Court Opinion

ID: 9388035
Source: CourtListenerOpinion
Date Created: 2023-04-19 18:02:44.195771+00
Date Added: 2024-06-11T17:18:17.063472
License: Public Domain

Filed 4/19/23 Woodbridge Liquidation Trust v. Certain Underwriters etc. CA2/3
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                      DIVISION THREE

WOODBRIDGE LIQUIDATION                                         B312870
TRUST et al.,
                                                               Los Angeles County
         Plaintiffs and Appellants,                            Super. Ct. No.
                                                               19STCV39191
         v.

CERTAIN UNDERWRITERS
AT LLOYD’S OF LONDON
SUBSCRIBING TO POLICY
0799/REO702,

         Defendant and Respondent.

     APPEAL from a judgment of the Superior Court of
Los Angeles County, Daniel S. Murphy, Judge. Affirmed.
     Glaser Weil Fink Howard Avchen & Shapiro, Joel N.
Klevens and Elizabeth G. Chilton for Plaintiffs and Appellants.
     Wood, Smith, Henning & Berman, Tracy M. Lewis and
Richard E. Zelonka for Defendant and Respondent.
                  _________________________
       Plaintiffs and appellants—primarily entities formed
in accordance with a liquidation plan confirmed by a Delaware
bankruptcy court—were charged with pursuing assets and claims
on behalf of investors defrauded in a billion-dollar Ponzi scheme
orchestrated by Robert Shapiro, now imprisoned.1 Plaintiffs sued
certain underwriters at Lloyd’s of London, subscribing to policy
0799/REO702 (Underwriters) to pursue a $3.5 million unpaid
claim under an insurance policy for property damage that
covered, among other properties, a house in Maui destroyed
by fire. Underwriters moved for summary judgment, arguing
the insurance policy was void ab initio because—in applying
for the policy—the insured failed to disclose it and the property
were part of the Ponzi scheme and misrepresented itself as a
legitimate commercial lender. The trial court agreed, granted
summary judgment to Underwriters on plaintiffs’ complaint,
and denied summary adjudication of plaintiffs’ breach of contract
cause of action.
       Plaintiffs contend the trial court erred because the
undisputed evidence showed Shapiro’s misrepresentations to
his investors through the Ponzi scheme were not material to the
risk the policy insured—payment of the Maui house’s appraised
value of $3.5 million if it burned down; there was no evidence
that any of the properties insured under the policy, including the
Maui property—or any of the loans relating to them—were other
than as represented in the policy applications; and there was

1     Plaintiff Woodbridge Mortgage Investment Fund 1, LLC
(Woodbridge Fund 1), however, was part of Shapiro’s Ponzi
scheme. It was named as a co-plaintiff as the primary named
insured under the policy at issue.

                                2
no evidence of any other misrepresentations or omissions
in the applications.
       We conclude the uncontradicted evidence establishes
Underwriters’ rescission defense and affirm.
         FACTS AND PROCEDURAL BACKGROUND
       Consistent with our standard of review, we state the
facts established by the evidence in the light most favorable
to plaintiffs as the nonmoving parties. (Saelzler v. Advanced
Group 400 (2001) 25 Cal.4th 763, 768 (Saelzler).)
1.     The parties and the underlying Ponzi scheme
       Plaintiff Woodbridge Fund 1 was part of the group of
companies Shapiro created and controlled to act on behalf of his
financial services firm Woodbridge Group of Companies, LLC
(WGC) in furtherance of a massive Ponzi scheme.2 The
Woodbridge enterprise consisted of WGC, as the principal
operating company of the enterprise; funding entities—including
Woodbridge Fund 1—that raised money from investors by
selling them short-term promissory notes and five-year term
“unit offerings” (effectively investments in pooled notes), which
purportedly would generate revenues from issuing short-term,
secured loans to unrelated third-party property owners; and

2     A “Ponzi scheme” is an investment fraud scheme that
involves payment of claimed returns to existing investors from
funds contributed by new investors. From August 2012 through
December 2017 between 9,000 and 10,000 investors invested
more than $1.29 billion in the Woodbridge Ponzi scheme.
Their total losses were estimated to exceed $100,000,000.

                                3
a network of more than 200 affiliated entities, created to hold
real properties.3
       In essence, Woodbridge told investors it would use their
funds to make short-term, high-interest loans to third-party
property owner-borrowers secured by a mortgage on the property
at a favorable loan-to-value ratio; the borrowers then would make
monthly interest payments to the investors through Woodbridge;
and the investors would have a “ ‘first-position’ ” lien on the
real property as security.4 In reality, to the extent the properties
existed, they primarily were owned by Woodbridge-affiliated
entities—not unrelated third parties—that had no ability
to satisfy the loan obligations and interest payments. And,
although investors were told their money was being used to fund
loans for specific properties, the funds in fact were commingled
into a central bank account controlled by Shapiro. Shapiro
did not use these pooled investor funds only for real property
purchases, however, but also to pay commissions to sales agents
who sold the Woodbridge “ ‘investments’ ” and for his personal
slush fund.
       With no meaningful cash flow other than from investor
funds, Shapiro used new Woodbridge investor contributions
to pay “ ‘interest’ and ‘principal’ ” to existing investors. When
it no longer could make payments to investors, WGC, along with

3     We refer to this scheme and complex web of real estate and
investment entities collectively as “Woodbridge.”
4     Woodbridge thus held itself out as a “hard money”
commercial lender—a lender who lends on a short-term basis
at a high interest rate.

                                 4
hundreds of its related and affiliated companies, including
Woodbridge Fund 1 (collectively, the Woodbridge debtors), filed
for Chapter 11 bankruptcy on December 4, 2017.5
       Under the liquidation plan confirmed by a Delaware
bankruptcy court, plaintiff Woodbridge Wind-Down Entity LLC
(Wind-Down) was formed to take ownership of real estate-related
assets—formerly owned by the Woodbridge debtors—and sell or
otherwise liquidate them to generate cash. Plaintiff Woodbridge
Liquidation Trust (the Trust), which owns Wind-Down, was
created to receive the cash generated by Wind-Down and
distribute it (and other cash) to the creditors—primarily, victims
of the Ponzi scheme. Finally, plaintiff WB 8607 Honoapiilani,
LLC (Honoapiilani) also is a post-petition entity created to take
ownership of the Maui property—the subject of this litigation—
to pursue the current claim against Underwriters on behalf of
the defrauded investors.6
       Underwriters are a group of insurance underwriters at
Lloyd’s of London (Lloyd’s) that issued or “subscribed to” the
subject insurance policy.
2.     The insurance policy
       Riverdale Funding, LLC was an entity within the
Woodbridge enterprise. It originated short term, secured loans
to unrelated third-party borrowers—rather than disguised
Woodbridge affiliates—who needed alternative financing for

5    Additional Woodbridge affiliated companies filed for
bankruptcy in 2018.
6     Thus, Underwriters’ repeated assertion that all the
plaintiffs were implicated in the Ponzi scheme is wrong.

