Court Opinion

ID: 4233880
Source: CourtListenerOpinion
Date Created: 2018-01-02 21:00:33.915784+00
Date Added: 2024-06-11T14:15:51.481193
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                             JAN 02 2018
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

WESTERN WORLD INSURANCE                          No.   16-55470
COMPANY,
                                                 DC No. CV 15-2342 MWF
              Plaintiff-Appellee,

 v.                                              MEMORANDUM*

PROFESSIONAL COLLECTION
CONSULTANTS,

              Defendant-Appellant.

                   Appeal from the United States District Court
                       for the Central District of California
                  Michael W. Fitzgerald, District Judge, Presiding

                     Argued and Submitted December 5, 2017
                              Pasadena, California

Before:      TASHIMA and BERZON, Circuit Judges, and KENNELLY,**
             District Judge.

      In August 2013, FBI agents executed a search warrant at the offices of

Professional Collection Consultants (“PCC”). Over the next several months,

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable Matthew F. Kennelly, United States District Judge for
the Northern District of Illinois, sitting by designation.
investigators subpoenaed several PCC employees and PCC produced thousands of

documents. In February 2014, PCC applied for directors and officers liability

insurance from Western World Insurance Co. (“Western”), and Western issued

PCC a policy. PCC had submitted (and Western accepted) a CNA insurance

renewal application form, even though Western is not a CNA Company and PCC

was not renewing a Western policy. In 2015, Western moved to rescind the policy

on the basis that PCC made a material misrepresentation in its application. The

disputed question read:

      None of the individuals to be insured under any Coverage Part (the
      “Insured Persons”) have a basis to believe that any wrongful act,
      event, matter, fact, circumstance, situation, or transaction, might
      reasonably be expected to result in or be the basis of a future claim?

PCC marked “No.”

      The district court granted Western’s summary judgment motion for

rescission and denied PCC’s request for additional discovery. PCC appealed. We

have jurisdiction under 28 U.S.C. § 1291. We review de novo a district court’s

grant of summary judgment, Jones v. Royal Admin. Servs., Inc., 866 F.3d 1100,

1104 (9th Cir. 2017), and we review for abuse of discretion the denial of a

discovery continuance, Tatum v. City & Cty. of S.F., 441 F.3d 1090, 1100 (9th Cir.

2006). We affirm.

                                          2
      1.     PCC’s answer was a material misrepresentation because it was aware

of existing circumstances – the federal investigation – that could lead to a claim

covered by the policy. Under California law, a party may rescind an insurance

contract if the other party made representations “false in a material point.” Cal.

Ins. Code § 359. “Materiality is determined solely by the probable and reasonable

effect which truthful answers would have had upon the insurer.” Thompson v.

Occidental Life Ins. Co., 513 P.2d 353, 360 (Cal. 1973); see also Cal. Ins. Code §§

334, 360. The materiality inquiry is a “subjective test viewed from the insurer’s

perspective.” Superior Dispatch, Inc. v. Ins. Corp. of N.Y., 104 Cal. Rptr. 3d 508,

520 (Ct. App. 2010), as modified on denial of reh’g (Feb. 22, 2010). “[R]escission

effectively renders the policy totally unenforceable from the outset so that there

was never any coverage and no benefits are payable.” Imperial Cas. & Indem. Co.

v. Sogomonian, 243 Cal. Rptr. 639, 645 (Ct. App. 1988); accord U.S. Fid. & Guar.

Co. v. Lee Invs. LLC, 641 F.3d 1126, 1136 (9th Cir. 2011).

      PCC contends that it did not misrepresent the truth because, if the

application question is read literally, PCC’s “no” answer informed Western that

PCC was aware of circumstances that could lead to a claim. However, the form

instructions stated that a “yes” answer would require applicants to provide

“detailed information” about their answer and could precipitate “substantially

                                          3
different terms and conditions.” PCC provided no additional information to

explain its answer. Given that context, Western reasonably understood PCC’s

answer to mean PCC was not aware of any circumstances that could lead to a

claim. The policy covered claims arising from, inter alia, a civil, regulatory,

criminal, or administrative proceeding or investigation against PCC or any of the

individual insureds. Although PCC claims it thought the federal investigation was

over before PCC completed the application,1 the only reasonable conclusion is that

the federal criminal investigation, even if closed or on hold, nonetheless might lead

to a claim under the policy.

      PCC also contends its answer was immaterial because the question was

required only for applicants who, unlike PCC, sought increased policy limits.

Specific demand for information “is in itself usually sufficient to establish

materiality,” Thompson, 513 P.2d at 360, but not necessary. Courts also “inquire

into the nature of the information withheld.” Taylor v. Sentry Life Ins. Co., 729

F.2d 652, 655 (9th Cir. 1984). Put simply, a misrepresentation is material when it

“regard[s] the nature of the risk to be insured.” Merced Cty. Mut. Fire Ins. Co. v.

