Opinion ID: 773645
Heading Depth: 2
Heading Rank: 1

Heading: Recission of the Insurance Policy

Text: 13 Freeman contends that an innocent misrepresentation does not give the insurer the right to rescind; rather, he argues that there must be some intent to deceive. The district court's opinion eloquently explained, with the support of substantial authority, that the opposite is true. In 1973 the California Supreme Court restated the long-established law of concealment in insurance contracts: 14 [A]n insurer has a right to know all that the applicant for insurance knows regarding the state of his health and medical history. Material misrepresentation or concealment of such facts are grounds for recission of the policy, and an actual intent to deceive need not be shown. Materiality is determined solely by the probable and reasonable effect which truthful answers would have had upon the insurer. 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. 15 On the other hand, if the applicant for insurance had no present knowledge of the facts sought, or failed to appreciate the significance of information related to him, his incorrect or incomplete responses would not constitute grounds for recission. . . . Finally, as the misrepresentation must be a material one, [a]n incorrect answer on an insurance application does not give rise to the defense of fraud where the true facts, if known, would not have made the contract less desirable to the insurer. 16 Thompson v. Occidental Life Ins. Co., 513 P.2d 353, 360 (Cal. 1973) (in bank) (emphasis added) (quotation and citations omitted); see also Telford v. New York Life Ins. Co., 69 P.2d 835, 837 (Cal. 1937) (in bank) (per curiam) (A false representation or a concealment of fact whether intentional or unintentional, which is material to the risk vitiates the policy. The presence of an intent to deceive is not necessary.). 17 Freeman also argues that because his wife's epilepsy was controlled with medication, it was not life-threatening and was therefore an insubstantial condition that did not need to be disclosed. This, too, is not the law. In Life Ins. Co. of N. Am. v. Capps, 660 F.2d 392, 394 (9th Cir. 1981), we rejected the argument that because the insured believed that her heart problems were insubstantial, she was justified in not revealing prior treatment. Where an insured is aware of her condition, symptoms, or treatment, she is obliged to disclose them upon request. Id. 18 The California Insurance Code codifies these principles as well. See Cal. Ins. Code §§ 330 (West 1993) (Neglect to communicate that which a party knows, and ought to communicate, is concealment.); Id. §§ 331 (Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance.); Id. §§ 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.). 19 The district court correctly identified the principles stated above and applied them to the facts. It was conceded that Mrs. Freeman's answer was inaccurate. Based on the testimony of Allstate's operations manager that Allstate would not have issued the policy had it known about Mrs. Freeman's epilepsy, the district court found the information material. This was not clear error, especially because, by asking about diseases of the nervous system, Allstate demonstrated that it considered the information important. Finally, the district court considered the possibility that Mrs. Freeman may not have realized that she suffered from a disease of the nervous system, but found that she must have realized that epilepsy fell into that category. Given that Mrs. Freeman had been coping with epilepsy for several years, was taking medication every other day, had suffered three seizures during her two-year marriage, and had seen neurologists, this finding was not clearly erroneous. The district court correctly determined that Allstate had the right to rescind the policy because of Mrs. Freeman's material misstatement, even though the misstatement was not made with any intent to deceive or mislead Allstate. 20