Court Opinion

ID: 2722317
Source: CourtListenerOpinion
Date Created: 2014-08-29 22:01:46.56502+00
Date Added: 2024-06-11T10:02:50.473830
License: Public Domain

Filed 8/29/14
                             CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                               FIRST APPELLATE DISTRICT

                                        DIVISION ONE

BETTY DOUGLAS et al.,
         Plaintiffs and Appellants,
                                                      A137645
v.
FIDELITY NATIONAL INSURANCE                           (Alameda County
CO.,                                                  Super. Ct. No. RG11591967)
         Defendant and Appellant.

BETTY DOUGLAS et al.,
         Plaintiffs and Respondents,
                                                      A137732 & A137897
v.
FIDELITY NATIONAL INSURANCE                           (Alameda County
CO.,                                                  Super. Ct. No. RG11591967)
         Defendant and Appellant.

         In this insurance bad faith case, plaintiffs Betty and Jerry Douglas and defendant
Fidelity National Insurance Company (Fidelity) appeal from the judgment after jury trial.
Judgment was entered in favor of plaintiffs and against Fidelity in the amount of
$807,058.10, plus interest and costs of suit. Plaintiffs appeal the trial court’s decision to
strike the jury’s $1.9 million punitive damages award following the granting, in part, of
Fidelity’s motion for judgment notwithstanding the verdict (JNOV) (appeal no.
A137645). Fidelity appeals from the same order arguing, among other things, that the
court committed jury instructional error (appeal no. A137732). Fidelity also filed a
notice of appeal from the court’s ruling on the motion to tax costs (appeal no. A137897).1

1
    On April 12, 2013, the parties filed a stipulation to consolidate the three appeals.
                                                1
       We agree with Fidelity that the trial court prejudicially erred in refusing to give
certain jury instructions necessary to the jury’s fair consideration of the case.
Accordingly, the judgment is reversed and the matter is remanded for a new trial.2
                               FACTUAL BACKGROUND
       In December 2010, plaintiffs went to a business called Cost-U-Less Insurance
(Cost-U-Less) where, over the telephone, an InsZone Insurance Services (InsZone)
employee assisted them in obtaining a homeowner’s insurance policy with Fidelity.
       On March 14, 2011, a fire damaged plaintiffs’ home. Shortly thereafter, they
made a claim with Fidelity to recover for their losses.
       On May 6, 2011, a Fidelity property claims representative named Richard Fowler
sent Jerry a letter advising him that Fidelity was investigating coverage for the fire
incident.3 Fowler indicated Fidelity had obtained information suggesting Jerry did not
live in the home. Additionally, Fowler stated the company’s belief that the property had
been used and operated as a residential care facility.
       After an investigation, Fidelity rescinded the homeowner’s policy on the grounds
that plaintiffs’ insurance application contained material misrepresentations about various
facts concerning plaintiffs’ and their home. Fidelity stated it would not have issued the
policy had it known the truth about the misrepresentations.
                               PROCEDURAL HISTORY
I. Litigation Commences
       On August 24, 2011, plaintiffs filed a complaint against Fidelity and InsZone. The
complaint alleges causes of action for breach of contract, declaratory relief, breach of the

2
  Plaintiffs’ motion to strike Fidelity’s appendices and for sanctions is denied. While the
record submitted by Fidelity is quite large, under the circumstances of this case we are
not inclined to penalize thoroughness. We also deny plaintiffs’ motion to strike a portion
of Fidelity’s reply brief.
3
  We refer to Betty and Jerry Douglas collectively as plaintiffs, and individually by their
first names for the sake of clarity.
                                              2
covenant of good faith and fair dealing, negligent misrepresentation, and breach of an
oral contract to obtain insurance.4 The gravamen of the complaint is that Fidelity
wrongfully failed to pay benefits due under plaintiffs’ homeowner’s insurance policy
after the home was damaged in a fire. Plaintiffs sought punitive and exemplary damages
in connection with their claim for breach of the covenant of good faith and fair dealing.
       On September 26, 2011, Fidelity filed a motion to strike the claim for punitive
damages. Fidelity asserted the complaint failed to allege sufficient facts to support the
conclusion that it had acted with oppression, fraud, or malice.
       On December 9, 2011, the trial court denied Fidelity’s motion to strike.
       On December 19, 2011, Fidelity filed a cross-complaint against plaintiffs for
declaratory relief, restitution, and reimbursement. Fidelity asserted it was entitled to
restitution of all benefits paid under the policy prior to the rescission.
       On June 21, 2012, Fidelity filed a motion for summary judgment.
       On September 11, 2012, the trial court denied Fidelity’s motion for summary
judgment.
II. Proceedings at Trial
       A. Plaintiffs’ Case
              1. Jerry Douglas
       Jerry testified he had been married to Betty for 23 years. The couple has five
children, some of whom are adopted. They purchased a home on Locust Street in
Hayward in 1993 or 1994. Jerry was listed on the deed as the owner of the home but he
considered the residence to be community property. The family moved to Stockton in
2005. They kept the Hayward house and used it to run a group home for minors on
probation.

4
 Plaintiffs subsequently dismissed their causes of action for negligent misrepresentation
and breach of oral contract against Fidelity.
                                               3
         Around 2008 and 2009, the family experienced serious financial difficulties. Jerry
lost his job and Betty was having health problems. They ceased operating the group
home and moved back to the Locust Street property in March 2010. They also filed for
bankruptcy and became late on their mortgage payments.5
         In December 2010, plaintiffs went to a Cost-U-Less store in Stockton to purchase
an insurance policy for the Locust Street home. Previously, Betty had gone by herself to
a Cost-U-Less store in Hayward and had obtained a Fidelity policy. However, the policy
was cancelled shortly thereafter. Jerry understood the policy had been cancelled because
the owner of record was required to sign the application.
         When plaintiffs arrived at the Stockton store, an employee told them the
paperwork he needed had not yet arrived. They left the store and did some shopping
nearby. When they returned, the employee told them he had received the documents and
only needed Jerry’s signature. The insurance paperwork Jerry signed consisted of three
pages. The first page was a blank form. The employee at Cost-U-Less did not ask him
any questions about the property. Jerry signed the documents and gave the employee a
check.
          After the fire occurred, plaintiffs met with an inspector named Lon Anderson
who looked over the home and made an inventory of the damage. Someone had broken
into storage sheds on the property and stolen Jerry’s tools. Jerry estimated the value of
the tools to be about $25,000 to $30,000. Anderson told him he could make a separate
claim for the stolen items.
         Jerry received a letter dated May 31, 2011 from an attorney named Jeffrey
Charlston. The letter included a check from Fidelity in the amount of the insurance
premium Jerry had paid. Charlston stated that in the course of investigating the fire loss,

