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Two defendants do not join in this motion. For convenience, the Court nevertheless

refers to the movants as “the defendants.”

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

ASSURANCE COMPANY OF AMERICA, )

 et al., )

 )

Plaintiffs, )

 )

v. ) CIVIL ACTION 05-0662-WS-C

 )

TY TY ENTERPRISES, INC., etc., et al., )

 )

Defendants. )

ORDER 

This matter is before the Court on the motion of defendants Ty Ty Enterprises, Inc. (“Ty

Ty”) and Gerald Donald Clark to strike and for judgment on the pleadings. (Doc. 32).1

 The

parties have submitted briefs and evidentiary materials in support of their respective positions,

(Docs. 33-35, 39-41), and the motion is ripe for resolution. After carefully considering the

foregoing and other relevant materials in the file, the Court concludes that the motion is due to

be denied.

BACKGROUND

The complaint reveals the following salient points. The plaintiffs are an insurance

company and an independent insurance brokerage. Ty Ty, through C&S Builders (“C&S”) is in

the business of constructing prefabricated metal buildings, and Clark is apparently a principal of

C&S. The plaintiffs brought this declaratory judgment action after the defendants filed a claim

for benefits under a builder’s risk policy issued on a warehouse construction project a few days

before Hurricane Dennis damaged it on July 10, 2005. The plaintiffs believe the policy was

obtained based on a false representation that construction had not begun (which allowed issuance

of the policy without the underwriting review required for projects attaining a certain degree of

completion) and on related representations as to construction start and completion dates. The

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plaintiffs believe the defendants made other, similar misrepresentations after the loss, in

connection with the claim. Count One demands rescission of the policy based on

misrepresentations in the application. Counts Two and Three assert the policy is void based on

misrepresentations made before and/or after the loss. Count Four demands rescission based on

violation of the policy’s cooperation clause. (Doc. 1 at 1-7). 

The defendants filed a counterclaim for policy benefits, (Doc. 17 at 8-10), and the

plaintiffs asserted as a defense that they are entitled to rescind the policy based on the same

misrepresentations alleged in the complaint. (Doc. 23 at 2). The pending motion is one to strike

the plaintiffs’ defenses based on misrepresentation and for judgment on the pleadings with

respect to the plaintiffs’ claims in the complaint for rescission. (Doc. 32). 

DISCUSSION

“Judgment on the pleadings is appropriate only when the plaintiff can prove no set of

facts in support of his claim which would entitle him to relief. [citation omitted] We must accept

all facts in the complaint as true and view them in the light most favorable to the plaintiffs.” 

Moore v. Liberty National Life Insurance Co., 267 F.3d 1209, 1213 (11th Cir. 2001)(internal

quotes omitted). Beyond the complaint, only judicially noticed facts can be considered. 

Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370 (11th Cir. 1998). If other materials are

presented and not excluded, the motion is converted into one for summary judgment. Fed. R.

Civ. P. 12(c). The Court hereby excludes from consideration all evidentiary materials presented

by the parties.

“Courts disfavor the motion to strike ....” 2 J. Moore, Moore’s Federal Practice §

12.37[1] (3rd ed. 2000). “[T]he movant must make a strong showing to succeed in striking an

affirmative defense. It should be stricken only where it is [legally] insufficient on the face of the

pleadings.” Id. § 12.37[4]; accord Fabrica Italiana Lavorazione Materie Organiche v. Kaiser

Aluminum & Chemical Corp., 684 F.2d 776, 779 (11th Cir. 1982)(the defense must be

insufficient “as a matter of law”). 

A. Rescission.

The complaint was filed November 14, 2005. As noted, in Counts One and Four the

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The Court has by separate order addressed and rejected the plaintiffs’ contention that the

Georgia provision is inapplicable because Alabama law governs. 

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plaintiff insurer expressly “demands rescission of the policy.” (Doc. 1, ¶¶ 27, 39). The plaintiffs

first attempted to disgorge the premium paid on the policy by filing a motion to pay funds into

court on February 23, 2006. (Doc. 24).

