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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

FINDING OF FACT AND

CONCLUSIONS OF LAW

 Unionamerica Insurance Company (“Unionamerica”) sued

The Fort Miller Group, Inc. (“Fort Miller”) and its former

subsidiary Beeche Systems Corp. (“Beeche”) to rescind the

Commercial General Liability Gap Insurance policies (“CGL gap

policies”) it issued in 2000 and 2001 to Fort Miller. 

 The trial began on February 23, 2009. Having considered

and weighed the undisputed facts and the evidence adduced at

trial, and having assessed the credibility of the witnesses,

I now make these findings of fact and conclusions of law as

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1 Pursuant to 28 U.S.C. 636(c), both parties have

consented to my jurisdiction for all proceedings, including

entry of final judgment.

2

required by Federal of Civil Procedure 52(a).1

FINDINGS OF FACT

1. Unionamerica, successor-in-interest to St. Paul

Reinsurance Company Limited (“St. Paul”), is an insurance

company organized under the laws of England and Wales and

doing business in London, England. St. Paul was an insurance

company doing business in London at the time the insurance

policies at issue originated.

 2. Fort Miller Group, Inc. (“Fort Miller”) is a holding

company for several subsidiaries (including The Fort Miller

Company, Inc.), which historically manufactured and sold

products including pre-cast concrete, chain link fencing, and

gates. In 1998, Fort Miller purchased Beeche Systems, Inc.

(“Beeche”).

3. Beeche designed and sold access platforms and access

platform systems. These systems allow workers access to

structures such as office buildings and bridges and were

assembled at the project site, often by the client or someone

hired by the client who had familiarity with assembling the

systems.

4. Beeche manufactured many, but not all, of the

components of the access platform systems that it designed

and sold. Access platform systems are comprised of

individual modular component space frames and truss frames. 

The components of these space frames and truss frames, which

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include parts such as aluminum chords, nodes, and pins, are

combined with other component parts, such as plywood decks,

hoists, and wire rope. Each system is unique and designed

for the particular job on which it is needed. 

 5. At all relevant times, Fort Miller, assisted by an

insurance broker from Associates of Glens Falls, Inc.

(“AGF”), purchased CGL gap insurance to fill any gaps in

coverage created by exclusions in its CGL policies.

6. U.S. Risk Underwriters, Inc. (“U.S. Risk”) developed

CGL gap insurance prior to 1999. U.S. Risk accepted and

underwrote the applications and then placed the insurance in

the London insurance market. At U.S. Risk, CGL gap policies

were underwritten by Sandy Hoffman (“Hoffman”) and her

immediate supervisor, Betty Prah (“Prah”). Both had many

years of underwriting experience.

7. AGF is an insurance brokerage agency. As of 1999,

it had handled Fort Miller’s insurance needs for over 25

years. Barbara Marshall (“Marshall”), who had many years of

experience in the insurance industry, was the principal AGF

employee involved in obtaining Fort Miller’s CGL gap

insurance from U.S. Risk. Marshall had worked on the Fort

Miller account since 1994 and was knowledgeable about its

business. 

8. About the same time that AGF was assisting Fort

Miller in applying for CGL gap insurance, it was also

assisting Fort Miller in obtaining or renewing other forms of

insurance, especially after Fort Miller acquired Beeche in

early 1998. Marshall was involved in many of these efforts. 

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In almost all of these other insurance applications, AGF

either explicitly mentioned Beeche’s products or directed the

insurer’s attention to Beeche’s website. Many insurers

declined to provide insurance because of the risks they saw

associated with Beeche’s products, especially with the

heights at which the products were used.

9. In early March 1999, Marshall prepared a

preliminary, unsigned application (“preliminary application”)

for a CGL gap policy on behalf of Fort Miller. The

application was on a U.S. Risk form. Because Marshall did

not have all of the necessary information to answer every

question on the preliminary application, she left some

questions blank. On page two of the preliminary application,

Marshall listed all of Fort Miller’s subsidiary companies,

including Beeche. On this same page, Marshall identified

Beeche as one of the entities that Fort Miller sought to add

as a named insured on the CGL gap insurance, stating that

Beeche had its “own liability coverage” but that it was being

included on the application “for property [and] other

coverages.” Beeche’s primary CGL carrier was not identified.