5
 The Locust Street property eventually went into foreclosure and was sold in March
2012.

                                              4
evidence had developed showing material misrepresentations had been made in
connection with plaintiffs’ insurance application.6 The alleged misrepresentations
pertained to: (1) whether any unit in the structure was occupied by more than one family,
(2) whether the electrical panel utilized circuit breakers or fuses,7 (3) whether there were
roommates or boarders in the home and/or if the home was used as a rooming or boarding
house, and (4) whether a business was conducted on the property. Charlston also stated it
did not appear Jerry had ever personally lived in the home, asserting the property was
being used either as a halfway house for parolees or as a rehab facility. Jerry testified
that these claims were untrue. Finally, Charlston advised that plaintiffs owed Fidelity in
excess of $24,000 for benefits already paid.
       On cross-examination, Jerry confirmed plaintiffs had filed for bankruptcy
approximately three days before the fire. However, the signatures on the bankruptcy
documents were not his. He did not recall if he had given his wife permission to sign his
name. Plaintiffs had also filed bankruptcy petitions in October 2010 and March 2010.
These filings also had signatures that were not his. Many of the statements regarding the
family’s assets in the supporting documentation for the October 2010 bankruptcy filing
were false. One of the documents stated Jerry had worked as an “ARF counselor” with
“On The Right Path” for 11 years.8
              2. Lon Anderson
       Lon Anderson is an independent insurance adjustor. He was assigned to make
contact with plaintiffs, inspect the damaged home, take photographs, and complete a
preliminary report. During the investigation, he spoke with Fowler, Fidelity’s

6
  On cross-examination, Jerry admitted he had previously received the letter from Fidelity
dated May 6, 2011. He did not contact Fidelity in response to that letter.
7
  At trial, Jerry admitted there was a panel of fuses in the garage.
8
  It appears “ARF” stands for “adult residential facility.”
                                               5
representative. Anderson went to the property twice and took photographs. He also
obtained a non-waiver agreement from plaintiffs, as well as authorization forms.9
       Anderson did not recall meeting with Jerry or discussing any missing tools, though
he may have spoke with him on the telephone. Subsequent test results showed the house
was contaminated with asbestos and lead. In his final report, he estimated the cost of
repair for the damage to the structure to be $242,572.70. 10 He estimated the actual cash
value at $225,468.18.
              3. Betty Douglas
                     a. The Locust Street Property
       Betty testified that she ran a daycare business out of the Hayward home for about
10 years. The family lived in the home until 2005 when she decided to stop the daycare
business and instead use the house as a group home. The group home was called
“Leading the Right Path.” It housed minors who had been removed from their parents’
care and who were on juvenile probation. Under state regulations the home could not
also be used as a personal residence, so plaintiffs bought a house in Stockton and moved
there. Betty operated Leading the Right Path until about 2008. About a year later,
plaintiffs decided to move back to the Hayward home.
       In 2007, Betty submitted an application to a licensing agency for another business
called “On the Right Path,” intending to provide housing for clients with developmental
disabilities.11 She successfully obtained the license but never served a developmentally
disabled client. She kept the license active, however, so her home remained a licensed
adult facility. The license allowed her to house up to six clients at a time.

9
  A non-waiver is a written agreement signed by the insured stating they understand that
the claim procedures are not an admission of liability under the policy.
10
   Dan Duculescu testified as plaintiffs’ expert witness. He is employed by a general
contractor that repairs and restores homes after fires. He estimated the total repair cost at
$298,857.98.
11
   The license for On the Right Path became effective on February 20, 2008.
                                              6
       Although the corporation called On the Right Path went out of business, Betty
testified that “On the Right Path, dba” did serve some mentally ill clients. The clients
were sometimes referred to her by psychiatric hospitals and transitional living programs.
She received between $600 to $961 per month from each such client. The clients paid
with their SSI checks. She usually rented out one bedroom for two clients to share. She
also cooked meals for them. If she had more than two clients living in the home, she
would rent out another bedroom. In December 2010, two clients were living in her home.
The clients had paid rent up until March 2011, but one had moved out by the time the fire
occurred. After the fire, she filed an unusual incident/injury report with the licensing
agency.
                     b. The Purchase of Insurance and Succeeding Fire
       In November or December of 2010, Betty went to a Cost-U-Less store in
Hayward. Her policy had lapsed and she needed to secure new insurance to obtain a
mortgage modification. At the store, she spoke to a man on the telephone who asked her
three questions: (1) the year the house was built, (2) the home’s square footage, and
(3) whether the electric panel used fuses or circuit breakers. The man said he was from
InsZone. She was not given any forms to fill out. She was not asked whether she had a
business in the home or who lived there. The man said he would call her back. On her
way home, he called and said she needed to pay $125. She made the payment. About a
week later, the same man called her and asked her to return to the Cost-U-Less store and
call him from there. When she called him, he told her he could not issue the insurance
policy. He explained that because her husband’s name was on the deed, Jerry would
have to initiate the insurance. When she said he was in Stockton, the man said Jerry
could go to a Cost-U-Less store in Stockton and say that he had been sent there.
       Shortly thereafter, plaintiffs went to the Cost-U-Less store in Stockton. Consistent
with Jerry’s testimony, Betty testified that all of the paperwork shown to them was blank.
The employee just pointed to the places on the papers where he wanted Jerry to sign.
                                             7
They were not asked about electrical panels, whether the structure was occupied by more
than one family, if there were roommates or boarders in the home, or whether a business
was conducted on the property.
       After the fire, Betty went to the Red Cross and they helped her contact Fidelity to
make a claim. She met with Anderson the following afternoon. Later, when she received
letters from Fidelity indicating that it was going to rescind the policy, she contacted the
state insurance commission and was advised to retain an insurance adjustor or an
attorney. A contractor referred her to an insurance adjustor named Kevin Dawson. She
retained him immediately. He handled all the communications with Fidelity after that.
       On cross-examination, Betty admitted she filed a petition for bankruptcy in 2012
under the name Malika Masouda. The filing reflects that two men were seeking
thousands of dollars from her claiming they had been employed by On the Right Path.12
In the petition, she did not identify Jerry as a co-debtor or as her spouse. She also did not
disclose that she had filed the instant lawsuit or that her home had suffered a fire.13
              4. Kevin Dawson
       Dawson is an insurance adjustor with Professional Insurance Evaluations. He is
licensed by the Department of Insurance (DOI) to represent policyholders in disputes
with insurers. He is compensated on a contingency basis. In the present case, he and
plaintiffs agreed he would get 15 percent of any recovery. He asserted he was testifying
both as a “non-retained expert” and as an advocate for plaintiffs.
       Dawson was retained by plaintiffs after Betty came to him with a copy of
Charlston’s letter. Dawson was concerned because the letter did not include a copy of the

12
   The two men had made claims with the Labor Commission. They were eventually
determined not to be her employees.
13
   A fire investigator was unable to determine the cause of the fire because the scene had
been disturbed as the fire was being suppressed. The fire originated in a bedroom in the
finished basement. The house reportedly had two electrical boxes with fuses, one in the
garage and one in the pantry.