“A contract may be rescinded at the instance of the party defrauded; but, in order to

rescind, the defrauded party must promptly, upon discovery of the fraud, restore or offer to

restore to the other party whatever he has received by virtue of the contract if it is of any value.” 

Ga. Code § 13-4-60.2

 The defendants argue that the plaintiffs violated this provision, and lost

any right to pursue rescission, by filing a complaint seeking rescission without simultaneously or

previously tendering back to the defendants the premium paid for the policy. (Doc. 33 at 6-7;

Doc. 40 at 3, 11).

The defendants cite a single authority for the proposition that filing suit for rescission

without simultaneously or previously tendering a return of the premium eliminates the rescission

option. In Weems v. American National Insurance Co., 29 S.E.2d 500 (Ga. 1944), the insured on

a life insurance policy represented in his application that he had no physical defects and had not

suffered from any illness or disease in the past five years. When he died 11 days after the policy

issued, the beneficiary so notified the insurer and attached a sworn statement from the attending

physician. The doctor reported that the insured had died from malnutrition incident to

tuberculosis and that the insured had suffered from the latter condition for approximately one

year. The insurer then waited almost six months to notify the beneficiary that the policy was

nullified by the insured’s misrepresentation as to his medical condition. The insurer tendered the

premium to the beneficiary but not to the personal representative of the deceased insured who

had paid the premium. The insurer then brought suit seeking rescission of the policy. Id. at

494-95. Under these facts, the Supreme Court easily concluded that the insurer’s “fail[ure] to

allege a tender of the premiums to the legal representative of the deceased insured” (or even to

join him as a party) should have caused the trial court to sustain the beneficiary’s demurrer on

that ground. Id. at 497-98.

Weems does not articulate the rule urged by the defendants, and no published case has

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The mere filing of a complaint alleging misrepresentations and seeking rescission does

not, of itself, establish that the plaintiffs had full knowledge of the material circumstances, as

parties may and often do file lawsuits based on the fruits of reasonable investigation falling far

short of full knowledge. Because the Court must view the allegations of the complaint in the

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ever attributed this principle to it. Nor may such a rule be teased from the opinion or its facts. 

On the contrary, Weems reflects at most that a failure to make tender to the correct party within

half a year of discovering the fraud, fails to satisfy Section 13-4-60. It is to that provision that

the Court must turn.

Section 13-4-60 contains two phrases central to determining when tender must occur. 

The first phrase is “discovery of the fraud”; until such discovery, the clock on tender does not

begin to run. The second phrase is “promptly ... upon”; once there has been discovery of the

fraud, the tender clock begins to run, and it expires if tender is not made “promptly.” 

Unfortunately, the defendants have not grappled with the meaning of these critical terms. The

Court’s own non-exhaustive research reveals that they are subject to interpretations that defeat

the defendants’ motion.

In describing the degree of awareness of the grounds for rescission that must be present

before a party can be held by its conduct to have affirmed a rescindable contract, the Georgia

courts have routinely employed the term, “full knowledge of the material circumstances of the

case.” E.g., State Highway Department v. Hewitt Contracting Co., 146 S.E.2d 632, 634 (Ga.

1966); Marrale v. Gwinnett Place Ford, 609 S.E.2d 659, 662 (Ga. App. 2005). It is not

immediately apparent how the degree of awareness of the fraud needed to trigger waiver of

rescission by failure to tender could be less than the degree of awareness needed to trigger

waiver of rescission by re-affirmation of the contract. Thus, for purposes of the present motion

the Court assumes that “discovery of the fraud” under Section 13-4-60 occurs when there is “full

knowledge of the material circumstances of the case.”

The complaint does not set forth facts sufficient to show that the plaintiffs had, either at

the time of filing the complaint or at any other time, full knowledge of the material

circumstances of the alleged misrepresentations. Indeed, the complaint does not address the

plaintiffs’ degree of awareness of the fraud or the timing of such awareness at all, but simply

asserts as a conclusion that the misrepresentations were made and cooperation not forthcoming.3

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light most favorable to the plaintiffs, it must assume that the plaintiffs’ allegations are based on

something less than full knowledge of the material circumstances.

