American Alternative Insurance Corporation v. Warner
- Kandis Westmore
- 4:19-cv-04628
- U.S. District Court · Northern District of California
- 8
In American Alternative Insurance Corporation v. Warner, Judge Westmore denied defendants’ motion to dismiss the insurer’s claims seeking to rescind a professional-liability policy.
American Alternative Insurance Corporation, John G. Warner, and Law Offices of John G. Warner. The court denied the defendants’ motion to dismiss the insurer’s complaint.
What happened
American Alternative Insurance Corporation sued John G. Warner and Law Offices of John G. Warner over a professional-liability insurance policy. The insurer alleged that the defendants failed to disclose circumstances that might lead to a malpractice claim when applying for the policy.
The defendants asked the court to dismiss the complaint, arguing that no claim existed when they applied, that the application’s language about potential claims was unclear, and that the insurer would still have to defend some claims. The insurer sought rescission of the entire policy, along with related relief.
Judge Kandis Westmore denied the defendants’ motion to dismiss. The court held that the insurer’s theory did not depend on an already-filed claim, that the relevant “might” language was not unclear, and that the argument about defending other claims did not justify dismissal of a request to rescind the entire policy.
The detailed version
- American Alternative Insurance Corporation v. Warner · No. 4:19-cv-04628
- Kandis Westmore
- Dec. 3, 2019
Background
American Alternative Insurance Corporation sued John G. Warner and Law Offices of John G. Warner. The insurer sought to rescind a lawyers’ professional-liability insurance policy and also sought relief for breach of warranty, a declaration that it had no duty to defend, and a declaration that it had no duty to indemnify.
The complaint alleged that the defendants represented certain clients in litigation and later filed a malpractice lawsuit for those clients against another law firm. That lawsuit was dismissed on statute-of-limitations grounds. The defendants then applied to renew their professional-liability policy and answered “No” when asked whether they were aware of legal work or incidents that might be expected to lead to a claim or suit. They also stated that they were unaware of circumstances that might give rise to a claim.
The insurer alleged that the defendants knew of circumstances that might lead to a malpractice claim against them when they submitted the application. The defendants later tendered to the insurer a malpractice claim brought by their clients. The insurer continued to provide a defense in that litigation and then filed this action seeking to rescind the policy.
Motion to Dismiss
The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts and a legally recognized theory of relief. They made three arguments.
First, the defendants argued that the clients had not made a “claim” before the insurance application was submitted. The court rejected this argument because the insurer was not relying on an already-made claim. Instead, the insurer alleged that the defendants knew of legal work or incidents that might be expected to lead to a claim or lawsuit.
Second, the defendants argued that language concerning “potential” claims was ambiguous and therefore unenforceable. The court disagreed. It found that the application’s requirement to disclose legal work or incidents that “might be expected to lead to a claim or suit” was not ambiguous. The court relied on California decisions treating similar language as clear.
Third, the defendants argued that the insurer would have to defend the entire malpractice action because only one of several claims was related to the allegedly untimely malpractice lawsuit. The court found that this argument did not support dismissal because the insurer was seeking rescission of the entire policy, not merely to avoid defending one claim. The court explained that rescission operates retroactively and, if granted, would make the policy unenforceable from the beginning.
Disposition
Judge Kandis Westmore denied the defendants’ motion to dismiss. The order did not decide whether the insurer was ultimately entitled to rescind the policy or obtain the other requested relief; it decided only that the complaint was not subject to dismissal at this stage.
Read the full 8-page opinion on CourtListener, the free public archive maintained by the Free Law Project.