                                5
real property purchases and refinances. Its model was to lend
up to 65 percent of appraised value, with the loan secured by the
underlying real property, charging four to six percent origination
fees plus 12 percent per annum for a 12-month term. The loans
generally were funded by a Woodbridge funding entity that
would either sell the loan to a third party or retain it. For
non-performing, retained loans, the Woodbridge funding entity
generally assigned the right to foreclosure on the property
to another Woodbridge-related entity. The loan on the Maui
Property was part of the Riverdale portfolio.7
       Joshua Latinka was a loan servicer for Riverdale. He
generally was aware Riverdale was affiliated with certain
Woodbridge entities—because WGC paid him—but knew
nothing about the relationship between them or the nature
of the Woodbridge entities’ businesses. Latinka’s primary
responsibilities were servicing active loans in Riverdale’s

7     In May 2014 Riverdale issued a loan commitment letter to
GCP Maui, LLC (Maui LLC), an unrelated third-party property
owner, for a one-year loan of $2.73 million secured by the Maui
property. Riverdale assigned the loan commitment letter to
Woodbridge Mortgage Investment Fund 2, LLC (Woodbridge
Fund 2), a funding entity like Woodbridge Fund 1, that made
the loan—from investor funds—secured by a mortgage in its
favor on the property. Woodbridge Fund 2 assigned the mortgage
to another Woodbridge entity, Ironsides Investments, LLC
(Ironsides). Maui LLC defaulted on its loan and Ironsides
completed its judicial foreclosure on the Maui property in
September 2016. On February 15, 2019, Ironsides granted
the Maui property to Honoapiilani under the approved
liquidation plan.

                                6
portfolio and securing insurance for properties encumbered by
mortgages held by Riverdale or its assignees.8 He worked with
independent insurance broker Robert Horenberg to procure
insurance coverage for the properties. Horenberg, in turn,
contacted All Risks, Ltd.9 to secure property and general liability
coverage for both “lender placed” insurance and “REO” properties
in the Riverdale portfolio.10
       In December 2014 and January 2015, Latinka provided
Horenberg with information about the properties to be insured,
who gave that information to All Risks. All Risks did not ask
Horenberg to provide or obtain a written application from his
client before issuing the 2015 policy.
       In January 2015, All Risks11 sent Horenberg an insurance
quotation offering property coverage with policy limits of

8    The loans on the properties in the Riverdale portfolio were
under different names, including Riverdale, Woodbridge Fund 1,
Woodbridge Fund 2, or another entity.
9      All Risks was a wholesale insurance broker that was a
coverholder—meaning it had binding authority—for various
insurers in the Lloyd’s insurance market. Among other services,
it provided insurance underwriting for financial lenders.
10    “Lender placed” insurance is secured for properties
encumbered by lender-held mortgages to cover the value of the
outstanding loan when the borrower fails to maintain property
insurance. Insurance for a property owned by a lender after
foreclosure is known as “REO”—for “real estate owned”—
insurance.
11   Thomas Elder was the All Risks underwriter with whom
Horenberg originally worked to secure the policy. Elder’s

                                 7
$3 million for lender placed properties and $5 million for REO
properties, as well as general liability coverage for the properties,
under its “Financial Institution Lender Placed/Foreclosed
Property” program, which was underwritten through the Lloyd’s
insurance market. The lender program was available only to
financial institutions and other commercial lenders. It insured
a lender’s entire portfolio of properties during the policy term,
permitting the insured to add or delete properties monthly
through an on-line system.
      The offer had Riverdale as the named insured, but
Latinka’s supervisor instructed him to name Woodbridge Fund 1
as the primary insured with Riverdale and Woodbridge Fund 2
as additional named insureds. All Risks issued a Confirmation
of Insurance on behalf of Underwriters for policy number
0527/REO702, effective from February 2015 through February
2016, providing insurance coverage as quoted, but naming
Woodbridge Fund 1 as the insured.
      The confirmation noted “Bank” under “Description of
Business.” Neither Latinka nor Horenberg told All Risks—or
anyone else—that Riverdale, Woodbridge Fund 1, or any other
Woodbridge entity was a “bank.” Rather, Latinka understood
Riverdale to be “a commercial lender that issued loans secured
by real estate for borrowers who may be unable to qualify for
a loan with a traditional lender.” He was “generally aware
that Riverdale was affiliated with certain Woodbridge entities,”

apparent title was “Program Manager, REO/Lender Placed
Insurance Program.” He left the company at some point before
October 2017.

                                  8
as WGC paid him, but was unaware of the business structure
or nature of the other Woodbridge entities’ businesses.
       Latinka added and subtracted properties from coverage
under the policy by submitting a monthly report to All Risks
through a web-based platform that named the properties and
entities to be insured. As properties were added, the premiums
were adjusted monthly based on the properties covered that
month.
       When the 2015 policy was due for renewal, Latinka
completed and signed an All Risks Real Estate Owned Property
& Liability Application, dated February 11, 2016. The 2016
application identified Woodbridge Fund 1 as the applicant,
described the composition of the portfolio to be insured as
“Commercial – Non-owner occupied lending based on LTV [loan
to value ratio] 50-65%,” provided the number of foreclosures
during the prior year and to date, and generally identified
the properties in the portfolio.12
       Based on the application, All Risks offered to renew the
2015 policy on similar terms. All Risks issued a confirmation of
insurance for policy number 0647/REO702 to Woodbridge Fund 1
as the first-named insured,13 covering lender placed property,

12    As the application requested, Latinka stated the number of
properties by type (e.g., residential, office, occupied, vacant, etc.)
and their distribution by state. He identified the specific
properties to be insured as “[p]er [the] current schedule and
future reports.”
13  Riverdale and Ironsides, along with several other
Woodbridge entities, were listed as additional insureds.

                                  9
REO property, and general liability coverage, effective
February 20, 2016 through February 20, 2017. All Risks again
described Woodbridge Fund 1’s business as a “bank” in its
confirmation.
       In January 2017, Latinka completed an almost identical
application to renew the existing policy. All Risks issued an
insurance quotation, followed by a confirmation of insurance
for policy number 0799/REO702, effective February 20, 2017
through February 20, 2018, for the same lender placed and
REO insurance coverage as the 2015 and 2016 policies.14 The
confirmation again described Woodbridge Fund 1’s business
as a “bank.”
3.     The Maui property claims and nonrenewal of
       the policy
       The Maui property, a residence located at 8607
Honoapiilani Hwy., Lahaina, Hawaii, was added to the 2016
policy in June 2016—through the online system—for lender
placed insurance in the amount of the original loan value,
$2.73 million. After Ironsides foreclosed on the loan and
took title, coverage for the Maui property was changed to
REO insurance, effective October 19, 2016, for the appraised
replacement cost of $3.5 million. The appraisal was submitted
to All Risks.

14    The list of properties insured under the 2016 policy rolled
over to the 2017 policy. They would have continued on the
schedule of insured properties until removed. Latinka testified
he included only Riverdale loans that he was servicing in the
2017 application.

