescission a party to the 

contract must, promptly upon discovering the facts which entitle 

him to rescind if he is free from duress, menace, undue influence 

or disability and is aware of his right to rescind: [¶] (a) Give 

notice of rescission to the party as to whom he rescinds; and [¶] 

(b) Restore to the other party everything of value which he has 

received from him under the contract or offer to restore the same 

upon condition that the other party do likewise, unless the latter 

is unable or positively refuses to do so.” (Civ. Code, § 1691.)

13 “A claim for damages is not inconsistent with a claim for 

relief based upon rescission. The aggrieved party shall be 

awarded complete relief, including restitution of benefits, if any, 

conferred by him as a result of the transaction and any 

consequential damages to which he is entitled; but such relief 

shall not include duplicate or inconsistent items of recovery.” 

(Civ. Code, § 1692.)
15

example. That is, the effectuation of a rescission under Civil

Code section 1691 is not the equivalent of a judgment in a civil 

action providing for relief based on a rescission.

Southern also misses the distinction between the 

effectuation of a rescission under Civil Code section 1691 and the 

enforcement of a rescission when it states that once a party has 

done as set forth in section 1691, “the rescission is complete.”

The thought that performing the acts set forth in Civil

Code section 1691 effectively discharged Southern‟s obligations 

under the contract is incorrect. A judgment finding that 

Southern‟s rescission was effective following an action filed to 

enforce the rescission under Civil Code section 1692, on the other 

hand, would be the discharge that Southern seeks. The same 

finding could be entered if Southern asserts rescission as a 

defense to the workers‟ compensation claim. Of course, such a 

finding would not be entered until the facts were tried and 

determined in the workers‟ compensation hearing. It should be 

unnecessary to point out that there must be grounds for the 

rescission, fraud being one of them (Civ. Code, § 1689, subd. 

(b)(1)), and that Southern cannot unilaterally decide, with 

binding effect on all the world, whether any of the grounds set 

forth in Civil Code section 1689 apply to this case. The point is 

that it is possible, as section 1692 itself recognizes, that 

notwithstanding Southern‟s assertion that it rescinded the 

contract, the rescission was not effective.14

The appeals board generally agrees that a workers‟ 

compensation insurance policy can be rescinded under the 

________________________________________________________

14 “If in an action or proceeding a party seeks relief based 

upon rescission and the court determines that the contract has not 

been rescinded, the court may grant any party to the action any 

other relief to which he may be entitled under the 

circumstances.” (Civ. Code, § 1692, italics added.)
16

authority of section 650. However, the appeals board contends, 

and rightly so, that rescission should not be used for the improper 

purpose of obtaining impermissible modifications to a workers‟ 

compensation insurance policy.

The answer to the appeals board‟s concern is that if 

rescission is asserted as a defense to the claim in a workers‟ 

compensation proceeding, the appeals board itself can ensure 

that the rescission is not used as a subterfuge to evade the laws 

governing workers‟ compensation insurance.

There is also the concern over the injured worker who has 

filed a workers‟ compensation claim but is faced with an insurer 

who has acted to rescind the policy. The answer here is that the 

insurer cannot be certain that the rescission will be enforced and 

that the insurer is therefore well advised to avoid drastic 

decisions about coverage until the validity of the rescission has 

been adjudged.

C. Rescission in this case

The arbitrator explicitly ruled that Southern could not 

rescind the policy. Putting the same point another way, the 

arbitrator found that Southern‟s attempted rescission was legally 

ineffective. Given this ruling, we assume the arbitrator gave 

little or no consideration to the facts with which Southern sought 

to justify its rescission of the policy or to the facts that pointed to 

a contrary conclusion.

Though in the report on the petition for reconsideration the 

arbitrator addressed some of the facts pertinent to rescission, this 

analysis of the facts did not inform the decision that was made, 

that as a matter of law, Southern could not rescind the policy. It 

appears that contrary evidence, that Southern did effectively, and 

prospectively, cancel the policy as of June 15, 2009, based on EJ‟s 

misrepresentation, was given little attention.
17

The gist of the factual views set forth in the report on the 

petition for reconsideration was that there was no evidence that, 

as of the time that EJ entered into the policy, EJ was engaged in 

transportation out of state and beyond 200 miles.

There was, however, evidence from which it can be 

reasonably inferred that EJ knew when it entered into the policy 

that representations as to the nature of its transportation 

business were false. Southern‟s special investigator testified that 

a prior investigator confirmed that EJ engaged in out-of-state 

operations prior to the inception of the policy on January 1, 2009. 

Although Southern‟s special investigator did not have personal 

knowledge of EJ‟s operations at the time EJ completed its 

insurance application, there were business records referenced by 

the investigator that tended to show that EJ conducted out-ofstate operations possibly during the insurance application 

process.

Regardless, the report on the petition for reconsideration 

stated that “[t]here is no doubt that at some point the employer 

in this case concealed the fact that its employee truck drivers 

drive out of the State of California.” It was for this reason that 

the conclusion was reached that the policy was cancelled 

prospectively as of June 15, 2009. Although the appeals board 

contends that there were no material misrepresentations in this 

case, this is at odds with the arbitrator‟s view.

Given there were misrepresentations, the issue yet to be 

decided is whether EJ concealed material facts from Southern 

when it negotiated and entered into the policy. There is also no 

decision of record on whether the misrepresentation was material 

since the insurer must prove that the insured concealed or 

misrepresented a material fact on the insurance application. (LA 

Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 

Cal.App.4th 1259, 1266.) “Materiality is to be determined not by 
18

the event, but solely by the probable and reasonable influence of 

the facts upon the party to whom the communication is due, in 

forming his estimate of the disadvantages of the proposed 

contract, or in making his inquiries.” (§ 334.)

The conclusion is unavoidable that the issue whether 

Southern‟s rescission was legally effective remains factually open 

and unresolved.

DISPOSITION

The decision of the appeals board affirming the findings 

and award of the arbitrator is annulled and the matter is 

remanded to the appeals board for further proceedings consistent 

with this opinion.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

__________________________, Acting P. J.

CHAVEZ

We concur:

__________________________, J.

HOFFSTADT

__________________________, J.*

GOODMAN

____________________________________________________________

* Retired Judge of the Los Angeles Superior Court, assigned by 

the Chief Justice pursuant to article VI, section 6 of the 

California Constitution.
Filed 5/22/17

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

SOUTHERN INSURANCE COMPANY,

Petitioner,

v.

WORKERS‟ COMPENSATION 

APPEALS BOARD, EJ DISTRIBUTION 

CORPORATION et al.,

Respondents.

 B278412

 (WCAB No. ADJ6865421)

 ORDER FOR PUBLICATION

THE COURT:*

The opinion in the above entitled matter filed on May 10, 2017, was not 

certified for publication.

For good cause it now appears that the opinion should be published in 

the Official Reports and it is so ordered.

* CHAVEZ, Acting P. J., HOFFSTADT, J., GOODMAN, J.†

†Retired Judge of the Los Angeles Superior Court, assigned by the Chief 

Justice pursuant to article VI, section 6 of the California Constitution.