                                              8
application containing the alleged misrepresentations. He discussed the letter with Betty
and came to believe that Charlston’s assertions were untrue. Specifically, he understood
the family resided in the home, and that the residence had never been used as a
rehabilitation facility or as a halfway house for former prisoners. However, Betty did tell
him “there were persons that would live at the house that were referred by an agency who
contracted with Alameda County and she would provide short-term housing
arrangements for these people who were in a transition, either between the hospital and
the homelessness or some other housing program where they needed temporary
accommodations and she would receive a stipend.”
       On cross-examination, Dawson responded affirmatively when asked if he would
“present unbiased, unprejudiced testimony.” He was asked if the rescission was based on
whether plaintiffs lived on the property. Dawson responded: “No. It relies on a claim by
Fidelity that on the application of insurance there were misrepresentations and those four
questions weren’t on the application. So, it’s false in its foundation this rescission.
These were not questions on the application. These are questions that somebody made up
and said that Jerry answered wrong.” (Emphasis added.) Dawson conceded plaintiffs’
property was licensed to provide clients with transitional housing. He also acknowledged
that homeowner’s insurance is not available for residential care facilities. Instead, such
facilities are required to obtain commercial insurance policies that can have a minimum
premium of $5,000.14
       B. Fidelity’s Case
              1. Richard Gasparini, Jr.
       Richard Gasparini, Jr., is a licensing program analyst with the Department of
Social Services’ Community Care Licensing Division. His work involves regulating

14
  On October 23, 2012, Fidelity filed an unsuccessful motion for nonsuit as to breach of
the implied covenant of good faith and fair dealing, agency, punitive damages, breach
of contract, and whether Betty had an insurable interest.
                                              9
residential care facilities in the community by conducting annual inspections and
investigating complaints. Residential care facilities usually have a six-bed capacity and
look like a normal houses in the community.
       Gasparini had visited On the Right Path several times. During one such visit, he
was setting up his laptop computer when people came through the front door yelling that
they had a search warrant. He was handcuffed and taken out to the street. In connection
with that visit he created a report dated December 30, 2009. He also visited plaintiffs’
home on February 10, 2011. Later, Betty came to his office and told him about the fire.
She said several times that she wanted to relocate the facility to another house.
              2. James LaRosa
       James LaRosa is a deputy sheriff with the Alameda County Sheriff’s Office. On
several occasions he was called to investigate missing persons who had been clients of
On the Right Path. On December 26, 2010, he was dispatched to the property on report
of a missing patient at risk. On another occasion, he arrested one of plaintiffs’ sons for a
domestic violence incident. He also participated in the execution of a no-knock warrant.
During the search of the premises, he contacted at least two patients who said that they
lived in the residence. A county caseworker was also present.
              3. Robert Lockefeer
       Robert Lockefeer was employed as a producer for InsZone when plaintiffs
purchased the Fidelity policy. He testified that a producer is someone who quotes,
secures, and issues insurance policies on behalf of a customer. InsZone primarily works
with its customers over the phone. Lockefeer is licensed by the state to sell property
casualty insurance, including homeowner policies.
       InsZone contracted with a number of different insurers, including Fidelity.
Approximately 90 to 95 percent of Lockefeer’s customers were referred by Cost-U-Less.
He would receive a call or an email from an employee at a Cost-U-Less store regarding a
potential customer. He would then speak with the individual about the risks they were
                                             10
seeking to insure. He received about seven to 10 such calls a day. The calls would
normally last between 10 minutes to half an hour. It would typically take an hour and 15
minutes to an hour and a half to go through the entire application process. Lockefeer did
not recall having spoken with plaintiffs. However, he did not have any reason to doubt
InsZone’s identification of him as the producer who had placed plaintiffs’ policy.
       For homeowner policies, Lockefeer would inquire as to the property’s address, the
square footage of the home, the year the home was built, whether the property already
had insurance, whether the customer had any pets, the size of the garage, and whether
there was a swimming pool. He would always ask about home businesses because
customers who ran businesses out of their homes would not be eligible for a
homeowner’s policy with any of InsZone’s carriers. He would also ask if the home had
circuit breakers or fuses. If the home had fuses, it would probably also not be eligible for
coverage. He worked off his own questionnaire, filling it out as he spoke with the
customer. The questionnaire was basically a data-collection sheet that allowed him to
have all the information he needed on a single page. He would then input the information
using a computer program that would generate quotes from all of InsZone’s carriers.
       If a customer wanted to purchase coverage from Fidelity, Lockefeer would fill out
an online application using Fidelity’s website. He had a username and password for the
site. The online form required answers to 43 questions. Among the questions was
whether the electrical panel utilizes circuit breakers or fuses, and whether there were any
roommates or boarders in the home. It was his practice to ask the customer each the
questions appearing on Fidelity’s website. All 43 questions had to be answered in order
for the application to be transmitted successfully.
       After the application was transmitted, a printout would be generated to show how
Fidelity’s questions had been answered. The printout was made on an ACORD form.
An ACORD form is a generic homeowner insurance application. The boxes on the
ACORD form itself would not be filled out because Fidelity’s questionnaire was printed
                                             11
out at the same time with the questions populated with the applicant’s answers.
Lockefeer understood the ACORD boxes were left blank because filling out that form
would have been “awfully redundant.” After the customer signed the printed form it
would be transmitted back to Lockefeer’s office where he would also sign it. When all
the prerequisites had been completed, the application documents signed, and payment
information obtained, the policy would be submitted electronically and Fidelity’s website
would generate a policy number. A receipt for the transaction would also be created.15
As part of the application process, customers also would receive and sign a privacy
agreement.
       Lockefeer stated he would not have been able to generate an accurate quote by
asking a customer only three questions. Specifically, he would need more information
than just the square footage of the house, the year it was built, and whether it used fuses
or circuit breakers. He also testified that he would never have submitted answers to the
online application that were not authorized by the client. It would not be in his interest to
do so because if the policy were to be rescinded or cancelled, he would lose his
commission. He stated he had never falsified an application.16
              4. Bruce LeBlanc
       Bruce LeBlanc evaluates policies to ensure they meet Fidelity’s underwriting
guidelines. He confirmed that insurance brokers use Fidelity’s website to complete
online applications. The application program is called Fidelity Rating and Internet
Service Technology (F.I.R.S.T.). It automatically quotes and underwrites policies in real-
time. Some of the questions on the application are underwriting questions and others are

