Starr Indemnity & Liability Company v. Amguard Insurance Company
- Susan Illston
- 3:20-cv-00959
- U.S. District Court · Northern District of California
- 22
In Starr Indemnity v. AmGUARD, Judge Illston held that AmGUARD could rescind Zoriall’s policy and owed nothing for two lawsuits.
Starr Indemnity & Liability Company could not recover defense costs, settlement payments, contribution, subrogation, or indemnity from AmGUARD. AmGUARD was entitled to rescind its policy issued to Zoriall LLC and had no duty to defend or indemnify the Duncan or Smyth lawsuits. The opinion also affected Zoriall LLC, Anne Kihagi, and Christine Mwangi as the insured parties involved in the underlying lawsuits.
What happened
Starr Indemnity & Liability Company and AmGUARD Insurance Company issued policies covering Zoriall LLC during different periods. Starr sought reimbursement from AmGUARD for defense costs and settlement payments after defending Zoriall and its members in the Duncan and Smyth lawsuits. AmGUARD sought to cancel its policy because Zoriall’s insurance application answered “no” to a question about prior litigation.
The court found that Zoriall was involved in four lawsuits when it applied for AmGUARD’s policy and that Anne Kihagi, Zoriall’s managing member, knew about at least three of them. The court also found that the prior litigation was important to AmGUARD’s underwriting and that AmGUARD would not have issued the policy if the application had answered “yes.” The court rejected Starr’s arguments that AmGUARD had waited too long, gave up its right to cancel the policy, or should be prevented from doing so because of its conduct.
The court ruled that AmGUARD was entitled to rescind Zoriall’s policy, meaning the policy was treated as void from the beginning. AmGUARD therefore had no duty to defend or pay for the Duncan or Smyth lawsuits, and Starr was not entitled to reimbursement, contribution, subrogation, or indemnity from AmGUARD. Judge Susan Illston also stated that there would be no second trial phase and directed the parties to report whether anything else was needed before final judgment.
The detailed version
- Starr Indemnity & Liability Company v. Amguard Insurance Company · No. 3:20-cv-00959
- Susan Illston
- Jan. 24, 2023
Background
Starr and AmGUARD issued insurance policies to Zoriall LLC covering different periods. Starr sought declaratory relief and equitable contribution, subrogation, and indemnity from AmGUARD based on Starr’s defense of the Zoriall defendants in the Duncan and Smyth lawsuits. AmGUARD filed a counterclaim against Starr and a third-party complaint against Zoriall LLC, Anne Kihagi, Christine Mwangi, Dale Duncan, and Marta Munoz Mendoza. AmGUARD sought rescission of its policy based on an alleged misrepresentation in Zoriall’s insurance application, along with declarations about its defense and indemnity obligations.
The court divided the bench trial into phases. Phase I addressed AmGUARD’s rescission claim and its defenses based on misrepresentation, fraud, and concealment, as well as Starr’s defenses to rescission.
Findings About the Application
The AmGUARD application asked whether the applicant had experienced a foreclosure, repossession, bankruptcy, judgment, tax lien, business failure, or litigation during the previous five years. The application answered “no.” The court found that Zoriall was involved in four lawsuits at the time of the application: Duncan I, the Duncan unlawful-detainer action, the City Action, and the Reggars Action.
The court found that Zoriall, through Kihagi, knew about Duncan I, the Duncan unlawful-detainer action, and the City Action before obtaining the policy. The Zoriall defendants did not disclose any of those lawsuits, or the Reggars Action, during the application process.
The court found Skelly, the PV Insurance employee who submitted the application, more credible than Kihagi. It found that Skelly reviewed the underwriting questions with Kihagi before the policy was issued and that Kihagi responded “no” to the question about prior litigation. The court also found that Skelly’s status as Zoriall’s broker or AmGUARD’s agent did not change the result because Kihagi misrepresented and concealed the prior litigation from Skelly.
AmGUARD’s Underwriting and Rescission
The court found that AmGUARD would not issue a businessowner’s policy to an applicant that had litigation during the previous five years. A “yes” answer to the prior-litigation question would have resulted in an automatic declination. The court therefore found the undisclosed litigation material to AmGUARD’s underwriting decision.
Under the court’s analysis of California insurance law, an insurer may rescind an insurance policy when the insured misrepresents or conceals a material fact in the application, even without proof that the insured intended to deceive. The court concluded that AmGUARD proved a material misrepresentation and was entitled to rescind the Zoriall policy. The policy was void from the beginning, so there was no coverage for the Duncan or Smyth lawsuits.
Starr’s Defenses
The court rejected Starr’s defenses of laches, waiver, and equitable estoppel. Laches is an unreasonable delay that causes prejudice; the court found that AmGUARD’s investigation and delay in asserting rescission were not unreasonable and that Starr had not shown prejudice. Waiver requires intentional relinquishment of a known right; the court found that AmGUARD did not learn of the misrepresentation until its investigation and had defended the Smyth lawsuits under a full reservation of rights. The court also found that Starr did not rely to its detriment on AmGUARD’s conduct because Starr began defending the lawsuits before learning of the AmGUARD policy and later proceeded after AmGUARD stopped participating.
Conclusion and Disposition
The court concluded that AmGUARD was entitled to rescind the Zoriall policy and therefore had no obligation to defend or indemnify the Duncan or Smyth lawsuits. Starr was not entitled to reimbursement, contribution, subrogation, or indemnity from AmGUARD for the defense costs or Smyth settlement amount, and was not entitled to those forms of relief for the Duncan defense costs. The court stated that there would be no Phase II trial and ordered the parties to file a joint letter addressing whether further proceedings were necessary or final judgment could be entered. Judge Susan Illston signed the findings of fact and conclusions of law on January 24, 2023.
Read the full 22-page opinion on CourtListener, the free public archive maintained by the Free Law Project.