                                10
      On July 9, 2017, solar panels from the roof, among other
things, were stolen from the Maui Property. Horenberg tendered
the claim, and Underwriters accepted liability. On November 8,
2017, it ultimately paid $69,275.57 to Woodbridge Fund 1, the
primary named insured, although Ironsides held title to the
property.15
      About a month after the theft, on August 3, 2017, a fire
destroyed the Maui property. On August 30, 2017, Horenberg
submitted a claim for $3.5 million—based on the property’s
appraised replacement value—for the fire loss on behalf of
Woodbridge Fund 1.
      In an internal email dated October 20, 2017, an All Risks
underwriting manager determined All Risks would not renew
the Woodbridge Fund 1 account. The losses on the account
“far outweigh[ed] the premium collected.” On November 27,
2017, All Risks issued a notice of nonrenewal of insurance on
behalf of Underwriters for policy number 0799/REO702, expiring
on February 20, 2018. The reason given for the nonrenewal
was “loss history.” (Capitalization omitted.)
      A week later, the Woodbridge debtors filed for bankruptcy
—Riverdale was not among them.16 The next day, December 5,

15    Horenberg explained the first-named insured—here,
Woodbridge Fund 1—acts on behalf of all other insureds. In
December 2016, Horenberg confirmed with All Risks by email
that Ironsides and other entities were additional insureds under
the policy.
16    Riverdale technically had no employees or separate bank
accounts. Woodbridge employed and paid Riverdale’s employees
and funded the “ ‘Riverdale loans.’ ”

                               11
2017, Horenberg apparently contacted All Risks about marketing
the Woodbridge account to other insurance carriers. On
December 14, 2017, he sent a completed application to All Risks,
signed by Latinka, “to market for the 2/20/2018 renewal date,”
and asked All Risks to see if the Lloyd’s program would consider
offering a renewal at an increased cost due to the losses.17
       On December 20, 2017, the Securities and Exchange
Commission filed a securities fraud case in a Florida federal
court alleging Woodbridge was involved in a one-billion-dollar
Ponzi scheme. The SEC named as defendants Shapiro, WGC,
Woodbridge Fund 1, Woodbridge Fund 2, Ironsides, and other
Woodbridge and Woodbridge-affiliated companies. Riverdale
was named as a “relief defendant” for allegedly having received
proceeds of the fraud that the SEC sought to have disgorged.18
       On December 22, 2017—in a reply to Horenberg’s email
transmitting WGC’s insurance application—All Risks notified
Horenberg that, in view of “the recent losses” and the SEC
lawsuit, “we are going to close our file.” Around February 27,
2018, Horenberg secured the same type of lender placed/REO

17     The application named WGC as the policy holder, with
Woodbridge Fund 1, Woodbridge Fund 2, other Woodbridge
entities, and affiliated entities Riverdale and Ironsides, as
additional insureds.
18   A year later, judgment was entered against the debtor
defendants, including among others, WGC, Woodbridge Fund 1,
Woodbridge Fund 2, Ironsides, and Shapiro. The debtor
defendants and Shapiro consented to entry of judgment “without
admitting or denying the allegations” of the SEC’s amended
complaint.

                               12
insurance policy—with “Woodbridge Mortgage Investment Fund”
as the insured—through CRC Insurance Services, Inc. from
a different group of Lloyd’s underwriters. The policy term was
from February 22, 2018 to February 22, 2019.
4.     Further proceedings and current action
       On January 23, 2018, the bankruptcy court approved a
settlement that formed a replacement board of new managers—
with no ties to Shapiro—for the Woodbridge debtors. On
February 13, 2018, the bankruptcy court approved the
Woodbridge debtors’ request, under the direction of the new
board, to appoint Bradley D. Sharp as their Chief Restructuring
Officer (CRO) and hire his firm as their restructuring advisor,
nunc pro tunc to January 26, 2018. The bankruptcy court
confirmed the Woodbridge debtors’ Chapter 11 liquidation plan
in October 2018, and it became effective February 15, 2019.
       In April 2019, Shapiro was indicted in a federal court
in Florida. He pleaded guilty to conspiracy to commit mail and
wire fraud and tax evasion charges and entered into a stipulated
factual proffer about the Woodbridge Ponzi scheme. He was
sentenced to 300 months in prison and ordered to pay restitution.
       Meanwhile, in May 2018, Underwriters’ counsel sent
Woodbridge Fund 1 a “reservation of rights” letter concerning the
fire claim on the Maui property. Woodbridge Fund 1 responded
with information and documentation Underwriters had
requested, but Underwriters never paid the claim. Accordingly,
plaintiffs filed the current action against Underwriters on
October 31, 2019, for breach of contract, breach of the covenant
of good faith and fair dealing, declaratory relief, and unfair
business practices for refusing to pay the $3.5 million fire claim

                                13
under the policy. Among other things, the complaint sought
damages and a declaration that the policy covered the claim.
       Underwriters answered the complaint on December 4,
2019, generally denying plaintiffs were entitled to coverage of
the fire claim under the policy and asserting several affirmative
defenses, including “misrepresentation and fraud.” In support
of that defense, Underwriters alleged Woodbridge Fund 1 and
its agents “misrepresented the nature of its business and held
itself out as a legitimate financial institution and/or lender”
when in fact the “Woodbridge empire . . . was a billion dollar
Ponzi scheme.” Underwriters asked the court to declare the
policy void ab initio.
5.     Motions for summary judgment and summary
       adjudication
       On October 19 and December 16, 2020, respectively,
Underwriters moved for summary judgment on plaintiffs’
complaint, and plaintiffs moved for summary adjudication of
their breach of contract claim. Underwriters contended they
were entitled to recission—meaning the 2017 policy was void
ab initio, barring all plaintiffs’ causes of action—because
Woodbridge Fund 1 (1) misrepresented itself as a legitimate
bank, and/or (2) concealed that it, the other insureds, and their
properties were part of a Ponzi scheme; and (3) had Underwriters
known Woodbridge Fund 1 was part of a Ponzi scheme, it never
would have issued the policy to it or any related entity.
       Plaintiffs argued Underwriters could not rescind the policy
as a matter of law because the Ponzi scheme was immaterial
“to the risk assumed and underwritten by . . . Underwriters”—
physical damage to the insured properties—and the Maui
property was not one of the Ponzi’s scheme’s sham loans; and

                               14
Woodbridge Fund 1 answered the questions in the policy
application accurately and completely.
      Plaintiffs conceded, however, that (1) the funding for the
Riverdale loans came from Woodbridge investor money; and
(2) Woodbridge Fund 2 continued to assign interests in the Maui
property mortgage to its investors despite no longer holding
the mortgage or any interest in the property.
      The trial court heard both motions on March 1, 2021.
At the hearing, plaintiffs’ counsel argued,
                   “[T]he fundamental question . . . is
            whether the Ponzi scheme was material to the
            risk that the Underwriters insured.”
                   “[T]he criminality, which is undisputed—
            the criminality of the Woodbridge group of
            companies in no way impacted the risk which
            the carrier agreed to undertake. [¶] That risk
            was affected by whether these loans were real,
            whether the mortgages were real, whether
            foreclosures were real, whether the properties
            were real. And the answer to all those
            questions based on undisputed evidence in
            this record with respect to the properties that
            were insured . . . is undisputedly ‘yes,’ not even
            a dispute.”
Counsel did not dispute there was a Ponzi scheme, but argued
it was “unrelated criminality that ha[d] nothing to do with
increasing or affecting in any way” the risk Underwriters
undertook to insure.
      Underwriters argued it would not have issued the policy
had it known the truth about Woodbridge. Only commercial