15
  The InsZone receipt signed by Jerry and Lockefeer was introduced at trial.
16
  An auditor for the insurance management company that oversees InsZone confirmed
that plaintiffs’ insurance application included the generic ACORD form. The application
would have been filled out using a computer and printed out using the ACORD form.
The customer would review the form and sign it before the application was submitted to
the carrier. Both the ACORD form and Fidelity’s online questionnaire would have been
sent to the customer at the Cost-U-Less store.
                                             12
rating questions. The rating questions pertain to the quote for the premium on a specific
policy. The underwriting questions are intended to qualify the risk for acceptance. The
broker obtains the relevant information from the applicant and inputs it into the F.I.R.S.T.
system. Once the application is submitted, the broker can print the signature page off the
Internet and have the applicant sign it. The system will not approve applications that
have unacceptable underwriting responses.
       LeBlanc testified the records did not show that more than one Fidelity policy had
ever been issued to plaintiffs. A subsequent investigation indicated that four of the
questions on plaintiffs’ submission had been answered incorrectly. Had the correct
answers been given, the policy would not have been issued.
              5. Edward MacCubbin
       Edward MacCubbin is an investigator with Fidelity’s special investigations unit.
He was assigned to investigate plaintiffs’ claim. In reviewing an online news article
about the fire, he noted there might have been a business at the property because it
appeared a resident employee and some unrelated clients also lived at the property. He
was told to investigate plaintiffs’ insurance application because it appeared there were
inconsistencies that needed to be evaluated.
       MacCubbin discovered plaintiffs had filed a bankruptcy petition three days prior
to the fire. The petition indicated that Betty was employed with On the Right Path, which
was identified as having the same address as the subject property. He passed the
information on to LeBlanc and asked him to evaluate whether the inconsistencies he had
found would have had any bearing on Fidelity’s acceptance of the policy. MacCubbin
concluded a business was being operated on the property, the property contained fuses,
and more than one family resided there. He presented the results of his investigation to
management and to legal counsel.

                                               13
              6. Roy Pollock
       Roy Pollock testified as an expert witness with respect to insurance industry
practices. He stated the use of automated online underwriting systems, like the one used
in this case, is becoming more prevalent in the industry. ACORD applications are
typically used in conjunction with an individual insurance company’s separate and more
detailed application.
       C. Motions After Close Of Evidence
       InsZone brought a motion for directed verdict as to plaintiffs’ claim for
negligence, asserting no evidence had been presented to suggest that it fell below the
standard of care in its application process. It noted even plaintiffs’ own expert (Dawson)
had agreed on cross-examination that InsZone did not do anything wrong or act
negligently with respect to the application process. Fidelity’s expert, Pollock, had also
stated that there was no evidence to suggest InsZone had misrepresented anything in the
application. The motion for directed verdict was granted.
       Fidelity also brought a motion for directed verdict, asserting that plaintiffs’ claim
for damages failed because they never submitted sworn proofs of loss and inventory. The
motion was denied.
       D. Jury Verdicts
       On October 31, 2012, the jury, using a special verdict form, concluded plaintiffs’
application for insurance did not contain any misrepresentations of fact. The jury found
Fidelity liable to plaintiffs for $298,924.28 for the loss of real property, $110,000 for the
loss of personal property, and $15,600 for loss of use. It also determined Fidelity’s
failure to pay the covered losses under the policy was unreasonable or without proper
cause. The jury allocated $3,600 in damages for additional loss of use and $300,000 for
emotional distress. Attorney fees were awarded in the amount of $101,885.83.

                                             14
       As to punitive damages, the jury found Fidelity had acted with fraud, malice, or
oppression by withholding or delaying the payment of policy benefits, and that these acts
were authorized by one or more of Fidelity’s officers, directors, or managing agents.
       On November 5, 2012, the jury awarded plaintiffs $1.9 million in punitive
damages.
       Judgment was entered on the jury verdict on November 29, 2012.
       E. Post-Trial Motions
       Fidelity moved for judgment notwithstanding the verdict (JNOV) and new trial on
several grounds, including that the jury had been given erroneous jury instructions and
verdict forms. It further argued Dawson’s testimony should have been disregarded
because his contingency agreement created an inherent conflict of interest. It also
claimed the issue of punitive damages should not have been submitted to the jury as there
was no evidence that the acts of any of Fidelity’s employees had been ratified at the
corporate management level.
       On January 16, 2013, the trial court issued its order granting the motion for JNOV
in part and denying the motion for new trial. The court granted the JNOV as to the $1.9
million award for punitive damages, the awards of $15,600 and $3,600 for loss of use,
and imposed a corresponding reduction in the amount awarded for attorney fees. The
court modified the judgment accordingly.
       On January 25, 2013, the trial court filed a corrected and amended judgment in the
amount of $823,881.52. These consolidated appeals followed.
                                        DISCUSSION
       Because we find it dispositive, we address Fidelity’s appeal of the order denying
its motion for new trial.17 Fidelity asserts the trial court erred in failing to grant its

17
  Fidelity asserts “substantial evidence supported material misrepresentations mandating
JNOV.” Had the trial court granted Fidelity’s motion as to this issue, this argument
would be compelling. However, the standard of review on appeal of an order denying a
                                               15
motion because the jury was prevented from deciding whether InsZone was plaintiffs’
broker. The significance of this issue is that an affirmative finding would have allowed
the jury to hold plaintiffs responsible for any misrepresentations in the insurance
application, whether attributable to them directly or indirectly through InsZone’s
conduct.18 Specifically, Fidelity claims the court below erred in failing to give its version
of CACI No. 2307, which addresses whether InsZone was Fidelity’s agent. It also asserts
the court’s version of CACI No. 2308 misstated the law regarding the affirmative defense
of rescission, in part because it required Fidelity to prove plaintiffs themselves had
intentionally made all four alleged misrepresentations, whereas the law permits insurers
to rescind for a single innocent or negligent misrepresentation. It asks us to reverse the
judgment and remand the matter for a new trial on the grounds that the jury instructions
and related verdict forms were prejudicial and resulted in a miscarriage of justice.
I. Standard of Review
       While this court generally reviews orders concerning new trials for abuse of
discretion (Howard v. Thrifty Drug & Discount Stores (1995) 10 Cal. 4th 424, 443;
People v. Davis (1995) 10 Cal. 4th 463, 524), any determination underlying the order is
scrutinized under the test appropriate for that determination. (City of San Diego v. D.R.
Horton San Diego Holding Co., Inc. (2005) 126 Cal. App. 4th 668, 678.) Here, the
underlying issues on appeal—whether the jury instructions misstated the law and whether
the trial court erred in refusing to allow the jury to consider whether InsZone’s conduct

