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1 All parties have consented to my jurisdiction for all

proceedings including entry of final judgment, pursuant to 28

U.S.C. § 636(c).

1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

UNIONAMERICA INSURANCE CO.,

LIMITED, Successor-ininterest to ST. PAUL

REINSURANCE,

Plaintiff(s),

v.

THE FORT MILLER GROUP, INC.,

THE FORT MILLER CO. and

BEECHE SYSTEMS CORP.,

Defendant(s).

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No. C05-1912 BZ

ORDER DENYING PLAINTIFF’S

MOTION FOR SUMMARY

ADJUDICATION

Plaintiff Unionamerica Insurance Company

(“Unionamerica”) has moved for summary adjudication on its

first and second causes of action, on the basis that it is

entitled to rescind the Commercial General Liability Gap

Insurance policies (“CGL gap policies”) it issued in 2000 and

2001 to defendants The Fort Miller Group, Inc. (“Fort

Miller”) and its subsidiary Beeche Systems Corp. (“Beeche”).1

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2

Unionamerica contends that Fort Miller failed to disclose in

its CGL gap policy applications the nature of its business as

it relates to the design and manufacture of custom

“engineered access systems” and misrepresented the value of

the products Beeche manufactured. Defendants contend that

they did not fail to disclose material information in

applying for the CGL gap policies, and alternatively, that

any misrepresentations or omissions in the CGL gap policy

applications were not material to Unionamerica’s decision to

underwrite the policies. For the reasons set forth below,

Unionamerica’s motion is DENIED.

Viewing the record in the light most favorable to Fort

Miller and drawing all reasonable inferences therefrom, the

factual background to this case is as follows:

Fort Miller is the parent of eight subsidiary companies,

including Beeche. Before acquiring Beeche in 1998, Fort

Miller manufactured and sold pre-cast concrete products and

sold fencing and gates. Beeche manufactures various

components for “access platforms” that allow construction and

remediation workers to access high structures, such as office

buildings and bridges. Beeche also sells entire access

platform systems, which are comprised of its components and

components manufactured by other companies, that it then

ships to its buyers who generally assemble the system on

site. 

At some point after it acquired Beeche, Fort Miller,

assisted by an insurance broker from Associates of Glens

Falls, Inc. (“AGF”), sought to purchase a gap insurance

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2 During argument, Unionamerica conceded that U.S. Risk

was acting as Unionamerica’s agent. Because U.S. Risk acted as

Unionamerica’s agent, any knowledge that U.S. Risk and its

underwriters had regarding the applications for the CGL gap

policy is presumed to be knowledge that Unionamerica also had. 

See Culley v. New York Life Ins. Co., 27 Cal.2d 187, 192 (1945)

(citing Vanciel v. Kumle, 26 Cal.2d 732, 734 (1945)).

3

policy to cover any exclusions in its comprehensive general

liability policy. 

In early March 1999, Barbara Marshall (“Marshall”), a

broker with AGF, prepared a preliminary, unsigned application

for a CGL gap policy on behalf of Fort Miller and submitted

it to U.S. Risk Underwriters, Inc. (“U.S. Risk”). U.S. Risk

placed gap insurance policies with London-based companies,

such as St. Paul Reinsurance Co., Unionamerica’s predecessorin-interest.2 

On March 8, 1999, Marshall forwarded the unsigned

application to Sandy Hoffman (“Hoffman”), an underwriter for

U.S. Risk who handled the Fort Miller account in 1999 and

2000. The cover letter informed Hoffman that the unsigned

application was Fort Miller’s “first quote of this type for

this coverage” and requested that Hoffman review the

application and advise AGF if there was any additional

information that Fort Miller needed to submit. The unsigned

application identified Beeche as one of the entities that

Fort Miller sought to have added as a named insured under the

CGL gap policy and described the nature of Fort Miller’s

business as “manufacturing, construction and service

industries.” Marshall sent Hoffman brochures describing Fort

Miller’s products. None of the brochures found in U.S.

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3 The CGL gap policy application contains these same

questions; however, the original unsigned application left the

answers to these two questions blank.

4 Unionamerica’s hearsay objection to Marshall’s

testimony about her conversation with Hoffman is OVERRULED

pursuant to FRE 801(2)(D). Unionamerica’s objection that

Marshall’s testimony violates the parole evidence rule is

OVERRULED. Her testimony is admissible as evidence that any

omission was not material to Hoffman’s decision to underwrite

the policy since she had access to information about Beeche.