                               15
lenders and other financial institutions were eligible for the
insurance program the policy fell under, and Woodbridge and its
agents misrepresented the insureds were legitimate commercial
lenders when in fact they were formed and used in furtherance of
the Ponzi scheme. Counsel asserted that every property insured
under the policy was tied up in the Ponzi scheme. In response,
plaintiffs’ counsel noted plaintiffs were not trying to recover
money for themselves or Shapiro, but for the innocent
Woodbridge investors who were duped by the Ponzi scheme.
Counsel argued Underwriters were engaging in post-claim
underwriting on an “unrelated criminality” to walk away from
covering a legitimate $3.5 million fire claim and re-victimize
the injured investors.
       The trial court took the matter under submission. On
March 3, 2021, the court entered its order granting Underwriters’
motion for summary judgment. The court simultaneously
entered a separate order denying plaintiffs’ motion for summary
adjudication as moot. Although the court concluded Woodbridge
Fund 1 did not misrepresent itself as a “bank,” it found that,
“[b]ut for Woodbridge Fund 1’s misrepresentation . . . that it was
a ‘commercial lender’ with a legitimate lending portfolio when it
was not . . . [Underwriters] would not have been induced to offer
the Policy as renewed because this type of policy was for banks,
commercial lenders, and/or financial institutions.” The court
concluded “[t]his was a misrepresentation and/or concealment
and it was material.” The court rejected plaintiffs’ contention
that the legitimate nature of the insured loans and properties
precluded recission of the policy. The court explained, “Simply
put, a few legitimate loans to unrelated parties does not cure a
failure to disclose the fact that Woodbridge Fund 1 was operating

                               16
as part of a Ponzi scheme and the Property was a necessary part
of that scheme.”
       Three weeks later, on March 25, 2021, the court entered
Underwriters’ proposed judgment over plaintiffs’ objection.19 On
May 18, 2021, the court entered an amended judgment adding
the $9,874.71 in costs Underwriters had requested through a
memorandum of costs. Plaintiffs appealed from the judgment.
                           DISCUSSION
       Plaintiffs contend Underwriters were not entitled to
rescind the policy as a matter of law because Woodbridge Fund 1
did not misrepresent or conceal any facts in the insurance
application and the Ponzi scheme was immaterial to the risk
the policy insured—property damage due to fire or other perils.
As a result, plaintiffs argue the trial court erred in granting
Underwriters’ motion for summary judgment. They also argue
the court erred in denying their motion for summary adjudication
of their breach of contract cause of action because the undisputed
facts establish the policy covered the Maui property, it was
destroyed by a covered peril, the premiums and claim were

19     Because the policy had been rescinded, the court ordered
Underwriters “to refund the premiums to Plaintiffs from the
inception of the Policy . . . offset by the claims paid by Defendant
to Plaintiff from the inception of the Policy.” The proposed
judgment included that calculation based on premiums paid on
the policy in effect from February 20, 2017 to February 20, 2018.
Plaintiffs argued they should have been refunded premiums paid
from the date the policy originally issued in February 2015. As
they have not raised this issue on appeal, it is forfeited. (Foxen v.
Carpenter (2016) 6 Cal.App.5th 284, 295 [failure to raise a claim
of error in the opening brief forfeits the argument].)

                                 17
timely made, the claim was within the policy limits, and
Underwriters never paid the claim.20
       Underwriters contend summary judgment was proper
because the undisputed facts show Woodbridge Fund 1
misrepresented it was a legitimate commercial lender and
concealed that it was a part of a Ponzi scheme in applying for
the policy, and All Risks never would have offered or bound
the policy for Underwriters had it known those true facts.
1.     Summary judgment and standard of review
       Summary judgment is proper if the papers submitted show
there is no triable issue as to any material fact and the moving
party is entitled to judgment as a matter of law. (Code. Civ.
Proc., § 437c, subd. (c); Aguilar v. Atlantic Richfield Co. (2001)
25 Cal.4th 826, 850 (Aguilar).) A defendant moving for summary

20     Underwriters assert the denial of plaintiffs’ motion for
summary adjudication is not properly before us because plaintiffs
did not file a timely writ petition. They are mistaken. As
plaintiffs note, an appeal from a final judgment includes any
interlocutory ruling or decision that involves the merits or affects
the judgment appealed from. (Code. Civ. Proc., § 906.) In any
event, as we affirm the summary judgment, plaintiffs’ appeal
from the denial of their motion for summary adjudication is moot.
(See Superior Dispatch, Inc. v. Insurance Corp. of New York
(2010) 181 Cal.App.4th 175, 192 (Superior Dispatch)
[misrepresentation or concealment of material fact in an
insurance application “establishes a complete defense in an
action on the policy”]; Imperial Casualty & Indemnity Co. v.
Sogomonian (1988) 198 Cal.App.3d 169, 184–185 (Sogomonian)
[rescission of insurance policy based on material concealment
or misrepresentation extinguishes all rights of insured except
to recover paid consideration].)

                                18
judgment based on an affirmative defense, as is the case here,21
“ ‘ “ ‘has the initial burden to show the undisputed facts support
each element of the affirmative defense’ . . . . If the defendant
does not meet this burden, the motion must be denied.”
[Citations.]’ ” (Shiver v. Laramee (2018) 24 Cal.App.5th 395,
400 (Shiver).)
        If the defendant makes a sufficient showing, the burden
then shifts to the plaintiff to show there is a triable issue of
material fact concerning the defense. (Shiver, supra, 24
Cal.App.5th at p. 400.) “A triable issue of material fact exists
only if ‘the evidence would allow a reasonable trier of fact to find
the underlying fact in favor of the party opposing the motion in
accordance with the applicable standard of proof.’ ” (Ibid.,
quoting Aguilar, supra, 25 Cal.4th at p. 850.)
        On appeal from a summary judgment, we review the record
de novo and independently determine whether triable issues of
material fact exist. (Saelzler, supra, 25 Cal.4th at p. 767; Guz
v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) We “view
the evidence in a light favorable” to plaintiffs as the nonmoving
parties, “liberally construing” their evidence while “strictly
scrutinizing” defendants’, “resolving any evidentiary doubts
or ambiguities” in plaintiffs’ favor. (Saelzler, at p. 768.) We
consider all evidence the parties submitted in connection with

21    Underwriters’ answer did not include an affirmative
defense of “rescission.” The trial court noted its defense for
“misrepresentation and fraud” was substantially the same as
rescission because it asked the court to deem the policy void.
The trial court thus “overlook[ed] this harmless defect.”
Plaintiffs do not contend it erred in doing so.

