Starr Indemnity & Liability Company v. Amguard Insurance Company

Background

Starr brought the action against AMGUARD seeking declaratory and equitable relief concerning the defense and indemnity of their mutual insureds—Zoriall LLC, Anne Kihagi, and Christina Mwangi—in the underlying Smyth and Duncan lawsuits. AMGUARD asserted affirmative defenses based on alleged misrepresentation, fraud, concealment, and rescission. It also filed a third-party complaint seeking rescission of the policy and a declaration that the policy provided no coverage because Zoriall allegedly misrepresented or concealed prior litigation in its insurance application.

AMGUARD also argued that it had no duty to defend or indemnify certain underlying lawsuits because the alleged conduct occurred before the policy period, that the insureds failed to provide timely notice, and that the policy’s no-voluntary-payment provision barred Starr from recovering defense fees and costs incurred before tender.

Summary-Judgment Ruling

The court denied AMGUARD’s motion for summary judgment. Summary judgment is appropriate only when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. The court explained that credibility decisions and weighing competing evidence are generally matters for trial, not summary judgment.

Rescission and Misrepresentation

The court identified three relevant questions for rescission of an insurance policy: whether the insured misrepresented or concealed information in the application, whether the information was material, and whether the insured knew of the material misrepresentation or concealment.

The court found genuine disputes of material fact on these questions. AMGUARD relied primarily on Anna Skelly’s declaration that she reviewed the underwriting questions with Anne Kihagi and was told that Zoriall had no prior claims. Starr submitted Kihagi’s contrary declaration, as well as evidence concerning whether the insurance agency acted as Zoriall’s broker, AMGUARD’s agent, or a dual agent. The court also noted questions about when Skelly entered the underwriting information and when she spoke with Kihagi.

The court further found a factual dispute about materiality because Starr presented evidence that AMGUARD evaluated applications case by case and did not automatically reject applications reporting prior litigation. Because the court could not resolve credibility disputes on summary judgment, it denied AMGUARD’s motion as to misrepresentation and rescission.

The court designated rescission, misrepresentation, fraud, and concealment issues as the first phase of the bench trial. If AMGUARD establishes that it is entitled to rescind or that the policy is void, a second phase addressing the remaining issues will not be necessary. If the policy is not void, the court will hold a second phase.

Duty to Defend or Indemnify

AMGUARD argued that the policy did not cover the Smyth I or Duncan I lawsuits because the policy was effective from July 20, 2015, to July 20, 2016, while Duncan I was filed before the policy began and the Smyth I complaint was signed before the policy period.

The court denied summary judgment on this ground. It concluded that the record did not establish that the complaints could not trigger a duty to defend or indemnify merely because they were filed or signed near the beginning of the policy period. The complaints included allegations of continuing nuisance and negligence, and the record did not show that the alleged conduct had ceased before the complaints were filed. Starr also submitted evidence that the tenants vacated their units during the policy period.

Notice and Actual Prejudice

AMGUARD argued that it had no duty to defend or indemnify the Duncan lawsuits because Zoriall did not notify AMGUARD and AMGUARD learned of the lawsuits only eight months after judgment. AMGUARD claimed that the delay prevented it from participating in discovery, trial strategy, mediation, and settlement discussions.

The court stated that an insurer relying on late notice must show actual and substantial prejudice, not merely delayed notice or an inability to investigate or participate fully. Although the court found AMGUARD’s prejudice arguments persuasive in some respects, it concluded that summary judgment was not warranted. An AMGUARD witness testified that even if AMGUARD had received notice before judgment, it would not have defended because it believed the policy was void based on misrepresentation. That testimony created a factual question about what AMGUARD would have done with timely notice.

Pre-Tender Defense Fees and Costs

AMGUARD relied on the policy’s no-voluntary-payment provision, which stated that an insured could not voluntarily make payments, assume obligations, or incur expenses without AMGUARD’s consent, except for first aid. AMGUARD argued that this provision barred Starr from recovering defense fees and costs incurred before tender.

The court cited authority stating that an insured’s failure to tender or comply with a policy provision does not necessarily defeat a coinsurer’s claim for equitable contribution. Equitable contribution is an insurer’s claim for a fair share of defense or indemnity costs from another insurer. The court stated that the issue would depend in part on whether AMGUARD could show prejudice from late notice and noted that AMGUARD had not cited authority establishing that the no-voluntary-payment provision barred another insurer’s equitable-contribution claim. The court therefore denied AMGUARD’s motion for summary judgment on this issue as well.

Sealing and Final Disposition

The court determined that the materials discussed in Starr’s administrative motions to seal should be filed in the public record, except Exhibit 5 to the Mandegary Declaration. The court advised AMGUARD that if Exhibit 5 is admitted at trial, it will be placed in the public record, although redactions may be permitted.

Judge Susan Illston denied AMGUARD’s motion for summary judgment. The court ordered the rescission, misrepresentation, fraud, and concealment issues to be addressed in Phase 1 of the bench trial beginning April 11, 2022, with a possible Phase 2 if necessary.