10. On March 8, 1999, Marshall forwarded the

preliminary application to Hoffman, who underwrote the Fort

Miller account in 1999 and 2000. The cover letter informed

Hoffman that the preliminary 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. 

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11. In response to a request on the application that

the applicant “attach any product brochures that [it] make[s]

available to customers”, Marshall sent Hoffman brochures

describing Fort Miller’s products. The brochures found in

the U.S. Risk underwriting file included brochures about

several of Fort Miller’s subsidiaries, including the Fort

Miller Company, Tymetal Corporation, and Duke Concrete

Products. None of the brochures sent by Marshall to Hoffman

related to Beeche or its products. Marshall also did not

list any of Beeche’s products or operations in response to

questions for this information on the application. Nothing

on the preliminary application referred U.S. Risk to Beeche’s

website. Marshall provided no satisfactory explanation for

these omissions.

12. Information about the nature of Beeche’s products

and the risks they presented was material to U.S. Risk and

the insurers it represented. Had U.S. Risk known the true

nature of the risk, it might not have written the policy and

likely would have raised the premiums. See California

Insurance Code § 334; Old Line Life Ins. Co. v. Superior

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

13. Marshall also forwarded the preliminary application

to Richard Schumaker (“Schumaker”), Fort Miller’s Chief

Financial Officer, for review. Only the unsigned

application, not the brochures, were forwarded to Schumaker.

14. On March 11, 1999, Hoffman faxed a memorandum to

Marshall asking for, among other things, the average and the

largest values of the products that Fort Miller manufactured,

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questions left blank on the preliminary application. After

consulting with Schumaker, Marshall answered that the average

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

$100,000.

15. Marshall testified that sometime in March 1999, she

and Hoffman spoke on the telephone. Marshall testified that

Hoffman told her that she was experiencing difficulty

locating Fort Miller’s products on its website and that she

had only been able to find information concerning “burial

vaults.” Marshall testified that she told Hoffman that Fort

Miller’s subsidiaries had their own websites that listed

their respective products, and that each of these websites

could be accessed from the main Fort Miller website. 

16. Unionamerica introduced evidence that employees of

U.S. Risk’s Dallas office, where Hoffman worked, did not have

the ability to browse the internet until around the summer of

2000. The evidence included an “Internet Use Policy

Acknowledgment” form, signed by Hoffman, dated August 18,

2000.

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

quote for CGL gap policy coverage to AGF and the policy was

bound based on the information contained in the preliminary

application, as supplemented by the answers to the specific

questions that Hoffman had asked Marshall. At the request of

Fort Miller, the policy was issued effective April 9, 1999 to

April 9, 2000, so as to be consistent with the expiration

dates of Fort Miller’s other insurance policies. U.S. Risk

placed the policy with non-party CNA Reinsurance Company

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Limited.

18. In May 1999, after making several changes to the

preliminary application, including adding the term

“engineered access” to the description of Fort Miller’s

business, Schumaker signed the application. “Engineered

access” is a term, coined by Beeche, which refers not only to

Beeche’s products, but also to the bundle of related services

it provides, including the design, engineering, and

maintenance of access platform systems. 

19. The signed application was forwarded by Marshall to

Hoffman on or about June 8, 1999. Marshall alerted Hoffman

to some of the changes in the application that Schumaker had

made, but did not mention that the term “engineered access”

had been added.

20. On March 17, 2000, Marshall wrote Hoffman

requesting renewal. On March 28, 2000, Hoffman sent a memo

to Marshall attaching a renewal quote. The 2000 application

is identical to the preliminary, unsigned 1999 CGL gap

insurance policy application originally forwarded by Marshall

to Hoffman.

21. Thereafter, U.S. Risk issued a renewal of Fort

Miller’s CGL gap insurance policy, Policy No. USG10162,

effective from April 9, 2000 to April 9, 2001. This policy

was placed with St. Paul.