                                19
the motion, except that which the court properly excluded.
(Merrill v. Navegar Inc. (2001) 26 Cal.4th 465, 476.)
2.      Insurer’s right to rescission
        Under Insurance Code sections 331 and 359,22 when an
insured misrepresents or conceals a material fact in applying for
insurance, the insurer is entitled to rescind the insurance policy.
(§§ 331 [“Concealment, whether intentional or unintentional,
entitles the injured party to rescind insurance.”], 359 [“If a
representation is false in a material point . . . the injured party is
entitled to rescind the contract from the time the representation
becomes false.”]; see also LA Sound USA, Inc. v. St. Paul Fire &
Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1266 (LA Sound).)
“ ‘[A] rescission effectively renders the policy totally
unenforceable from the outset so that there was never any
coverage and no benefits are payable.’ ” (LA Sound, at p. 1267.)
In other words, the policy is void ab initio—as if it never existed
—and cannot be breached. (Id. at p. 1266.)
        “A representation is false when the facts fail to correspond
with its assertions or stipulations.” (§ 358.) Concealment, in
turn, is “[n]eglect to communicate that which a party knows, and
ought to communicate.” (§ 330.) Moreover, the Insurance Code
requires each party to an insurance contract to disclose, “in good
faith, all facts within [the party’s] knowledge which are or which
[the party] believes to be material to the contract . . . and which
the other has not the means of ascertaining.” (§ 332.) Thus,
“sections 331 and 359 are part of a larger statutory framework

22      Undesignated statutory citations are to the Insurance
Code.

                                  20
that imposes ‘heavy burdens of disclosure’ ‘upon both parties
to a contract of insurance, and any material misrepresentation
or the failure, whether intentional or unintentional, to provide
requested information permits recession of the policy by the
injured party.’ ” (Mitchell v. United National Insurance Co.
(2005) 127 Cal.App.4th 457, 468 (Mitchell), citing Sogomonian,
supra, 198 Cal.App.3d at pp. 179–180.)
       “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.” (§§ 334, 360 [same rule for materiality of
a representation].) “The test for materiality is whether the
information would have caused the underwriter to reject the
application, charge a higher premium, or amend the policy terms,
had the underwriter known the true facts.” (Mitchell, supra,
127 Cal.App.4th at p. 474; see also Torbensen v. Family Life Ins.
Co. (1958) 163 Cal.App.2d 401, 405 [misrepresentation material
where, had the insurer “known the true facts[,] it would have
made further inquiries or would have been influenced materially
in its decision in accepting the risk”].) “This is a subjective
test viewed from the insurer’s perspective. [Citation.] Thus,
a misrepresentation or concealment is material if a truthful
statement would have affected the insurer’s underwriting
decision.” (Superior Dispatch, supra, 181 Cal.App.4th at p. 191;
see also Sogomonian, supra, 198 Cal.App.3d at p. 181 [“critical
question is the effect truthful answers would have had on
[that insurer], not on some ‘average reasonable’ insurer”].)
       The insurer bears the burden of proving the insured made
a false representation or omission in the insurance application

                                21
that was material to the issuance of the insurance coverage.
(Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 919
(Thompson) [“the burden of proving misrepresentation rests
upon the insurer”]; Duarte v. Pacific Specialty Ins. Co. (2017)
13 Cal.App.5th 45, 57 (Duarte) [insurer has burden to prove that
in application for insurance, “whether intentionally or not,”
insured made a misrepresentation and insurer would not have
issued the policy if that misrepresentation had not been made];
Olson v. Standard Marine Ins. Co. (1952) 109 Cal.App.2d
130, 137 (Olson) [insurer bears burden of proof as to insured’s
concealments and their materiality].) The insurer need not
demonstrate “ ‘an actual intent to deceive,’ ” however, or
“a causal relationship between the material misrepresentation
or concealment of material fact and the nature of the claim.”
(Duarte, at p. 53; see also LA Sound, supra, 156 Cal.App.4th
at p. 1270 [“ ‘misstatement or concealment of “material” facts
is ground for recission even if unintentional’ ” (italics omitted)];
Sogomonian, supra, 198 Cal.App.3d at pp. 174–175, 180–181
[insurer entitled to rescind policy based on insured’s failure to
disclose prior land subsidence and water damage claims where
loss at issue due to fire].) Nevertheless, “the validity of an
insurance contract . . . is not affected by concealment or
misrepresentations that do not relate to material matters.”
(Leasure v. MSI Insurance Co. (1998) 65 Cal.App.4th 244, 248.)
       Summary judgment for an insurer seeking recission has
been found appropriate where the only reasonable conclusion
to be drawn from the undisputed 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, supra, 198 Cal.App.3d at p. 182.)

                                 22
3.     Underwriters presented evidence establishing
       plaintiffs concealed or misrepresented a material
       fact
       Plaintiffs argue Underwriters’ rescission defense
fails as a matter of law because there is no evidence of any
misrepresentation or omission in any of the policy applications
“remotely material to the risk of fire or other property damage,”
the Ponzi scheme was not relevant to the insured risk, and the
policy insured only “real” secured loans made to third-party
borrowers, not the “fake” loans sold in furtherance of the Ponzi
scheme.
       a.     The uncontroverted evidence establishes Woodbridge
              Fund 1 concealed or misrepresented the true nature
              of its business in applying for the policy
       We begin with what the record shows Woodbridge Fund 1
did not misrepresent. First, we agree with the trial court that
Woodbridge Fund 1 did not represent itself as a “bank” to
All Risks in its applications for insurance. All Risks gave it that
designation after accepting the application. Bill Evans, who took
over underwriting oversight at All Risks in the fall of 2017,23
testified All Risks describes a “lender” as a “bank” for its
“purposes of underwriting.” The terms were interchangeable
“from an underwriting standpoint.” He confirmed Woodbridge
Fund 1 did not use the term “bank” to refer to itself.
       Second, as plaintiffs assert, Underwriters presented “no
evidence . . . show[ing] that the loans and properties insured

23    Evans is the current Vice President of National Programs
for the company with which All Risks merged in 2020.

                                23
under the 2017 [p]olicy were not commercial loans with a loan to
value ratio of 50-65%, exactly as stated in the 2017 Application.”
Latinka declared that, before submitting the 2016 and 2017
written applications to All Risks, he confirmed he had answered
everything completely and accurately, including that “the
composition of [Woodbridge Fund 1’s] real estate lending portfolio
had a [loan-to-value] ratio of 50-65%,” and the properties to be
insured were described properly under the categories provided
in the applications.
       As the trial court noted, however, that Woodbridge Fund 1
did not misrepresent or withhold information specifically asked
for in the written application form does not mean it did not
misrepresent or conceal a material fact in applying for insurance.
Underwriters presented undisputed evidence establishing that,
in applying for the policy, Woodbridge Fund 1 held itself out as a
legitimate hard money commercial lender and/or failed to disclose
it was part of a Ponzi scheme.
       Plaintiffs do not dispute that, when Woodbridge Fund 1
applied for the policy in 2015, 2016, and 2017: Woodbridge
Fund 1 and its affiliates were operating as part of an active Ponzi
scheme; the Riverdale portfolio loans insured under the policy
were funded with commingled investor money that necessarily
would have included money the Ponzi scheme raised through
sham loans;24 and, despite no longer having a mortgage interest