4

Risk’s files describe Beeche’s products. 

Hoffman responded in writing on March 11, 1999. The

only questions she asked were what the average and the

largest values of the products that Fort Miller manufactures.3

That same day, Marshall answered that the average value was

less than $1,000 and that the largest value was $100,000. 

Hoffman also went online to learn more about Fort

Miller’s products. In March 1999, she telephoned Marshall

and told her that she was experiencing difficulty in locating

Fort Miller’s products on its website.4 Marshall informed

Hoffman that all of Fort Miller’s subsidiaries had their own

websites, which listed their respective products, and that

each of these websites could be accessed via the main Fort

Miller website.

On April 1, 1999, U.S. Risk transmitted a premium quote

for CGL gap policy coverage to AGF. In May 1999, after

making several changes to the original draft application,

including the addition of the term “engineered access” to the

description of its business, Fort Miller executed the

application. The executed application was forwarded to U.S.

Risk on or about June 8, 1999; however, coverage under the

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5

policy was for April 9, 1999 through April 9, 2000. 

On March 17, 2000, before the gap policy was scheduled

to expire, AGF sent a letter to U.S. Risk requesting renewal. 

The letter asked whether U.S. Risk needed any additional

information from Fort Miller to quote renewal pricing. On

March 28, 2000, Hoffman sent a memo to AGF attaching a

renewal quote based on the information provided by AGF in

1999. The CGL gap policy was renewed for coverage through

April 2001, with coverage to be provided by St. Paul

Reinsurance Company Limited, Unionamerica’s successor-ininterest. Unlike the signed 1999 CGL gap policy application,

the signed version of the 2000 CGL gap policy application

contained no reference to “engineered access.” 

In January 2001, Fort Miller, again using AGF as its

broker, requested a third renewal. Hoffman no longer worked

for U.S. Risk, and Betty Prah (“Prah”), Hoffman’s former

supervisor, became the underwriter for the third policy

issued to Fort Miller. In the 2001 application, Fort Miller

added the term “access platforms” to the list of products

manufactured by Fort Miller and its subsidiaries; the

remainder of the application was identical to those submitted

in the previous two years. The policy was renewed in 2001, a

claim ensued under the 2001 policy, and Unionamerica filed an

action for rescission of the 2000 and 2001 GCL gap policies.

The papers filed in connection with this motion stand 

about 3 feet high and exemplify much of what can go wrong

///

///

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5 The parties did not follow the Court's order

requesting the filing a joint statement of undisputed facts. 

Instead, both parties have filed separate statements of

undisputed facts, which are accompanied by numerous requests

for judicial notice, motions to strike, and objections to facts

that are of no material significance. Rather than rule on each

individual objection, motion to strike, and request for

judicial notice, I will simply state that I am satisfied that

the few material facts set forth in this Order are based on

admissible evidence.

6 In its reply brief, Unionamerica alleged an

alternative ground for rescission based on Fort Miller’s

misrepresentation of the premiums Fort Miller paid for its CGL

coverage. Because this argument was neither raised by

Unionamerica in its opening brief nor raised by Fort Miller in

its opposition brief, I have not taken it into consideration as

an alternative theory for rescission, and have only considered

it for rebuttal purposes. See Glenn K. Jackson Inc. v. Roe, 273 F.3d 1192, 1201 (9th Cir. 2001) (stating that the district

court has discretion to consider an issue raised for the first

time in a reply brief); Zamani v. Carnes, 491 F.3d 990, 997

(9th Cir. 2007) (stating that the district court “need not

consider arguments raised for the first time in a reply

brief.”). 

6

with summary judgment motion practice.5 Stripped to its

essentials, the motion boils down to two issues: 1) whether

Fort Miller concealed or misrepresented the value of the

products that it manufactured in the applications6

; 2) whether

Fort Miller’s failed to disclose “all it knew” about the

nature of Beeche’s business by failing to list all of

Beeche’s products and failing to attach Beeche’s product

brochures and, if so, whether that failure was material such

that it entitles Unionamerica to rescission as a matter of

law.

In a diversity action that involves interpretation of an

insurance contract, California law governs. Conestoga Servs.