      1
             The investigation was in fact not over. The government issued
additional subpoenas in the Spring 2014. In November 2017, the government filed
a criminal information against PCC and PCC entered a plea of guilty pursuant to a
plea agreement.
                                           4
California, 284 Cal. Rptr. 680, 685 (Ct. App. 1991). PCC was not entitled to

misrepresent the truth about the investigation simply because Western did not ask a

specific question.

      Moreover, Gregg Rentko, Western’s senior underwriting executive, stated in

a declaration that “Western World would not have issued the policy to PCC had it

known of the ongoing federal criminal investigation.” PCC presented no contrary

evidence. Although the factfinder “is not required to believe the ‘post mortem’

testimony of an insurer’s agents,” Thompson, 513 P.2d at 360 (citations omitted),

courts will accept an insurer’s uncontradicted declaration as proof of materiality at

the summary judgment stage. See Superior Dispatch, 104 Cal. Rptr. 3d at 521–22

(concluding misrepresentation was material based on underwriter’s uncontroverted

declaration that truthful disclosure would have affected insured’s premium or

precluded policy issuance); Mitchell v. United Nat’l Ins. Co., 25 Cal. Rptr. 3d 627,

639 (Ct. App. 2005) (concluding misrepresentation was material where underwriter

declared she relied on insured’s answers). Western therefore carried its burden of

showing materiality as a matter of law.

      Nor did Western delay, as it moved to rescind the policy only after learning

of the investigation. See LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co.,

                                          5
67 Cal. Rptr. 3d 917, 925–26 (Ct. App. 2007) (permitting rescission after insurer

defended insured under reservation of rights until it discovered misrepresentation).

      2.     PCC requested additional discovery after Western moved for

summary judgment. Once a party moves for summary judgment, if the nonmovant

“shows by affidavit or declaration that, for specified reasons, it cannot present facts

essential to justify its opposition,” the court may defer the summary judgment

motion to permit additional discovery. Fed. R. Civ. P. 56(d). Specifically, the

party desiring additional discovery must show that “(1) it has set forth in affidavit

form the specific facts it hopes to elicit from further discovery; (2) the facts sought

exist; and (3) the sought-after facts are essential to oppose summary judgment.”

Family Home & Fin. Ctr., Inc. v. Fed. Home Loan Mortg. Corp., 525 F.3d 822,

827 (9th Cir. 2008).

      Here, PCC did not meet its Rule 56(d) burden. PCC’s declaration stated

only in a conclusory fashion that additional discovery was “calculated to lead to

the discovery of relevant evidence pertinent to the issues” on the summary

judgment motion. PCC identified some documents it wished to receive, but failed

to “explain why those facts would have precluded summary judgment” if obtained.

Tatum, 441 F.3d at 1100. The district court did not abuse its discretion in denying

PCC’s discovery request.

                                           6
                            •   !   •

The judgment of the district court is AFFIRMED.

                                7
                                                                                  FILED
Western World Ins. Co. v. Prof’l Collection Consultants, No. 16-55470
                                                                                   JAN 02 2018
Berzon, J., dissenting:                                                        MOLLY C. DWYER, CLERK
                                                                                U.S. COURT OF APPEALS

       The question answered by Professional Collection Consultants (“PCC”)

reads, in full, as follows:

              Please answer this question only if the Applicant is
              applying for limits of insurance that exceed the expiring
              coverage currently written with CNA:

              None of the individuals to be insured under any Coverage
              Part (the “Insured Persons”) have a basis to believe that any
              wrongful act, event, matter, fact, circumstance, situation, or
              transaction, might reasonably be expected to result in or be
              the basis of a future claim? 9 Yes 9 No

       As a matter of English grammar, the answer checked – “No” – was accurate.

“No” signified that it was not true that none of the Insured Persons had reason to

expect a claim – in other words, that some Insured Persons did have reason to

expect a claim.

       I recognize that neither Western World nor PCC so read the question

initially. But the rules of grammar do not bend because of inaccurate reading, or

because of inattention to those rules when drafting an application. Whatever the

parties’ impressions or intentions, the answer was correct.

       Nor does the context of the question, as described by the majority, affect that

conclusion. First, the context may suggest that there was poor drafting, but it does
not change the meaning of a perfectly clear (if inartful) inquiry. Second, when all

of the questions on the application are considered, it becomes apparent that the

admonition at the outset indicating that “Yes” answers may require different policy

terms, thereby suggesting that “Yes” answers may indicate higher risk, did not

signify that “Yes” answers are problematic in every instance.1

      But for my persnicketiness regarding the English language, I would concur

in the majority disposition. However, as the answer was literally correct, there was

no misrepresentation, and PCC should prevail. I therefore respectfully dissent.

      1
          For example, one question is:

               Have persons supervising employees receive[d] updated
               information and training on human resource policies . . . in
               the last 12 months? 9 Yes 9 No

      Another question to the same effect is:

               Has an attorney with expertise in employment and labor
               law updated the Applicant’s employee handbook, human
               resources documents, guidelines, or procedures in the last
               12 months? 9 Yes 9 No

      For both these questions – and others – it would appear that a “Yes” answer
suggests a lower risk of claims than a “No” answer.

                                            2