party’s JNOV motion is not whether substantial evidence supports the verdict that the
jury did not render. Rather, the inquiry is whether substantial evidence, contradicted or
uncontradicted, supports the jury’s finding of fact. Because Fidelity has not properly
framed its argument concerning the court’s partial denial of its JNOV motion, we
construe Fidelity’s appeal as arising from the denial of its motion for new trial.
18
   The trial court was not persuaded by this argument, emphasizing that “the jury did not
find any misrepresentations . . . .” As will appear, however, the court’s reasoning is
somewhat circular, as the jury’s findings were based on a flawed jury instruction that
omitted consideration of InsZone’s role with respect to the policy transaction.
                                             16
could be imputed to plaintiffs—are analyzed de novo. (See Ibid.; People v. Posey (2004)
32 Cal. 4th 193, 218.)
        A party is entitled to request that the jury be instructed correctly on any of the
party’s theories of the case that are supported by substantial evidence. (Soule v. General
Motors Corp. (1994) 8 Cal. 4th 548, 572 (Soule).) A refusal to instruct the jury is
reversible error if it is probable that the error prejudicially affected the verdict. (Id. at p.
580.)
II. Misrepresentations As An Affirmative Defense
        A. General Principles
        It is well established that material misrepresentations or concealment of material
facts in an application for insurance entitle an insurer to rescind an insurance policy, even
if the misrepresentations are not intentionally made.19 (Ins. Code, §§ 33120
[“[c]oncealment, whether intentional or unintentional, entitles the injured party to rescind
insurance”]; 359 [“[i]f a representation is false in a material point, whether affirmative or
promissory, the injured party is entitled to rescind the contract from the time the
representation becomes false”]; see also O’Riordan v. Federal Kemper Life Assurance
Co. (2005) 36 Cal. 4th 281, 286-287; Mitchell, supra, 127 Cal. App. 4th 457, 467-468.)
Additionally, “[a] misrepresentation or concealment of a material fact in an insurance
application also establishes a complete defense in an action on the policy. [Citations.]
As with rescission, an insurer seeking to invalidate a policy based on a material
misrepresentation or concealment as a defense need not show an intent to deceive.
[Citations.]” (Superior Dispatch, Inc. v. Insurance Corp. of New York (2010) 181
Cal. App. 4th 175, 192, fn. omitted (Superior Dispatch).)

19
   “Freedom of contract and the right of an insurer to make an informed decision whether
or not to insure a given risk are strong policy considerations that support more liberal
rescission rights for misrepresentations made at the inception of the insurance contract.”
(Mitchell v. United National Ins. Co. (2005) 127 Cal. App. 4th 457, 472 (Mitchell).)
20
   All further statutory references are to the Insurance Code except as otherwise indicated.
                                               17
       To prevail, the insurer must prove that the insured made a material “false
representation” in an insurance application. “A representation is false when the facts fail
to correspond with its assertions or stipulations.” (§ 358.) The test for materiality of the
misrepresentation or concealment is the same as it is for rescission, “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, citing
Thompson v. Occidental Life Ins. Co. (1973) 9 Cal. 3d 904, 916; see Cohen v. Penn
Mutual Life Ins. Co. (1957) 48 Cal. 2d 720, 725-726.)
       B. Evidence Supports Fidelity’s Misrepresentation Theory
       Using a special verdict form, the jury answered the following question in the
negative: “Did the application for insurance with [Fidelity] by Jerry and Betty Douglas
contain a misrepresentation of fact?” It would appear that either the jury found the
allegedly false statements were true, or it concluded the application Jerry signed did not
contain any misrepresentations. The first possibility is questionable. Even construed in
the light most favorable to plaintiffs, it is undisputed that during the pendency of the
policy Betty used the home to provide room and board to mentally ill clients pursuant to a
license she obtained from a social services agency.
       The evidence presented at trial would support a finding that plaintiffs were
licensed to operate a residential care facility out of their home and that they received
money in exchange for providing room and board to mentally ill clients.21 For example,
the unusual incident/injury report that Betty submitted to the licensing agency after the
fire states that two male clients were residing in the home at the time of the fire. Also,
Dawson testified that he knew “there was one or more rooms rented out or shared by
boarders on occasion. I do know that. And I do know that there was a Social Service

21
  The insurance policy issued to plaintiffs defines “business,” in part as either “[a] trade,
profession or occupation engaged in on a full-time, part-time or occasional basis,” or
“[a]ny other activity engaged in for money or other compensation . . . .”
                                             18
agency working with Betty Douglas to provide housing for people who were transitional
between hospital and homelessness. I know that.” When asked whether “[u]sing a
definition of a residential care facility is a licensed entity by the State of California that
allows it to accept income from a social service agency in exchange for providing a place
to board. Is it your understanding that that type of facility is being operated at the Locust
Street property in 2011?”, Dawson replied, “[i]f [‘]facility[’] is that operation of having
persons residing in the home and being funded by the state, if that’s your definition of
facility, I say that may have occurred.”
       We also note plaintiffs’ counsel essentially stipulated, outside the presence of the
jury, that Betty was running a business out of her home. Towards the end of the trial, the
following dialogue occurred: The court: “Let me ask counsel for plaintiff,
notwithstanding any argument about what [Betty] said, are you going to be arguing to the
jury that she wasn’t running a business?” Plaintiffs’ counsel responded: “No, your honor,
it’s admitted.” In sum, the evidenced offered at trial supports the conclusion that three of
the four answers provided to Fidelity during the application process were false, namely,
that no boarders lived in the home, that the home was not occupied by more than one
family, and that the home was not being used to run a business.
       C. InsZone’s Status As Broker Or Agent
       We turn to examine whether the jury should have been allowed to consider
whether InsZone was acting as plaintiffs’ broker during the policy transaction. The
significance of this issue is critical to the merits of the present case. As a matter of law,
“if [an insurance] application was prepared by an insurance broker (the agent of the
insured), the application’s contents are the insured’s responsibility.” (Croskey et al., Cal.
Practice Guide: Insurance Litigation (The Rutter Group 2013) ¶ 2:83, p. 2-46 (rev. # 1,
2011); accord, Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198
Cal. App. 3d 169, 178-179 [policyholders liable for misrepresentations in broker-prepared
application]; see also LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156
                                               19
Cal. App. 4th 1259, 1268 [“LA Sound, not its broker, is responsible for the
misrepresentations in the application”].)
       Persons or entities who solicit, sell, or negotiate insurance contracts are known
generically as “producers.” Producers fall into two broad classifications: insurance
agents and insurance brokers. (See Krumme v. Mercury Ins. Co. (2004) 123 Cal. App. 4th
924, 932, fn. 4 (Krumme).)22 “ ‘An “insurance broker” is one who acts as a middleman
between the insured and the insurer, soliciting insurance from the public under no
employment from any special company, and, upon securing an order, placing it with a
company selected by the insured or with a company selected by himself or herself;
whereas an “insurance agent” is one who represents an insurer under an employment by
it. A broker is, in essence, employed in each instance as a special agent for a single
purpose, while the very definition of agent indicates an ongoing and continuous
relationship. . . . [B]rokers and insureds are ordinarily involved in what can be viewed as
a series of discrete transactions, while agents and insureds tend to be under some duty to
each other during the entire length of the relationship.’ [Citations.]” (Id. at p. 929.)
       An agent’s primary duty is to represent the insurer in transactions with insurance
applicants and policyholders. (Marsh & McLennan of Cal., Inc. v. City of Los Angeles
(1976) 62 Cal. App. 3d 108, 117-118 (Marsh).) Each company the agent represents must
file a notice of appointment with the DOI’s commissioner. (§ 1704.) Because an agent
represents the insurer, an agent’s representations to an insured regarding coverage are
treated as representations by the insurer. Generally, some hallmarks of an insurance
agent (as opposed to a broker) are licensure, notice of appointment as an agent and the
power to bind the insurer. (Marsh, supra, at pp. 118-119.) In contrast, a broker’s