22. In January 2001, Marshall wrote U.S. Risk and

requested a second renewal. She asked U.S. Risk to send any

“necessary forms if needed for renewal pricing.” By then,

Hoffman no longer worked for U.S. Risk, and Prah became the

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underwriter for the third policy. Hoffman died shortly

thereafter. 

23. On January 26, 2001, Prah wrote Marshall that Fort

Miller’s CGL gap policy was “due to expire within 60 days.” 

The letter stated that if there were any changes “during the

policy year or during renewal” U.S. Risk would require a

renewal CGL gap policy application, but if there were no

changes, U.S. Risk would offer a quote “based on the expiring

information.”

24. On January 30, 2001, Marshall sent a memo to Prah

stating: “There are no changes in exposures etc. Please quote

based on expiring and we will secure renewal application for

binding purposes.” This meant that AGF was representing to

U.S. Risk that there had been no material changes in the risk

from the prior applications.

25. Based on this representation, Prah reviewed the

2001 application under the assumption that the products that

Fort Miller sought to insure were the same products that it

had listed on its prior applications, and underwrote the risk

by “zero[ing] in” on the values listed in the application in

order to quote a renewal premium.

26. On February 8, 2001, Marshall forwarded a signed

renewal application to Prah. In the 2001 application, Fort

Miller added the term “access platforms” to the list of Fort

Miller’s products and to the description of its operations,

and deleted the term “engineered access.” In response to the

request on the application that copies of company or product

brochures or advertising material be provided, Marshall

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stated “see your prior file since 4/99.” The remainder of

the 2001 application was substantially similar to the

application submitted in 1999.

27. Thereafter, U.S. Risk issued a third CGL gap

insurance policy on St. Paul paper to Fort Miller and its

subsidiaries, Policy No. USG10440, effective April 9, 2001 to

April 9, 2002.

28. Each of the three policies provided coverage for

“Damage to Your Product” and “Damage to Impaired Property or

Property Not Physically Injured.”

29. In December of 1999, Beeche sold to RobisonPrezioso, Inc. (“RPI”) and California Engineering

Contractors/MCC (“CEC/MCC”) several access systems for use on

the San Francisco/Oakland Bay Bridge.

30. On January 4, 2002, an accident occurred on the Bay

Bridge involving a Beeche access system product, causing

damage to the access system itself, injuries to one or more

individuals, and delays in completion of the project.

31. On March 27, 2002, Vida Clemmons and other

plaintiffs filed personal injury lawsuits against Fort

Miller, Beeche, and others for injuries sustained as a result

of the January 4, 2002 accident.

32. On December 1, 2003, RPI sued Fort Miller, Beeche,

and others (“the RPI Suit”), alleging, among other things,

that RPI suffered damages because the access systems were

defective and caused delay.

33. On January 20, 2004, CEC/MCC filed suit against

Fort Miller, Beeche, and others (“the CEC/MCC Suit”),

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alleging, among other things, that CEC/MCC suffered damages

because the access systems were defective and caused delay.

34. The parties to the RPI Suit and the CEC/MCC Suit

reached a settlement of all claims in those actions through

contributions of various insurance carriers. St. Paul agreed

to pay (and did pay) $671,000 under a reservation of its

rights to rescind the policies and to seek reimbursement for

amounts paid under the policies.

35. The parties have stipulated, for the purpose of

this trial only, that the defense fees and costs and

indemnity amounts paid by Unionamerica in defending the

underlying actions were reasonable and necessary and that

should Unionamerica prevail on its claims for rescission, it

shall be entitled to reimbursement in the amount of

$1,548,292.32. 

CONCLUSIONS OF LAW

1. This court has subject matter jurisdiction pursuant

to 28 U.S.C. § 1332(a).

2. 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). 

3. In California, a material misrepresentation or

concealment in an insurance application, whether intentional

or unintentional, is grounds to seek rescission. California

Insurance Code § 331. See also 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,

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179-180 (1988)).

4. 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

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

the disadvantages of the proposed contract, or in making his

inquiries.” In California, the insurer must demonstrate

that, had the true facts been disclosed, it would have caused

the insurer’s underwriters to reject the application or

accept it only under different terms. Old Line Life Ins.

Co., 229 Cal.App.3d at 1604-06. Accordingly, California

courts have applied a “subjective” standard to the test for

materiality 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 Ca1.App.3d at 181. 