Corp. v. Executive Risk Indem., Inc., 312 F.3d 976, 981 (9th

Cir. 2002). In California, a material misrepresentation or

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7 Fort Miller erroneously argues that the clause that

appears at the end of the CGL policy applications, which states

in relevant part that “[a]ny person who knowingly and with

intent to defraud any insurance company or other person files

an application for insurance . . . for the purpose of

misleading . . . commits a fraudulent insurance act . . .”,

modifies the normal rule and permits rescission only where

concealment or misrepresentations are intentional. In support

of its position, Fort Miller cites Clarendon Nat’l Ins. Co. v.

Ins. Co. of the West, 442 F.Supp.2d 914, 928 (E.D. Cal. 2006). 

The clause that Clarendon included in its coverage application

is distinguishable from the clause Unionamerica included, in

part because the clause in Clarendon specifically stated that

the coverage form would be “void” in the event of an

intentional concealment or misrepresentation of a material

fact. Here, Unionamerica does not speak of voiding the

application or policy, but instead informs the insured that it

will be subject to criminal penalties for fraudulent

statements. I therefore find Clarendon to be factually

distinguishable. A California court has found “Clarendon’s

rescission analysis % % % unpersuasive . . . .”. LA Sound USA,

INC. v. Paul Fire & Marine Ins. Co., 156 Cal.App.4th 1259, 1270

n.4 (2007) 

8 Thus, under California Insurance Code § 331,

“[c]oncealment, whether intentional or unintentional, entitles

the injured party to rescind insurance.” Concealment is

defined in § 330 as “[n]eglect to communicate that which a

party knows, and ought to communicate.” 

7

concealment in an insurance application, whether intentional

or unintentional, entitles the insurer to rescind the

insurance policy ab initio.7 O'Riordan v. Federal Kemper Life

Assurance, 36 Cal.4th 281, 286–87 (2005); Barrera v. State

Farm Mut. Automobile Ins. Co., 71 Cal.2d 659, 665, fn.4

(1969). This rule has been codified in the California

Insurance Code.8 See West Coast Life Ins. Co. v. Ward, 132

Cal.App.4th 181, 187 (2005) (citing Imperial Casualty &

Indemnity Co. v. Sogomonian, 198 Cal.App.3d 169, 179–180

(1988)). Under California Insurance Code § 334, “materiality

is to be determined not by the event, but solely by the

probable and reasonable influence of the facts upon the party

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8

to whom the communication is due, in forming his estimate of

the disadvantages of the proposed contract, or in making his

inquiries.” The test is subjective in the sense that “the

critical question is the effect truthful answers would have

had on [the particular insurer], not on some ‘average

reasonable’ insurer.” Sogomonian, 198 Cal.App.3d 169 at 181. 

Materiality may be determined as a matter of law where no

reasonable person can disagree as to the materiality of the

misrepresentation. See Cummings v. Fire Ins. Exch., 202

Cal.App.3d 1407 (1988). “The fact that the insurer has

demanded answers to specific questions in an application for

insurance is in itself usually sufficient to establish

materiality as a matter of law.” Thompson v. Occidental Ins.

Co., 9 Cal.3d 904 (1973) (citations omitted).

Summary judgment of rescission may be properly granted

for the insurer where the only reasonable inference to be

drawn from the evidence presented is that “the false negative

answers and omissions of [the applicant] were material to

[the insurer’s] decision to provide insurance coverage.” 

Sogomonian, 198 Cal.App.3d at 182; Lundardi v. Great-West

Life Assurance Co., 37 Cal.App.4th 807, 827 (1993); Wilson v.

Western National Life Ins. Co., 235 Cal.App.3d 981, 995-96

(1991). The burden of proof is on the insurer to establish

concealment or misrepresentation. Thompson, 9 Cal.3d at 915;

see also Casey by & Through Casey v. Old Line Life Ins. Co.

of Am., 996 F.Supp. 939, 944 (N.D. Cal. 1998).

///

/// 

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9 These same questions were asked as questions 5 and 6

in the 2001 application. In the 2001 application, Fort

Miller’s responses were identical to those in the 1999 and 2000

applications.

10 The applications ask the following four questions in

sequence: “What are your estimated product sales for the next

12 months; What is the highest value of a product that you

manufacture and describe that product; What is the average

value of a product that you manufacture; During the last five

years, do you know of a product that you manufactured or sold

which was damaged or destroyed as a result of a condition

within the product itself?” Fort Miller asserts and supports

with evidence, that the use of the disjunctive in the last

question caused it to believe that the drafter of the

application understood there to be a difference between the

word “manufacture” and the word “sell.”