22
  “Statutorily, an agent is defined as one who is ‘authorized, by and on behalf of an
insurer, to transact all classes of insurance’ except for life insurance (§§ 31, 1621) while a
broker is ‘a person who, for compensation and on behalf of another person, transacts
insurance other than life with, but not on behalf of, an insurer.’ (§§ 33, 1623.)”
(Krumme, supra, 123 Cal. App. 4th 924, 928-929.)
                                             20
primary duty is to represent the applicant/insured, and his or her actions are not generally
binding on the insurer. “Put quite simply, insurance brokers, with no binding authority,
are not agents of insurance companies, but are rather independent contractors . . . .”
(Marsh, supra, at p. 118, italics added.) Of course, these labels alone are not
determinative of the relationship, and the specific facts of each transaction must be
reviewed. (Arocho v. California Fair Plan Ins. Co. (2005) 134 Cal. App. 4th 461, 466.)
The general laws of agency inform any such review. (Sanchez v. Lindsey Morden Claims
Services, Inc. (1999) 72 Cal. App. 4th 249, 255.)
       Plaintiffs assert the evidence unequivocally shows that InsZone was not a broker.
They cite to the independent producer agreement between InsZone and Fidelity. The
agreement states, in part: “Producer shall never be deemed an agent for the Company or
Insurance Company unless required by law. Producer has no authority to bind Company
or Insurance Company on any insurance policy except as otherwise stated in the
underwriting guidelines for the territories and lines of business set forth on Compensation
Schedule.” (Italics added.) The Compensation Schedule provides that InsZone was
authorized “to bind policies for the lines of business listed below and the Company shall
pay Producer a commission based on the following table . . . .” The table includes
homeowner’s policies in California. Relying on Marsh, supra, plaintiffs assert that this
power to bind “means the producer is [an] agent.” Plaintiffs claim, “had the jury decided
the agent/broker issue, it would have found InsZone was a producing agent for Fidelity,
thus gutting the proposed affirmative defense.” In our view, the issue is not as clear cut
as plaintiffs suggest.
       We observe both insurance agents and insurance brokers must be licensed by the
DOI (§ 1631), but a person may not act as an insurance agent without a notice of the
agent’s appointment by the insurer to transact business on its behalf filed with the DOI.
(§ 1704, subd. (a); Loehr v. Great Republic Ins. Co. (1990) 226 Cal. App. 3d 727, 732-
733.) It is unclear whether Lockefeer or InsZone was covered by such notice.
                                             21
Additionally, the producer agreement is ambiguous insofar as it states explicitly that
InsZone was “never” to be deemed Fidelity’s agent, except as “required by law.” It also
appears that a jury could conclude Lockefeer did not bind the policy himself, since it was
Fidelity’s website that generated the policy number (see Krumme, supra, 123
Cal. App. 4th 924, 929, citing Marsh, supra, 62 Cal. App. 3d 108, 118 [“ ‘a broker does not
execute a policy without a prior authorization from the insurer. In contrast, the agent is
authorized to execute the binder himself.’ [Citation.]”], italics added.) Because there
was substantial evidence to support a finding that Lockefeer was acting as a broker rather
than an agent, we agree with Fidelity that the jury should have been allowed to make a
determination of this issue.23
III. Jury Instructions Given and Refused
       A. CACI No. 2307
       Fidelity proposed the following instruction, which is based on CACI No. 2307:
“Insurance Agency Relationship Disputed”: “Jerry and Betty Douglas claim that
[InsZone] was [Fidelity’s] agent and that [Fidelity] is therefore responsible for
[InsZone’s] representations. [¶] If Jerry and Betty Douglas prove that [Fidelity] gave
[InsZone] the authority to act on behalf of [Fidelity], then [InsZone] was [Fidelity’s]
agent. This authority may be shown by words or may be implied by the parties’ conduct.
This authority cannot be shown by the words of Jerry and Betty Douglas alone. [¶]
[Fidelity] and [InsZone] both agree that [InsZone] is a producer or a broker and that
[InsZone] did not have authority to act on behalf of [Fidelity].”
       After the parties rested, the trial court expressed the view that InsZone could be
held liable for failing to ask plaintiffs all of the necessary questions as part of the
insurance application. The court noted: “The jury could conclude this whole thing is
because they had an agent that didn’t do his job, which is not the fault of Fidelity. [¶] I

23
 We also note Lockefeer testified that he generally sought to obtain quotes from
multiple insurers, suggesting he was not an agent of any one insurance company.
                                               22
know there’s some talk about whether InsZone was the agent for the defendant, but [the
jurors] might conclude that it’s not. That’s why I think the verdict forms need to be
redone to reflect that possibility because right now it doesn’t.” (Italics added.)
Subsequently, the court indicated it would not give the final paragraph of the proposed
instruction, which is not included in the model instruction. It opined that the proposed
language was an improper attempt “to get the court to rule on a matter of law that they
didn’t have authority to act on behalf of the agents [sic] and I think that’s an issue for the
jury.” (Italics added.) The court also stated that the instruction would be moot if the court
granted InsZone’s motion for directed verdict, which it later did.
       We note the last line of the second paragraph of the proposed instruction appears
to be flawed. In the Judicial Council’s version, that sentence references the agent, not the
insured: “This authority cannot be shown by the words of [name of agent] alone.” (CACI
No. 2307.) Even if properly drafted, however, the instruction does not stand for the
proposition asserted by Fidelity. It requires plaintiffs to prove InsZone was Fidelity’s
agent whereas, for purposes of the affirmative defense asserted here, Fidelity was
required to prove InsZone was plaintiffs’ broker. Had the instruction been given, it
would have had no effect on Fidelity’s affirmative defense because even if the jury found
plaintiffs failed to meet their burden of proving InsZone was Fidelity’s agent, the jury
would not thereby have concluded that InsZone was plaintiffs’ broker because the
instruction does not require that such a finding be made. Even viewed in the light most
favorable to Fidelity, at best, the jury would have deemed InsZone a free-standing third
party. Accordingly, we cannot conclude the trial court erred in failing to give this
instruction.24