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As the defendants have not requested that any facts be judicially noticed, and as the Court

declines to convert the pending motion into one for summary judgment by considering

evidentiary materials beyond the complaint, the motion for judgment on the pleadings

concerning rescission must necessarily be denied. Likewise, the motion to strike the affirmative

defense raising rescission must be denied, since the defendants have not shown it to be legally

insufficient on the face of the pleadings.

The same result obtains upon consideration of the second critical statutory term. “The

word ‘promptly,’ as used in [the predecessor of Section 13-4-60], means within a reasonable

time,” Equitable Building & Loan Association v. Brady, 156 S.E. 222, 226 (Ga. 1930), and “the

question as to what is a reasonable time or proper time within which to rescind a contract

depends upon the facts of the particular case and is ordinarily a question for the jury.” Mitchell

v. Backus Cadillac-Pontiac, Inc., 618 S.E.2d 87, 97 (Ga. App. 2005); accord Marrale v.

Gwinnett Place Ford, 609 S.E.2d at 663. Nothing on the face of the complaint or the answer to

the defendants’ counterclaim establishes as a matter of law that the plaintiffs did not proceed

promptly within the contemplation of Section 13-4-60. Thus, the defendants’ motion for

judgment on the pleadings and motion to strike must be denied. 

B. Misrepresentation.

As noted, in addition to seeking rescission of the contract, the plaintiffs seek to have the

contract declared void based on misrepresentations made during the application process and/or in

connection with the claim. The defendants’ only argument is that the plaintiffs are estopped to

pursue this defense because they “have taken a position inconsistent with the legal defense of

misrepresentation by not tendering the premium to Defendants promptly upon learning of the

alleged misrepresentation,” which tender they believe should have been accomplished prior to or

contemporaneously with filing suit. (Doc. 33 at 8; Doc. 40 at 10-11). 

The defendants’ impression that failure to tender return of premium is fatal to a

misrepresentation defense is mistaken. “In an early decision, our Supreme Court determined that

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The Court notes that the plaintiffs’ misrepresentation defenses are based in part on

misrepresentations occurring in connection with the claim. It is far from clear that a failure to

tender premium is ever relevant in that situation. See Massachusetts Bay Insurance Co. v. Hall,

395 S.E.2d 851, 855 (Ga. App. 1990)(“It would be anomalous to say that by keeping the

premium for the policy, the insurer was thereby forfeiting or waiving its right to rely on the

policy provision which excluded coverage for misrepresentation in claims under the policy.”).

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it is not a prerequisite for an insurance company to return an insured’s premiums in order to

assert the defense that an insurance contract is void due to fraud in the inducement.” Lively v.

Southern Heritage Insurance Co., 568 S.E.2d 98, 100 (Ga. App. 2002). The actual rule is that an

estoppel to assert the defense of misrepresentation can arise “if [the insurer] did not act

promptly, upon learning of the fraud, to rescind the contract but instead treated it as valid and

enforceable.” Id. The failure to return premiums is but one factor to be considered in

determining whether an estoppel (or waiver) has arisen. Id. at 101. Viewed simply as a factor

for consideration, even a retention of premium stretching several years “is not dispositive.” 

Florida International Indemnity Co. v. Osgood, 503 S.E.2d 371, 373 (Ga. App. 1998). Thus, the

pleadings do not on their face reflect that the misrepresentation defenses are invalid as a matter

of law.4

CONCLUSION

Whether the plaintiffs’ quest for rescission or avoidance could be ended at this or a later

stage of the litigation under different arguments, authorities or procedural vehicles is not before

the Court. For the reasons set forth above, the defendants’ motion to strike and for judgment on

the pleadings is denied.

 DONE and ORDERED this 8th day of May, 2006.

s/ WILLIAM H. STEELE

UNITED STATES DISTRICT JUDGE

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