9

Fort Miller’s Alleged Misrepresentation 

of the Value of Its Products

Questions 4 and 5 of the CGL gap policy applications

asked for the highest value of any product that Fort Miller

“manufactured” and the average value of the products that

Fort Miller “manufactured”. Fort Miller answered $100,000

and “less than $1,000", respectively.9 Unionamerica argues

that there “is no question” that Fort Miller misrepresented

both of these values, and contends that the values are in

fact much higher.

Viewing the evidence and all reasonable inferences in

the light most favorable to Fort Miller, I cannot say as a

matter of law that Fort Miller misrepresented its answers to

the policy application questions. The policy applications

inquired as to the highest value of a product that Fort

Miller “manufactured”, not the highest value of a product

that it “sold.”10 Fort Miller has offered evidence that while

it “manufactures” many of the component parts for the access

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10

systems that it assembles and sells, no component part that

it “manufactures” has a maximum value that exceeds $100,000. 

While the systems that Beeche ultimately “sells” may have a

retail value that exceeds $100,000, Fort Miller was not asked

that question.

The term “manufacture” is not defined in the

application. Fort Miller has submitted evidence that it

interpreted “manufacture” to mean creating a product from raw

materials and that it honestly, even conservatively, answered

the questions as it understood them. On summary judgment, I

cannot interpret a term, which Unionamerica itself chose not

to define, against the insured where the insured’s

interpretation is not unreasonable. At most the questions in

the application created an ambiguity, which must be construed

against Unionamerica. See Ransom v. Penn Mut. Life Ins. Co.,

43 Cal. 2d 420, 424 (1954) (provisions of an application

clause that are susceptible to two different constructions

must be resolved against the insurer); State Farm Mut. Ins.

Co. V. Partridge, 10 Cal. 3d 94, 102 (1973)(“all ambiguities

in an insurance policy are construed against the insurer -

draftsman.”) Unionamerica’s motion for summary adjudication

that it is entitled to rescission because Fort Miller

misrepresented the value of its products is DENIED. 

Fort Miller’s Alleged Failure to Provide 

Requested Information About Beeche’s Products

Unionamerica next argues that defendants had a duty to

disclose “all facts within their knowledge” that may have

been material to the risk, which included a duty to disclose

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11 During argument, Fort Miller conceded that Beeche had

product brochures in 1999.

12 The only case cited to by Unionamerica outside of the

context of life or health insurance is Imperial Casualty and

Indemnity Co. v. Sogomonian, 198 Cal.App.3d 169 (1988)

similarly is distinguishable. Sogomonian, dealt with

misrepresentations by a homeowner who failed to disclose that

his house had suffered damages in a landslide in his

application for fire insurance. 

11

every one of Fort Miller’s and its subsidiaries’ products on

the application as well as attach all product brochures and

promotional materials. Unionamerica contends that Fort

Miller’s alleged failure to list Beeche’s products or provide

product brochures was a material concealment that entitles it

to rescission as a matter of law.11 

Neither side has cited any California case which

analyzes the duties of the insurance company and the insured

in the context of a commercial policy application, and the

Court has found none. Instead, both sides cite to cases

analyzing applications principally for health and life

insurance. For example, Unionamerica cites repeatedly to

Thompson v. Occidental Life Ins. Co., 9 Cal.3d 904, 915

(1973) for the proposition that Fort Miller had a duty to

tell Unionamerica “all it knew” about its business. While

this may make sense in the context of answering questions

about one’s medical history, it makes less sense in the

context of Fort Miller answering questions about its eight

subsidiary companies-- which make thousands of products--

especially when it is given two or three lines in which to do

so in a form application that provides no additional

instructions.12

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13 In part, these cases rely on Section 336 of the

Insurance Code which provides: “The right to information of

material facts may be waived, either (a) by the terms of

insurance or (b) by neglect to make inquiries as to such facts,

where they are distinctly implied in other facts of which

information is communicated.”