24    Sharp testified Riverdale itself did not fund any of the
loans in its portfolio—a Woodbridge fund entity did. It is
undisputed the Woodbridge fund entities commingled the money
they raised from investors. Hence, the funding for the Riverdale

                                24
in the Maui property, Woodbridge Fund 2 made fraudulent
assignments of that mortgage to “numerous” victims of the
Ponzi scheme. Plaintiffs concede Woodbridge Fund 1 did not
disclose any of these facts to All Risks.
       Plaintiffs also concede the “[p]rogram’s availability and
premium rates are only available to financial institutions and
commercial lenders.” By applying for an insurance program
it knew was limited to commercial lenders and financial
institutions, Woodbridge Fund 1 necessarily held itself out
as a legitimate commercial lender when it was not.25 (§ 358
[“representation is false when the facts fail to correspond with
its assertions”].) Moreover, Horenberg—plaintiffs’ witness—
declared he “never stated or otherwise implied to any person
at All Risks that . . . Riverdale, or any Woodbridge entity that
was a named insured under the Policy,” including Woodbridge
Fund 1, was “anything other than a commercial lender.” (§ 350
[misrepresentation may be oral].)

loans would have included money raised from investors duped
into investing in the “fake” loans.
25     Plaintiffs contend Woodbridge Fund 1 was a legitimate
commercial lender for purposes of the Riverdale portfolio. Sharp
testified he did not consider Woodbridge Fund 1 not to be a
legitimate lender in January 2017 because “at that time, [it]
had legitimate commercial loans.” But, as there is no dispute
Woodbridge Fund 1’s hard money lending business was part
of a criminal enterprise, no reasonable juror would call it
a “legitimate” commercial lender. Even if a triable issue of
fact exists as to whether Woodbridge Fund 1 affirmatively
misrepresented itself as a commercial lender, it is undisputed
it concealed its participation in the Ponzi scheme.

                                25
       Accordingly, the undisputed evidence demonstrates
Woodbridge Fund 1 concealed (or misrepresented) the true
nature of its business—an integral part of a billion-dollar Ponzi
scheme—when it applied for the policy. Underwriters also met
their initial burden to show Woodbridge Fund 1’s concealment
(or misrepresentation) was material. Evans declared that, had
All Risks known Woodbridge Fund 1 was “engaged in a Ponzi
scheme disguised as a legitimate hard money lending business,”
it would not have offered, underwritten, bound, or issued the
2017 policy, and Underwriters would not have permitted it to
do so nor offered coverage to Woodbridge Fund 1 or its affiliated
companies.26 We thus consider whether plaintiffs met their
burden to demonstrate a jury could find Underwriters failed to
establish Woodbridge Fund 1’s involvement in the Ponzi scheme
was material to its decision to issue the policy.

26     Evans was not involved in underwriting the policy for
Woodbridge Fund 1, but he was familiar with the underwriting
process and All Risks’ lender program, and he reviewed the
information Woodbridge Fund 1 provided to All Risks during
its underwriting of the policy. Plaintiffs objected to portions of
Evans’s declaration based on lack of personal knowledge and
foundation. The court overruled one such objection, but did not
rule on the others, as immaterial to the court’s ruling. The court
also did not rule on plaintiffs’ objection to a portion of defendants’
counsel’s declaration for the same reason. Plaintiffs do not
challenge those evidentiary rulings on appeal. (Frittelli, Inc.
v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th 35, 41
[failure to challenge evidentiary ruling on appeal “forfeit[s] any
contentions of error regarding them”].)

                                 26
      b.     Woodbridge Fund 1’s active role in a criminal
             enterprise involving its purported hard money lending
             business was material to the issuance of the policy
       Plaintiffs primarily argue that, because the Ponzi scheme
was neither “directly relevant to the precise kind of risk
[Underwriters] was being asked to cover”—property damage
due to fire and other physical perils—nor relevant to whether
the insured properties were as the application represented them
to be, its nondisclosure cannot support recission of the policy as
a matter of law. (See Merced County Mut. Fire Ins. Co. v. State
of California (1991) 233 Cal.App.3d 765, 773 [explaining “cases
allowing rescission for a material misrepresentation involve
a misrepresentation regarding the nature of the risk to be
insured”].)
       As we discussed, Underwriters presented no evidence
showing Woodbridge Fund 1 answered any of All Risks’
application questions incorrectly or incompletely. Plaintiffs
also presented evidence—through Sharp’s and Latinka’s
declarations—the properties to be insured under the policy
were from the Riverdale portfolio alone and “were real
properties encumbered by loans to third[-]party borrowers
that were secured by legitimate documented mortgages”
or—where the third-party borrower defaulted—were
foreclosed REO properties.27 Specifically, the evidence
showed the loan on the Maui property was a “legitimate

27   As CRO, Sharp led and supervised a team of forensic
accountants who examined “tens of thousands of documents and
analyzed in detail all aspects” of the Woodbridge Ponzi scheme.

                               27
loan” made to an unrelated third-party borrower, secured
by a documented mortgage on the property, and later,
legitimately foreclosed on by Woodbridge Fund 2’s assignee,
Ironsides.
       The parties agree “[t]he Ponzi scheme generally
involved the sale to unsuspecting investors of interests
in loans that were secretly made between two Woodbridge
affiliates, or in loans that were never made, or for
properties that were never purchased.”28 Accordingly,
because the evidence demonstrates the insured loans
and real properties all were “real,” and their notes
and foreclosures legitimately obtained, plaintiffs argue—
as they did below—Woodbridge Fund 1’s involvement
in the Ponzi scheme “in no way impacted the risk which
the carrier agreed to undertake” and thus was immaterial
for purposes of rescission. Plaintiffs discuss several cases
to support this position—that to have been material, the
Ponzi scheme must directly have affected the risk that
Underwriters would have to pay out a property loss claim.29

28    We use the term “fake” or “sham” loan to refer to any
of these scenarios.
29    We need not address each of the cases plaintiffs cite.
Generally, they involve circumstances where the insured
misrepresented or concealed information in response to the
insurer’s inquiries about the subject matter of the policy in
an insurance application. (See Thompson, supra, 9 Cal.3d at
pp. 915–916 [“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.”].)