5. Fort Miller, through AGF, failed to adequately

disclose the true nature of Beeche’s products when it failed

to describe Beeche’s products in its preliminary application

and failed to provide any brochures about Beeche to U.S.

Risk. Beeche’s products are sufficiently different from many

of Fort Miller’s other products, such that information about

them was material to the risk that Fort Miller was asking the

insurer to assume. Adding the words “engineered access” to

the signed version of the 1999 application more than a month

after the policy had been rated and bound, without alerting

U.S. Risk to these changes, did not fully discharge Fort

Miller’s duty of disclosure under California law, including

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California Insurance Code § 332.

6. Fort Miller argues a variety of theories, including

waiver and estoppel, to support several contentions, such as

its contention that the failure to provide U.S. Risk with

Beeche brochures or other adequate information about Beeche’s

products, was in effect cured when Marshall directed Hoffman

to Beeche’s website. After weighing all the evidence before

me, including the credibility of the witnesses, I conclude

that Fort Miller has not established any of these defenses. 

Among other things, there is no evidence that Hoffman

actually looked at the Beeche website and, given what she

would have learned about Beeche’s products had she accessed

its website, it is not reasonable to infer that she would

have done nothing with the information she would have

learned.

7. Unionamerica has raised many other grounds for

rescission; however, many of its contentions arise from 

ambiguities inherent in the policy application, such as the

meaning of the words “manufacture”, “value”, and “sell”,

which are construed against it. (See Order Denying P.’s Mot.

for Summary Judgment pp.9-10.) In view of the disposition

reached in these findings and conclusions, I do not reach

these other arguments, which Fort Miller contends are

illustrative of what has come to be known as postclaim

underwriting. See, e.g., California Health & Safety Code §

1389.3; Hailey v. California Physicians’ Service, 158

Cal.App.4th 452, 465 (2007); Post Claim Underwriting, 102 W.

Va. L. Rev. 809, 818-19 (2000). 

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2 These allegations form part of Fort Miller’s bad

faith counterclaim, which the Court has stayed pending

resolution of the rescission claim.

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8. In effect, Fort Miller argues that Unionamerica and

U.S. Risk were willing to place the policies and accept its

premiums without doing the same sort of underwriting that

Fort Miller’s other insurers did. This is why, Fort Miller

claims, the CGL Gap Program proved a financial failure. To

bail themselves out, U.S. Risk and Unionamerica decided to

act as follows: if no claims were filed against the policy,

they kept the premiums; if a claim was filed, they engaged in

a thorough review of the file, found a myriad of failures by

the insured to “tell all it knows” about the risk in its

application, which could have been resolved if the

application had been properly underwritten at the outset, and

then sought to rescind the policy.2 

9. There are at least two flaws in Fort Miller’s

arguments. First, it is not clear this is what Unionamerica

and U.S. Risk did. While virtually no evidence was presented

about the extent of U.S. Risk’s underwriting of any of the

three applications, save for calculating a premium, this is

in part because Hoffman, the initial underwriter on the Fort

Miller account, died before this dispute arose. Fort

Miller’s reliance on Prah’s testimony to support its argument

that U.S. Risk did not care “one whit” about the products it

was insuring, is not persuasive. While Prah testified that

“the main thing” she focused on when reviewing the 2001

application were the values of the products, she also

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3 See, e.g., Barrera v. State Farm Mut. Auto. Ins. Co., 71 Cal.2d 659 (1969); United Servs. Auto Assoc. v. Pegos, 107

Cal.App.4th 392, 394-5 (2003).

4 See, e.g., California Health & Safety Code § 1389.3;

Hailey v. California Physicians’ Service, 158 Cal.App.4th 452,

471 (2007).

5 See, e.g., Philadelphia Indemnity Ins. Co. v. MontesHarris, 40 Cal.4th 151 (2006)(excess rental car liability

insurance); Firemans Fund v. Superior Ct., 75 Cal.App.3d 627

(1977)(aircraft liability insurance).

14

testified that she “looked at everything on the application”

and that “everything on [the application was] important.” 