24
   We do not hold, however, that the issue was thereby waived by Fidelity. After
granting InsZone’s motion for directed verdict, the court clearly stated, over Fidelity’s
protests, that it would not allow the jury to consider InsZone’s conduct at all. Thus, any
attempt by Fidelity to propose a better crafted instruction would have been futile.
                                              23
       B. CACI No. 2308
       We reach a different conclusion with respect to the instruction given by the trial
court on rescission. CACI No. 2308 was given to the jury as follows: “[Fidelity] claims
that no insurance contract was created because Jerry and Betty Douglas made a false
representation in their application for insurance. To establish this claim, [Fidelity] must
prove all of the following: [¶] One, that Jerry and Betty Douglas submitted application
for insurance with [Fidelity]. [¶] Two, that in the application for insurance, Jerry and
Betty Douglas represented that: (A) there is no unit in the structure occupied by more
than one family; (B) the electrical panel utilizes circuit breakers and not fuses; (C) there
are no roommates or boarders in the house and/or the house is not used as a rooming or
boarding house; (D) there is no business conducted on the property. [¶] Three, the
application asks for that information. [¶] Four, that Jerry and Betty Douglas knew that
one or more of these representations were not true. [¶] Five, [Fidelity] would not have
issued the insurance policy if Jerry and Betty Douglas had stated the true facts in the
application. [¶] Six, that [Fidelity] gave Jerry and Betty Douglas notice that it was
rescinding the insurance policy. [¶] And, seven, that [Fidelity] offered to return the
insurance premium paid by Jerry and Betty Douglas.”
       Before the instruction was read to the jury, Fidelity’s attorney told the trial court
that the first element “should say Jerry and Betty Douglas, but I think it should also say
InsZone Insurance Services since that’s the broker who ultimately submits the application
online to Fidelity.” She also stated that the word “application” should be changed to
“applications.” Plaintiffs’ counsel countered stating, “[w]e think the way the Court’s
drafted it is appropriate. Jerry Douglas is the one who submitted a signed application.”
Fidelity’s counsel responded, noting that, “[a]t the end of the day, the buck stops with the
[broker] as to what information was submitted to the carrier. Fidelity doesn’t underwrite
its own policies like that, it has an online system, it’s undisputed how the information is
obtained. InsZone goes online, has a user name and password and submits the
                                             24
information.” The court responded: “You may include, every time I mention Jerry
Douglas you may include Jerry and Betty Douglas. Other than that, this is what we’re
going to use for 2308.”
       Fidelity had proposed its own version of 2308. The instruction proposed by
Fidelity states: “[Fidelity] claims that it is entitled to rescind the homeowners’ policy it
issued to Jerry Douglas because of concealment (whether intentional or unintentional) by
[plaintiffs] and/or [InsZone], when [plaintiffs] applied for the policy of homeowners’
insurance. The court will determine whether [Fidelity] is entitled to rescission based
upon your findings. You must determine whether [Fidelity] has established each of the
following by a preponderance of the evidence: [¶] 1. Whether [plaintiffs] and/or
[InsZone] concealed material facts (whether intentionally or unintentionally) or failed to
advise [Fidelity] of material facts when [plaintiffs] applied for the homeowners’
insurance policy; and [¶] 2. If you find that the facts were concealed (intentionally or
unintentionally) whether such facts were material; and [¶] 3. If [Fidelity] had known any
material facts concealed or not disclosed, it would probably and reasonably not have
issued the homeowners’ insurance policy.”
       Fidelity also requested special verdict forms regarding InsZone’s disputed agency
that would have allowed the jury to find in favor of Fidelity even if the
misrepresentations were deemed unintentional. The trial court refused to give the
proposed special verdict form and did not allow the jury to otherwise consider the import
of any unintentional misrepresentations. The court also believed it did not need to
include InsZone along with Jerry and Betty as a party who provided the allegedly false
information to Fidelity in the application. Based on the state of the law discussed above,
we agree with Fidelity that the instruction given by the court below erroneously omitted
these two key points.

                                              25
       Plaintiffs argue that the jury’s verdict moots any error regarding the affirmative
defense because the jury concluded the application contained no misrepresentations.25
However, the problem is that the trial court’s instruction and verdict form referenced only
one application, which, from the jury’s inquiry, appears to have created ambiguity as to
whether the jury could consider the responses provided in the F.I.R.S.T. questionnaire.
The instruction also did not reflect Fidelity’s theory that InsZone’s conduct in supplying
the allegedly erroneous information could be attributed to plaintiffs. Finally, the
instruction was legally erroneous in that it required the jury to find the misrepresentations
were intentional, as opposed to negligent or inadvertent.
       Next plaintiffs assert Fidelity never pursued the proposed affirmative defense at
trial and affirmatively waived the right to present expert testimony in support of the
defense. Yet the entire trial was centered on the allegedly erroneous information Fidelity
received, either from plaintiffs or InsZone, and whether its rescission was justified based
on the faulty information. As to whether expert testimony was required, it appears to us
that the issue for the jury, under properly given instructions, is relatively straightforward:
were the challenged statements untrue and, if so, were the misrepresentations material?
Contrary to plaintiffs assertions, there was no need to delve into whether InsZone’s
conduct fell below the standard of care. If InsZone was plaintiffs’ broker, and if it
supplied untrue information to Fidelity that was material to the underwriting process,
then Fidelity would have had the right to rescind the policy regardless of whether
InsZone acted negligently or not.
       Plaintiffs claim Fidelity never pursued its position that InsZone was plaintiffs
broker because it “never suggested Lockefeer may have filled out the underwriting

