Insurer may Rescind a Policy based on a Misrepresentation by an Insurance Broker

Material Misrepresentation Allows for Rescission Defense of Suit Against Insurer

California allows rescission of an insurance policy for misrepresentation or concealment of a material fact, even if made innocently with no intention to deceive the insurer. An insurer may not sue to obtain an order confirming rescission if the insured sues first. The insurer may then, only, assert rescission as a defense.

In Endurance American Specialty Insurance Company v. Bennington Group, LLC et al., B285909, Court Of Appeal Of The State Of California Second Appellate District Division Five (January 31, 2020) Bennington Group, LLC (Bennington), Bennington Group West, Inc. (Bennington West), Abul Shah,  and NRG Delta, LLC (NRG)  sought payment on an insurance policy issued to Bennington by Endurance American Specialty Insurance Company (Endurance). Endurance sought to rescind the insurance policy, contending that Bennington had made material misstatements in its application for insurance. The trial court granted Endurance summary judgment on its affirmative defense of rescission and the Bennington defendants and NRG appealed.


Shah formed Bennington West in order to pursue recovery projects in California. Sometime after he formed Bennington West, Shah asked NRG if it would agree to transfer the Project to Bennington West. NRG declined.

Shah contacted an insurance broker (broker) for assistance in obtaining commercial general liability insurance for Bennington West.  The broker (a person who transacts insurance with, but not on behalf of, an insurer) forwarded an email, without comment, to Arrowhead Wholesale Insurance Services, LLC (Arrowhead), a wholesale insurance broker.

Lai contacted the broker and requested that it procure commercial general liability insurance for Bennington instead of Bennington West. The broker did not “go back through” the application to determine if any of the responses needed to be changed although the applicant was Bennington rather than Bennington West. The broker provided Bennington’s insurance application to Arrowhead who forwarded the application to Endurance’s managing general underwriter, Freberg Environmental Insurance (Freberg). Bennington signed the application, representing that the answers were true. But the application contained a number of misstatements, including Bennington’s response to questions in the section entitled “Company History.”

On demand from the insurer Shah wrote to the underwriter “[w]e have had no known general liability losses in the last 5 years. [¶] Please let us know if you need additional information.” Thereafter, Endurance issued an insurance policy to Bennington for the period of July 16, 2010, to July 16, 2011 (Insurance Policy). The Insurance Policy included $7 million commercial general liability coverage, $1 million contractor’s pollution liability coverage, and $1 million professional liability coverage.

On December 23, 2010, NRG terminated the NRG-Bennigton Contract and barred Bennington from working on the Project. On January 3, 2011, Bennington filed a complaint against NRG, alleging numerous causes of action including conversion and quantum meruit (NRG-Bennington Lawsuit). Bennington later added a cause of action for breach of contract. On April 11, 2016, the trial court entered judgment against Bennington and Bennington West for approximately $10.9 million.

Summary Judgment on Rescission

On January 17, 2017, Endurance filed its motion for summary judgment on its rescission cause of action, arguing that it was entitled to rescind the Insurance Policy as a matter of law because Bennington had made material misstatements on the insurance application. In support of its motion, Endurance submitted Bennington’s insurance application as well as a declaration from Renee Miller, chief underwriting officer at Freberg.

The trial court found that Bennington’s misstatement about its date of establishment was material because “[a] new business with no track record for the underwriter to evaluate is a fundamentally different risk (albeit an applicant with certain risks associated with its very newness) from the risks associated with a going business with a potential claims history worthy of inquiry and evaluation.” The trial court also concluded that a number of other misstatements in the insurance application were material.

The trial court entered judgment in favor of Endurance and against the Bennington defendants and NRG.


When a policyholder conceals or misrepresents a material fact on an insurance application, the insurer is entitled to rescind the policy. Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract. (Ins. Code, § 332.) A rescission effectively renders the policy totally unenforceable from the outset so that there was never any coverage and no benefits are payable. (Imperial Casualty [& Indemnity Co. v. Sogomonian (1988)] 198 Cal.App.3d [169,] 182 [(Imperial Casualty)].) and (LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1266-1267 (LA Sound).]

An insurer may rescind a contract based on a misrepresentation made by an insurance broker on behalf of the insured. (Superior Dispatch, Inc. v. Insurance Corp. of New York (2010) 181 Cal.App.4th 175, 192.) Moreover, an insurer may rescind a policy even if the misrepresentation was unintentionally made. An insurer may also raise rescission as an affirmative defense in an answer to an insured’s complaint for breach of contract.

An insurer has no obligation to verify the accuracy of the representations in an insurance application.

Endurance met its burden of demonstrating that it was entitled to the affirmative defense of rescission based on Bennington’s material misrepresentation as to its date of establishment. The Bennington defendants and NRG did not meet their burden of raising a triable issue of material fact as to that defense.

Endurance therefore was, therefore, entitled to summary judgment.


It is strange, especially in California, that a businessman would misrepresent or conceal material facts when applying for insurance. Since California allows rescission even if the facts misrepresented or concealed were made innocently and without an intent to deceive. Bennington misrepresented multiple material facts, not the least of which was its time of existence, were sufficient to allow the policy to be rescinded from its inception.

© 2020 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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