                                 28
        For example, in Mitchell, the insurer established its
right to rescind a fire insurance policy for a commercial building
destroyed in an arson fire where the insured’s application
misstated the building’s size, the income it generated, its
intended use as an owner-occupied business, that it had a
burglar alarm and no uncorrected fire code violations, and that
it was uninsured when it had coverage under a program of
“ ‘last resort’ ”—a red flag in the insurance industry. (Mitchell,
supra, 127 Cal.App.4th at pp. 463–465.) The court found the
misrepresentations material as a matter of law, explaining
the insurer specifically asked for the information, and it “went
directly to questions of insurability, risk, and premium.” (Id.
at p. 476.)
        Similarly, in Sogomonian, an insurer that had issued
a homeowner’s insurance policy on a home destroyed by fire
properly rescinded the policy where the insureds denied having
had prior losses, cancellations, and renewal refusals, but the
property in fact had suffered prior landslide and theft losses,
a prior homeowner’s policy had been cancelled, and their
current policy had not been renewed for substandard property
maintenance. (Sogomonian, supra, 198 Cal.App.3d at pp. 174–
176.) The court held that undisputed evidence—and the insurer’s
testimony about the importance of the information to its decision
making—established materiality as a matter of law by “the
nature of the insurance coverage which the defendant sought,
the quality and quantity of the information which was not
disclosed and the fact that [the insurer] specifically requested
the information on its application and thereafter relied upon it
in issuing the policy.” (Id. at p. 182.)

                               29
       Plaintiffs argue that in these cases—and others like them—
the court found the concealments and misrepresentations
material because “they involved information which was directly
relevant to the very kind of risk which the policies were intended
to cover,” and the insurers specifically had asked for the
information. Thus, in Sogomonian, although the property was
damaged by fire, the misrepresented and concealed information
about the earlier loss due to land subsidence, and nonrenewal
due to substandard maintenance, were related directly to the risk
of property damage insured by the homeowner’s policy. Likewise,
in Mitchell, the insured’s false and omitted answers about the
building and its business directly concerned the fire risk being
insured. Plaintiffs argue there is no evidence Woodbridge
Fund 1’s involvement in the Ponzi scheme similarly was related
to the risk of fire or other property damage the policy insured
against, as that information did not affect the properties’ size,
use, condition, value, or prior insurance claims or losses, nor
did it affect the legitimacy of the mortgages or foreclosures
on the properties.
       We disagree with plaintiffs’ assessment of the relevance
of Woodbridge Fund 1’s participation in the Ponzi scheme to the
decision to issue and renew the Policy. “[A] misrepresentation
or concealment is material if a truthful statement would have
affected the insurer’s underwriting decision.” (Superior Dispatch,
supra, 181 Cal.App.4th at p. 191.) We cannot imagine how an
insured’s active participation in an ongoing criminal enterprise
by selling duped investors interests in sham real estate loans
could not directly have affected an insurer’s decision to issue it
any type of policy, much less one designed to provide coverage
for commercial lenders’ lending portfolios. True, that information

                               30
might not bear directly on the risk of fire or damage to the
properties proposed to be insured, but it would be very relevant
to whether the insurer would want to enter a contractual
relationship with the insured at all. (See Mitchell, supra, 127
Cal.App.4th at pp. 468–469 [“Requiring full disclosure at the
inception of the insurance contract and granting a statutory right
to rescind based on concealment or material misrepresentation at
that time safeguard the parties’ freedom to contract.”].) Among
other things, an insured’s involvement in criminal fraud—even if
that fraud did not directly affect the insured risk—bears directly
on the risk of the insured submitting a fraudulent insurance
claim or not paying its premium or embroiling the insurer in
the insured’s criminality.
       Indeed, as we discuss below, All Risks’ application
specifically asked if the applicant had been convicted of crimes
of fraud or arson. If All Risks and Underwriters were concerned
only with an increased risk of fire loss, they would have limited
the question to arson. Moreover, as we said, materiality
is “viewed from the insurer’s perspective,” and Underwriters
presented evidence establishing All Risks would not have offered,
bound, or issued the policy for Underwriters had it known
Woodbridge Fund 1 was part of a billion-dollar Ponzi scheme.
(Superior Dispatch, supra, 181 Cal.App.4th at p. 191.)
       Nevertheless, plaintiffs argue the Ponzi scheme is
unrelated “after-discovered criminality” that cannot support
rescission, akin to the facts in Olson, supra, 109 Cal.App.2d 130.
There, the court affirmed a verdict in favor of insureds where the
insurer rescinded a floater policy covering jewelry and furs, after
covered items were stolen, on the ground the insureds concealed
they had “operated houses of prostitution,” one had been arrested

                                31
for prostitution several times, and they had had other insurance
policies canceled. (Id. at pp. 132, 134, 137, 141.) The court
could not conclude as a matter of law that the earlier policies
had been canceled due to the insureds’ “prior immoral activities
and arrests, the last of which had occurred five years before” or
that the current insurer “would have refused to issue the policy
if it had known of them.” (Id. at p. 138.) Moreover, the insurer
had not asked the insureds about any prior canceled policies
or their criminal history. (Id. at pp. 138–139.) Quoting from a
federal appellate case, the court stated: “ ‘We think the correct
rule is that where, as here, the insurer fails to question the
insured, the latter cannot be said to have concealed facts so as
to void the policy unless they are facts which he knows, or which
a reasonable man should have known, to be material to the risk
and unless he does so for the purpose of obtaining insurance
which could not have been obtained after a disclosure of such
facts.’ ” (Id. at p. 138; see also Maryland Casualty Co. v. National
American Ins. Co. (1996) 48 Cal.App.4th 1822, 1832 (Maryland
Casualty) [same].)
       Olson is inapposite. Critically, the concealed illegitimate
activity here—the Ponzi scheme—did not occur years in the past
as in Olson but was active and ongoing when Woodbridge Fund 1
applied for the initial policy and its renewal. And, while there
was no evidence the insureds in Olson continued to run houses
of prostitution, it is undisputed Woodbridge Fund 1 was funding
the Ponzi scheme in 2017. The insurer in Olson also did not ask
the insureds about their criminal or prior loss history. Here,
in contrast, the 2017 renewal application specifically asked,
“During the last 5 years . . . has any applicant been indicted for
or convicted of an[y] degree of the crime of fraud, bribery, arson,

                                32
or any other arson-related crime in connection with this or any
other property?” Whether an applicant had been convicted of
fraud thus was important to Underwriters. There is no question
that an applicant’s current participation in a fraudulent scheme
would be equally important.
       Yet, no reasonable juror could conclude All Risks should
have asked its applicants if they currently were engaged in fraud
for them to understand that information would be material to its
issuance of the policy. To do so would be pointless—no applicant
participating in an active criminal enterprise would answer
that question honestly, in contrast to a question about past
crimes or policy cancellations. (Cf. Maryland Casualty, supra,
48 Cal.App.4th at p. 1832 [insurer failed to establish insurance
coverage negated as a matter of law based on insured’s
concealment of prepolicy property damage where insurer
produced no evidence it asked insured about prepolicy property
losses].) Although an insurer’s specific questions in an insurance
application generally are “sufficient to establish materiality
as a matter of law,” an affirmative inquiry is not necessarily
required to do so. (Thompson, supra, 9 Cal.3d at pp. 915–916.)
Certainly, a reasonable person in Woodbridge Fund 1’s shoes
“should have known”—without being asked—its active
participation in a Ponzi scheme involving sham real estate loans
would be material to an insurer’s decision to underwrite a policy
covering a lending portfolio, and if it had known the true facts,
it would not have issued the policy.
       Noting materiality is determined under section 334
“ ‘solely by the probable and reasonable influence of the facts’ ”
on the insurer, plaintiffs nevertheless contend “it plainly is not
‘reasonable’ for Underwriters to claim that the failure to disclose