Significantly, when Prah underwrote the policy in 2001, the

coverage had been in place for two years. Prah was asked by

Marshall to quote a renewal price for a risk that had not

changed. Understandably, Prah’s focus was on generating a

premium quotation, not on reviewing the listed products to

assess the level of risk they presented. 

10. More importantly, exercising diversity

jurisdiction, this Court is bound by California law and the

decisions of its courts. Thus far, postclaim underwriting

has been prohibited only in the context of some automobile

insurance3, and health insurance.4 California courts have

been hesitant to extend this prohibition to other areas of

insurance.5 

11. No recent California case has explored the duties

of the insured and the insurer in the context of a brief,

generalized application for commercial insurance directed to

a large corporation with many subsidiaries and hundreds of

products. As articulated by Unionamerica, the insured has

the obligation to “tell all it knows” about the risk, see

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6 “Each party to a contract of insurance shall

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

knowledge which are or which he believes to be material to the

contract and as to which he makes no warranty, and which the

other has not the means of ascertaining.” Cal. Ins. Code § 332

7 While there may be certain circumstances that trigger

a duty of investigation on the part of the insurer, based on

the evidence presented in this case, none of those

circumstances or triggering events occurred. See, e.g.,

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

(1973), while the insurer has no obligation to investigate

the accuracy or completeness of any of the information on the

application. See Mitchell v. United Nat’l Ins. Co., 127

Cal.App.4th 457, 477 (2005). In response, Fort Miller argues

that its duty to tell “all it knew” is modified by various

sections of the California Insurance Code. For example, Fort

Miller claims that since U.S. Risk had the “means of

ascertaining” information about Beeche’s products through an

internet search, under California Insurance Code § 332, Fort

Miller was relieved of its duty to produce Beeche’s

brochures, describe its products, or provide its website.6

Fort Miller also argues that its failure to include any

Beeche brochures should have put U.S. Risk on notice of its

omission and triggered a duty to inquire. However, Fort

Miller did not include brochures for a number of its

companies, which apparently were inactive, and there was

nothing in the preliminary application to alert Hoffman that

she should inquire about Beeche. The few courts that have

interpreted section 332 have not interpreted it to impose on

the insurer an affirmative duty to investigate that overrides

the insured’s duty of disclosure.7

 See, e.g., Lunardi v.

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DiPasqua v. Cal. W. States Life Ins. Co., 106 Cal.App.2d 281,

284-85 (1951) (The life insurer could not rely solely on

insured’s answers in his application where it had obtained an

investigation report from a third party that revealed that the

insured’s answer to a material question was untrue.); Merchants

Fire Assurance Corp. v. Lattimore, 263 F.2d 232, 242-44 (9th

Cir. 1959).

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Great-West Life Assurance Co., 37 Cal.App.4th 807, 826 (1995)

(“[s]ection 332 does not require the insurer to take all

possible measures to reveal undisclosed conditions.”); Mirich

v. Underwriters at Lloyd’s London, 64 Cal.App.2d 522, 531

(1944) (the fact that the insurer had the means of

ascertaining information regarding the insured’s past claims

by looking at court records did not excuse the insured from

disclosing the material information). Fort Miller’s

interprets § 332 too broadly, since requiring an insurer

routinely to search the internet for information about an

applicant could undermine the application process and the

applicant’s duties and could raise the cost of obtaining

insurance. See Barrera v. State Farm Mut. Auto. Ins. Co. 71

Cal.2d 659, 682 (1969). Whether the current interpretation

of § 332 is wise is for the California courts to decide. 

12. Here, because the nature of Beeche’s business was

significantly different from that of Fort Miller’s and its

other subsidiary companies, and because the application

submitted by Fort Miller did not contain a sufficient

description of Beeche’s business or its products or attach

any Beeche brochures despite a specific request for them, I

conclude that there was a material misrepresentation and/or

concealment that entitles Unionamerica to rescind. 

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For the foregoing reasons, Unionamerica is entitled to

rescission of the 2000 and 2001 CGL gap policies and to

reimbursement in the amount $1,548,292.32. 

Dated: March 16, 2009 

 

 Bernard Zimmerman

 United States Magistrate Judge

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