14 In the context of automobile insurance, the law

requires an insurer to undertake a reasonable investigation of

the insured’s insurability within a reasonable period of time

12

Another line of health and life insurance cases holds

that an insurer has a duty to investigate the accuracy of the

information provided by the insured, if it knows or should

know the information is untrue.13 Rutherford v. Prudential

Ins. Co. of America, 234 Cal.App.2d 719, 735 (1965) (stating

that if an insurer has facts that put it on notice that the

application is incomplete or inaccurate in material respects,

the insurer should conduct further inquiry); see also

DiPasqua v. California Western States Life Ins. Co., 106

Cal.App.2d 281, 284-85 (1951) (insurer could not rescind

policy it issued knowing that insured had falsely or

negligently answered questions in the application). In the

context of a commercial insurance application such as this, I

see some of the parties respective duties as follows: the

insured has a duty to truthfully and completely answer the

questions on the application; the insurer should ask

questions to elicit information that it knows will be

material to its underwriting decision; the insurer does not

have a duty to investigate the accuracy of the insured’s

answers; the insurer does have a duty to ask the applicant to

provide further information if it knows or should know that

the application is inaccurate or incomplete.14

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from the acceptance of the application and the issuance of the

policy, so as to protect third persons who may be injured by

the insured. See Barrera v. State Farm Mut. Auto Ins. Co., 71

Cal.2d 659, 678 (1969). No California court has yet extended

this line of reasoning to other types of insurance, such as the

gap insurance policy at issue in this case, which also protect

injured third parties.

13

With these respective duties in mind, Fort Miller has

offered evidence that even though it did not list Beeche’s

individual products on the policy applications, in the 1999

application it disclosed Beeche’s business as “engineered

access”, and in the 2001 application, it added “access

platforms” to the list of products. If Unionamerica, knowing

that Beeche was one of the Fort Miller companies it was being

asked to insure, did not, as it contends, get any brochures

or other information which sufficiently described Beeche’s

products so that it could make an informed underwriting

decision, it could have asked for further information. 

Likewise, if Unionamerica did not understand the meaning of

terms such as “engineered access” or “access platforms” that

Fort Miller used, it could have asked.

In any event, there is evidence that Hoffman conducted

an independent investigation into Fort Miller’s products

using the internet, and that during her investigation, she

was directed by Marshall to the individual websites of Fort

Miller’s subsidiary companies. It is reasonable to infer for

summary judgment purposes that Hoffman was satisfied with

what she learned about the nature of the risk that Fort

Miller sought to insure since she decided to place the

insurance.

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15 (See Miller Decl. Exh. G 90:21-91:5, 123:4-10, 131:5-

24, 153:19-154:8.

14

Finally, Fort Miller submitted evidence that

demonstrates that even if AGF failed to send Beeche brochures

to U.S. Risk or sufficiently list Beeche’s products on the

CGL gap policy applications, there is a genuine issue of

material fact concerning whether its failure to do so was

material to Unionamerica’s decision to underwrite the risk.

Fort Miller submitted evidence that U.S. Risk’s

underwriters’ primary focus, when deciding whether to

undertake an insurance risk, is on the value of the

applicant’s products, as opposed to the number of products

manufactured or sold, or even each product’s individual risk

factor.15 For example, Fort Miller submitted portions of

Prah’s deposition testimony in which Prah was asked the

following question: “. . . [s]o it doesn’t really matter what

the access platform is, provided it’s not individually valued

at more than $100,000?” In response, Prah answered “[t]hat’s

correct.” (Miller Decl. Exh. G 125:23-25-126:1.) 

As previously stated, summary judgment of rescission may

be properly granted for the insurer where the only reasonable

inference to be drawn from the evidence presented is that

“the false negative answers and omissions of [the applicant]

were material to [the insurer’s] decision to provide

insurance coverage.” Sogomonian, 198 Cal.App.3d at 182. In

California, this requires the insurer to demonstrate that,

had the true facts been disclosed, they would have caused the

insurer’s underwriters to reject the application or accept it

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only under different terms. Old Line Life Ins. Co. v.

Superior Court, 229 Cal.App. 3d 1600, 1604-06 (1991). In

light of the evidence offered by Fort Miller, there is an

issue to be tried as to the materiality of Fort Miller’s

failure to list Beeche’s products on the policy applications

or its failure to provide U.S. Risk with any Beeche product

brochures. 

For the foregoing reasons, Unionamerica’s motion for

summary adjudication is DENIED.

Dated: December 22, 2008 Bernard Zimmerman

 United States Magistrate Judge

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