                                33
the Ponzi scheme by which Shapiro defrauded investors with
promises of exaggerated financial returns was material to a
policy for fire risk and other property damage.” Woodbridge
Fund 1 and its affiliates were an integral part of the Ponzi
scheme—they were the funding arm, using their purported hard
money lending businesses to raise funds from those defrauded
investors. Moreover, the Riverdale portfolio insured under the
policy may have consisted of “real” loans, but it was not free of
the Ponzi scheme’s taint. The uncontroverted evidence shows
the assignments of the Maui property’s nonexistent mortgage
were used to cheat investors in the Ponzi scheme, Shapiro
created Riverdale to act for Woodbridge, and the loans under
the Riverdale portfolio were funded—at least in part—with
defrauded investor money.
       Those facts did not make the insured properties more likely
to burn down or suffer damage or loss. But, on this record, the
only conclusion a jury could reach is that All Risks reasonably
would have rejected Woodbridge Fund 1’s application for
coverage under its lender program had it learned the primary
insured was involved in a scheme to dupe investors out of
millions of dollars by selling them interests in purported real
estate loans—even if those loans were not part of the portfolio
to be insured.
       c.     Plaintiffs did not present evidence raising a
              triable issue of material fact as to materiality
       Plaintiffs argue Underwriters presented no evidence that
the Ponzi scheme was material other than “because they said
it was.” Plaintiffs essentially contend Evans’s declaration cannot
be believed. They rely on our Supreme Court’s statement in
Thompson, supra, 9 Cal.3d at page 916 that “the trier of fact is

                               34
not required to believe the ‘post mortem’ testimony of an insurer’s
agents that insurance would have been refused had the true
fact been disclosed.” Plaintiffs forget the corollary “rule”: the
“argument that the trial court need not believe” the insurer’s
representative’s testimony “is insufficient to raise a triable
issue of fact.” (Duarte, supra, 13 Cal.App.5th at p. 58; see also
Sogomonian, supra, 198 Cal.App.3d at p. 181 [rejecting insureds’
“naked argument that since a jury might ‘disbelieve’ all of the
uncontradicted evidence presented by [the insurer], they are
entitled to a trial on the question of materiality”].)
       Plaintiffs, however, presented no evidence to controvert
Evans’s declaration that, had All Risks known the primary
insured under the policy was a key player in a Ponzi scheme,
it would not have offered the policy nor been permitted to
underwrite it.30 Plaintiffs argue the evidence that another group
of underwriters at Lloyd’s issued an insurance policy covering
the same properties under the same type of program—after the
Ponzi scheme became public—shows, or raises a triable issue
of material fact as to, the failure to disclose the scheme was
not reasonably material to Underwriters’ issuance of the policy.
We do not agree.

30    Atmel Corp. v. St. Paul Fire & Marine Ins. Co. (N.D. Cal.
2006) 416 F.Supp.2d 802, on which plaintiffs relied, is thus
distinguishable. There, the insured presented evidence raising
a genuine issue of fact as to whether problems with its product
were material to the insurer by demonstrating the underwriter
knew of a lawsuit about those problems but didn’t ask the
insured about the suit—or its knowledge of the problems—
before renewing the policy. (Id. at p. 811.)

                                35
       The new syndicate of Lloyd’s underwriters did not agree
to insure properties and mortgage interests held by an entity
engaged in active fraud. By the time the new policy issued in late
February 2018, the Ponzi scheme was defunct: the Woodbridge
entities were in bankruptcy; Shapiro had “no control over the
[Woodbridge] [d]ebtors whatsoever” and had been sued by the
SEC for securities fraud; and a replacement board had been
installed with new management and an appointed CRO, who
were focused on returning as much money as possible to creditors
rather than furthering a criminal enterprise.
       Given this significant change in events, no reasonable juror
could find Underwriters similarly would have issued the policy
in February 2017 and been unfazed by Woodbridge Fund 1’s
and its affiliates’ criminality. The insured portfolio may have
involved only true, third-party loans, but even plaintiffs’ own
witness Horenberg testified that, considering a Ponzi scheme is
“illegal and immoral,” he didn’t think “insurance carriers would
insure that no matter what.” Moreover, in February 2017
Shapiro still had sole operational control over the Woodbridge
entities, including Woodbridge Fund 1, as well as sole signing
authority over the Woodbridge entities’ bank accounts.
       Plaintiffs also imply that, because Underwriters agreed
to insure two Colorado properties that did not qualify for
coverage under the policy—they were neither REO properties
nor properties requiring lender-placed insurance but new homes
under construction—any failure on Woodbridge Fund 1’s part
to satisfy the parameters of the lender program could not have
been material. Again, we disagree.
       In August 2016, when Horenberg asked All Risks if
the Colorado properties could be added to the policy, he fully

                                36
disclosed they were under construction and not “take back”
(REO) properties, and he gave All Risks the names of the
affiliated entities that owned them. All Risks was able to get
coverage for those properties under the policy as an exception
for an additional premium. But an agreement to insure two
properties as exceptions to the policy’s requirements cannot
reasonably lead to an inference that Underwriters equally would
have agreed to “except” the primary named insured from being a
legitimate lender—the underlying requirement to qualify for the
insurance program—or looked past its operation of a fraudulent
investment scheme based on sham real estate loans.
       Plaintiffs argue Underwriters “are simply trying to wriggle
out of paying a large claim—money that would go not to Shapiro
or other wrongdoers but to Shapiro’s defrauded investors.” They
urge us to “ensure that those investors are not victimized again,
this time by an opportunistic insurance company.” We empathize
with the investors’ plight. There is no dispute, however, that
Woodbridge Fund 1 was under Shapiro’s control and actively
engaged in the Ponzi scheme when it applied in January 2017
to renew the policy.
       Our holding does not, as plaintiffs assert, make new law to
“allow[ ] an insurer to rescind a policy based on after-discovered
misconduct unrelated to the insured risk” or “open[ ] the door
for all insurers to rescind all policies they regret issuing.”
As we discussed, here, the “unfavorable information” was not
some uncovered past indiscretion, as in Olson, but the primary
insured’s active and ongoing involvement in a criminal
enterprise. The uncontroverted evidence showed: Woodbridge
Fund 1 was actively using its hard money lending business
in furtherance of a criminal Ponzi scheme when it applied for

                               37
and renewed the insurance policy; the loans on the properties
to be insured were funded by money invested in sham loans; and
Woodbridge used the Maui property to cheat investors. On this
record, we cannot conclude a trier of fact could find the disclosure
of the Ponzi scheme would not reasonably have affected All Risks’
or Underwriters’ decision to issue the policy.
       Accordingly, summary judgment in favor of Underwriters
was proper, as was the denial of plaintiffs’ motion for summary
adjudication as moot.
                            DISPOSITION
       The judgment is affirmed. Respondents are to recover their
costs on appeal.

      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                     EGERTON, J.
We concur:

             EDMON, P. J.

             LAVIN, J.

                                38