Duarte v. Pacific Specialty Ins.
A143828
| Cal. Ct. App. | Jun 29, 2017Background
- In April 2012 Victor Duarte applied for and immediately received a landlord liability policy from Pacific Specialty Insurance for a rental property in Oakland; his application included underwriting questions 4 and 9.
- Question 4 asked (ambiguously) whether "damage remained unrepaired from previous claim and/or pending claims, and/or known or potential (a) defects, (b) claim disputes, (c) property disputes, and/or (d) lawsuits?" Question 9 asked whether any type of business was conducted on the premises.
- Before applying, Duarte had served a 45-day quit notice to tenant Jennifer Pleasants (who had lived there since ~2010) and corresponded with the City of Oakland Rent Adjustment Program about a landlord–tenant dispute; Pleasants later filed a tenant petition and then a superior-court suit alleging habitability defects.
- Pacific denied defense of the tenant suit and moved for summary judgment asserting it could rescind the policy due to Duarte’s alleged material misrepresentations (answers of "no" to Q4 and Q9); the trial court granted Pacific’s motion and denied Duarte’s motion for declaratory relief.
- On appeal the Court of Appeal reviewed whether Pacific met its initial burden to show Duarte made material misrepresentations and that truthful answers would have prevented issuance of the policy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Pacific established as a matter of law it could rescind the policy based on Duarte’s "no" answers to application Q4 (claims/disputes/lawsuits) | Duarte: Q4 is ambiguous and reasonably read as asking only about unrepaired damage from prior insurance claims; he had no unrepaired damage and thus answered truthfully | Pacific: Q4 should be read broadly to require disclosure of pending claims, disputes, or lawsuits involving the property; Duarte knew of a tenant dispute and thus misrepresented material facts | Court: Q4 is ambiguous and reasonably read as tied to unrepaired damage; Pacific did not meet its burden to show Duarte misrepresented a material fact under Q4 |
| Whether Pacific established Duarte misrepresented that no business was conducted on the premises (Q9) | Duarte: He reasonably read Q9 to mean ongoing/regular business; evidence shows only occasional sales/activities, so there is at least a triable issue | Pacific: Evidence (deposition, Rent Program correspondence) shows tenant conducted a welding/motorcycle-parts activity; Duarte knew and answered falsely | Court: Duarte’s reasonable interpretation is plausible and evidence does not conclusively show an ongoing business at application time; Pacific failed to meet its burden |
| Whether insurer’s invocation of rescission at summary judgment was procedurally proper without separate rescission pleading or prior rescission notice | Duarte: Rescission requires specific notice and restoration offer; an answer claiming rescission is insufficient | Pacific: Rescission was pleaded as an affirmative defense; serving a pleading asserting rescission suffices under Civ. Code §1691; Duarte waived pleading defects by litigating the defense | Court: Pacific’s procedural use of rescission by motion was proper; pleading and statutory notice/offer requirements were satisfied by its answer and conduct |
| Whether trial court’s evidentiary rulings (admitting Rent Program records) were an abuse of discretion | Duarte: Oakland records were unauthenticated hearsay and inadmissible | Pacific: Records are Rent Program business records and admissible; Duarte’s deposition corroborated key items | Court: Trial court did not abuse its discretion admitting those records, but even with them Pacific still failed to establish rescission as a matter of law |
Key Cases Cited
- Thompson v. Occidental Life Insurance Co., 9 Cal.3d 904 (1973) (insurance misrepresentation materiality measured by probable effect of truthful answers)
- Imperial Casualty & Indemnity Co. v. Sogomonian, 198 Cal.App.3d 169 (1988) (rescission renders policy unenforceable from inception)
- Haskel, Inc. v. Superior Court, 33 Cal.App.4th 963 (1995) (insurer’s duty to defend arises when potential for coverage exists)
- Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (2001) (summary judgment burdens and allocation of proof)
- Waller v. Truck Ins. Exch., 11 Cal.4th 1 (1995) (insurance policy interpretation and ambiguity rules)
- O'Riordan v. Federal Kemper Life Assurance, 36 Cal.4th 281 (2005) (reasonable construction of application questions can defeat misrepresentation claim)