25
   Plaintiffs also claim Fidelity forfeited the affirmative defense by failing to plead it in
its answer. We disagree. Fidelity asserted that it had the right to rescind the policy
because the underwriting information it received was untrue. Fidelity was not required to
identify the actors who supplied the information at the pleading stage.
                                              26
questionnaire or that he supplied Fidelity with materially false answers to those
questions.” But it is undisputed that Lockefeer did fill out the questionnaire and that he
did provide the responses that plaintiffs have conceded are false. Thus, the only
controverted issue is whether InsZone was a broker acting on behalf of plaintiffs or an
agent acting on behalf of Fidelity. This critical issue was unaddressed by the jury
instructions, requiring reversal for a new trial. While plaintiffs claim the evidence
“uniformly and unambiguously” supports the conclusion that InsZone was not a broker,
the facts are not entirely one-sided.
IV. The Error Was Prejudicial
       Having concluded the trial court erred in instructing the jury, we turn to whether
the errors were prejudicial. “When deciding whether an instructional error was
prejudicial, ‘we must examine the evidence, the arguments, and other factors to
determine whether it is reasonably probable that instructions allowing application of an
erroneous theory actually misled the jury.’ [Citation.] A ‘reasonable probability’ in this
context ‘does not mean more likely than not, but merely a reasonable chance, more than
an abstract possibility.’ [Citation.]” (Kinsman v. Unocal Corp. (2005) 37 Cal. 4th 659,
682, italics omitted.) We review the evidence in the light most favorable to the appellant
and assume that, had it been properly instructed, the jury might have believed the
evidence upon which the rejected instruction was based, drawn inferences favorable to
appellant, and rendered a different verdict. (Logacz v. Limansky (1999) 71 Cal. App. 4th
1149, 1156.)
       As to the state of the evidence, we have already summarized the testimony and
documentary evidence offered to support Fidelity’s view that misrepresentations were
made during the application process, either by plaintiffs or by InsZone. These
misrepresentations relate plaintiffs’ use of the home to operate a licensed adult residential
care facility by offering and providing room and board to mentally ill clients in exchange
for money. Additionally, there was evidence, albeit conflicting, that InsZone and
                                             27
Lockefeer acted as plaintiffs’ insurance brokers, and not as agents of Fidelity. Our
review of the record indicates a reasonable probability that a properly instructed jury
could have rendered a different verdict.
       The instructional errors noted above were exacerbated by plaintiffs’ counsel’s
closing arguments. He repeatedly asserted the “application” was the blank form Jerry
had signed, emphasizing that this form did not include the disputed underwriting
questions: “I want to show you the actual jury instruction, which is what Judge Gee will
be giving you in this case so that we are absolutely clear what it is that you have to
decide. Look at number [one], that Jerry and Betty Douglas submitted an application for
insurance with Fidelity. Well, now they want to say it’s not really the application, it’s the
underwriting in question, maybe InsZone’s responsible for it. The law says it has to be
an application submitted by Jerry and Betty Douglas. The only application in evidence is
the two-page application. It doesn’t have any misrepresentations at all on it. They were
instructed just to sign it blank. [¶] Fidelity creates an application and gives it to InsZone
to be signed. This is what they wanted. It provides a nice pretext if you want to rescind
someone’s policy to say, wow, you signed a blank application, it doesn’t have any
answers on it. That’s Fidelity setting it up. That’s what I meant when you go back and
deliberate in the courtroom this afternoon (sic), you have to follow the law, not the
arguments of counsel. But you have to look at the application and see if it actually has in
there misrepresentations about anything that we’ve talked about today because it
doesn’t.” (Italics added.) In discussing punitive damages, he also argued the questions
Fidelity had relied on to rescind the policy were not on the application but “dragged out
of Fidelity’s underwriting system.”26

26
  We note Fidelity was not necessarily required to prove that the misrepresentations it
relied on in issuing the policy were contained within an application. (See Superior
Dispatch, supra, 181 Cal. App. 4th 175, 191 [“A misrepresentation or concealment of a
material fact in connection with an application for insurance is grounds for rescission of
the policy.”], italics added.)
                                              28
       Plaintiffs’ counsel also touched on the agency issue: “I have to just address I think
that Fidelity’s counsel must have used ‘broker’ five, 10, 15 times in his closing argument;
however, you saw the Producer Agreement that talked about agency, that talked about the
ability to bind the insurance company, that talked about the ability . . . that InsZone binds
those applications for Fidelity. Trying to bring InsZone into this and blame it on InsZone
or Jerry and Betty Douglas is inappropriate.”
       We also note it appears the jury may have been mislead by the use of the term
“application” in the instruction because the jurors asked for a definition of that word
during deliberations. We note Fidelity’s proposed instruction did not include the word
“application.” The online process utilized here generated documents evidencing the
answers to the underwriting questions that Fidelity relied on in issuing the policy.
Limiting the jury’s consideration to the representations made by plaintiffs in Jerry’s
application alone was misleading and prejudicial.
       There is no dispute that Jerry’s signature appears on the second page of a blank
pre-printed ACORD application, that is, an ACORD form containing unchecked boxes.
His signature also appears on the third page of a printout of the questionnaire underneath
language authorizing the insurer to inspect the home. The 43 underwriting questions and
answers appear on the first two pages only. None of the questions or accompanying
answers are printed on the page he signed. Thus, Jerry’s testimony that he never saw the
Fidelity underwriting questionnaire generated by InsZone is not implausible, and, under
the instruction given, the jurors could have concluded there were no misrepresentations in
Jerry’s “application” because there were no representations at all on the blank pages that
he signed. Importantly, the jury was not asked to consider whether the F.I.R.S.T.
application submitted by InsZone on plaintiffs’ behalf via Fidelity’s website contained
any material misrepresentations. Additionally, the instructions and jury form required
Fidelity to prove that the misrepresentations were made deliberately. Thus, Fidelity’s

                                             29
affirmative defense was not properly presented to the jury and we conclude Fidelity was
prejudiced thereby, necessitating a new trial.
       Reversal of the judgment obviates the need to address plaintiffs’ appeal of the trial
court’s decision to strike the punitive damages award. We also need not address
Fidelity’s appeal from the motion to tax costs.
                                     DISPOSITION
       The judgment is reversed and the cause is remanded to the trial court for
proceedings not inconsistent with this opinion.

                                                  _________________________
                                                  Dondero, J.

We concur:

_________________________
Margulies, Acting P. J.

_________________________
Becton, J.*

*
 Judge of the Contra Costa County Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.

                                             30
Trial Court:                                    Alameda County Superior Court

Trial Judge:                                    Hon. Delbert C. Gee

Counsel for Plaintiffs and Appellants,
     and for Plaintiffs and Respondents:        Hereford Kerley,
                                                  and J. Edward Kerley

                                                Law Office of Dylan Schaffer,
                                                  and Dylan Schaffer

Counsel for Defendant
     and Appellant:                             Shoecraft Burton,
                                                  and Michelle L. Burton

                                           31