YouTube Video About: Agent or Broker Can Be Liable for False Statements on Application

Insurer Entitled to Damages for Fraud From Broker

Insurance brokers and agents often find themselves in trouble because of the rescission statutes.

In Century Surety Co. v. Crosby Insurance, Inc., 124 Cal.App.4th 116, 21 Cal.Rptr.3d 115 (Cal.App. Dist.4 11/17/2004) an insurance broker found himself in trouble and a defendant because of California’s draconian rescission statutes. Video available at

Century Surety Company (Century) sued the broker, Crosby Insurance, Inc. (Crosby) only to have a demurrer sustained without leave to amend. In the underlying action (the Charlebois action), Baroco West, Inc., Ralph Roach, Rick Bausher, and Highpoint Development and Construction (hereafter referred to collectively as Baroco) were named as defendants in a complaint filed on July 1, 1998, seeking damages for construction defects against Baroco as the general contractor of a single-family residence. Baroco tendered its defense to Century, and Century, as Baroco’s liability insurer, initially undertook the defense of the Charlebois action under a reservation of rights. However, after Century determined that information in Baroco’s insurance application concerning its loss history was false, Century withdrew its defense, and Baroco sued Century and others not parties to this appeal.

It would be an unreasonable, if not a perverse result, if the law allowed an insurer no remedy against a broker who has, as is alleged in the cross-complaint, actively forged documents to support an insurance application. One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.

California courts have made clear that the right of rescission established in the Insurance Code is not an insurer’s exclusive remedy against an insured. This specification in the Insurance Code of circumstances under which a party to an insurance contract may rescind does not mean that rescission in any such case is the exclusive remedy. The cross-complaint pleaded reliance on the application and resulting damages. Thus, the cross-complaint pleaded all the necessary elements to establish a cause of action for negligence.

The California Court of Appeal concluded that policy reasons supported imposing a duty on insurance brokers to exercise reasonable care in preparing insurance applications under the facts alleged in the cross-complaint.

© 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 52 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 52 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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