Western World Insurance Co. v. Prof'l. Collection Consult.
16-55470
| 9th Cir. | Jan 2, 2018Background
- In Aug. 2013 the FBI executed a search warrant at Professional Collection Consultants (PCC); investigators later subpoenaed PCC employees and PCC produced thousands of documents.
- In Feb. 2014 PCC applied for D&O insurance from Western World; PCC submitted a CNA renewal application form that included a question about whether any insureds had reason to expect a future claim. PCC checked "No."
- The application form instructions stated that a "Yes" answer would require detailed information and could lead to different terms; PCC provided no explanatory information with its "No" answer.
- Western issued the policy, then moved in 2015 to rescind it, asserting PCC materially misrepresented its knowledge of circumstances (the federal investigation) that could give rise to a claim.
- The district court granted Western's summary judgment motion rescinding the policy and denied PCC’s request for additional discovery; PCC appealed. The Ninth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Western) | Defendant's Argument (PCC) | Held |
|---|---|---|---|
| Whether PCC made a material misrepresentation in answering the application question | PCC’s "No" was misleading because, in context, it signified PCC was not aware of any circumstances that might lead to a claim; truthful disclosure would have affected underwriting | The literal answer "No" was grammatically correct and therefore not a misrepresentation; context does not change the accurate literal meaning | The answer was a material misrepresentation; court sided with Western |
| Whether the withheld information was material to underwriting | Materiality is judged from insurer's perspective; uncontroverted underwriter declaration that disclosure would have prevented issuance establishes materiality | PCC argued the question applied only to applicants seeking increased limits and thus was immaterial to its application | Material: nature of the investigation related to the risk insured and underwriter declared it would have declined or altered coverage |
| Whether Western waived rescission or delayed unreasonably | Western moved to rescind only after learning of the investigation; courts permit rescission when insurer discovers misrepresentation post-issuance | PCC argued Western delayed or waived rescission by issuing the policy | No waiver or unreasonable delay; rescission permitted after discovery of misrepresentation |
| Whether PCC was entitled to additional discovery under Fed. R. Civ. P. 56(d) before summary judgment | N/A (Western opposed delay) | PCC sought discovery to oppose summary judgment, but failed to specify facts to be obtained and why they would preclude summary judgment | Denial of additional discovery affirmed; PCC did not meet Rule 56(d) requirements |
Key Cases Cited
- Thompson v. Occidental Life Ins. Co., 513 P.2d 353 (Cal. 1973) (materiality determined by probable effect truthful answers would have had on insurer)
- U.S. Fid. & Guar. Co. v. Lee Invs. LLC, 641 F.3d 1126 (9th Cir.) (rescission renders policy unenforceable ab initio)
- Superior Dispatch, Inc. v. Ins. Corp. of N.Y., 104 Cal. Rptr. 3d 508 (Ct. App. 2010) (insurer’s uncontroverted underwriting declaration can establish materiality on summary judgment)
- Taylor v. Sentry Life Ins. Co., 729 F.2d 652 (9th Cir. 1984) (courts examine nature of withheld information when assessing materiality)
- Family Home & Fin. Ctr., Inc. v. Fed. Home Loan Mortg. Corp., 525 F.3d 822 (9th Cir. 2008) (Rule 56(d) requires affidavit specifying facts sought and why they are essential)