Proof of Materiality

A Video About an Essential Element of the Rescission Remedy

Every rescission requires proof that the facts misrepresented or concealed were material.

Different courts have characterized the element of materiality differently.  For example, in Connecticut:

A fact is material . . . when . . . it would so increase the degree or character of the risk of the insurance so as to substantially influence its issuance, or substantially affect the rate of premium. Davis-Scofield v. Agricultural Insurance Co., 109 Conn. 673 at p. 678, 145 A. 38 at p. 40 (1920).

In Indiana:

The representations of the insured are material to the risk if a truthful answer would lead the insurer to decline issuing insurance or charge a higher premium.  Holtzclaw v. Bankers MutualInsurance Co., 448 N.E. 2d 55 at p. 58 (Ind. App. 3d Dist., 1983).

Imperial Casualty and Indemnity Co. v. Sogomonian, 198 Cal. App. 3d 169, 243 Cal. Rptr. 639 (Cal.App.Dist.2 02/04/1988).

Although not relevant to the issues here presented, Imperial in the same complaint also sought damages from another defendant, Larklo Dersarkisian, dba Derian Insurance Agency (Derian), for alleged negligence and fraud committed by said defendant in the preparation and submission of the defendants’ June 7, 1982, application to Imperial. That claim was not affected by the award of summary judgment against the defendants and is still awaiting trial in this action. In declarations filed in his successful opposition to Imperial’s contemporaneous motion for summary judgment against him, Derian stated that he had prepared the application based upon information given him by the defendants.

Our conclusion here should not result in an assumption by insurers that policy liability can, with impunity, be avoided or delayed by assertion of a claim for rescission. That is a tactic which is fraught with peril. Where no valid ground for rescission exists, the threat or attempt to seek such relief may itself constitute (1) a breach of the covenant of good faith and fair dealing which is implied in the policy (Fletcher v. Western National Life Ins. Co. (1970) 10 Cal. App. 3d 376, 392, 401 [89 Cal. Rptr. 78, 47 A.L.R.3d 286]) and/or (2) the commission of one or more of the unfair claims settlement practices proscribed by Insurance Code section 790.03, subdivision (h). (Emphasis added)

Mr. Sogomonian was not a nice man. He became, among others, the subject of hearings before the Congress of the United States, in S. Hrg. 104-604, May 15, 1996, Russian Organized Crime in the United States, [http://www.archive.org/stream/russianorganized00unit/russianorganized00unit_djvu.txt] where some of the testimony provided included that from U.S. Customs. Had the insurers known about the information reported to the U.S. Senate they would have been more careful in their dealings with Mr. Sogomonian. The fact that the suit was resolved by proof of rescission eliminated the need for evidence of criminal activity and arson.

The author testified in the trial which, in 40 years as a litigator and expert witness, is the first and only time he observed three armed bailiffs in the courtroom who never took their hands off their weapons. In addition, after testimony was completed, the bailiff offered to escort the author safely to the elevator;.

© 2021 – Barry Zalma

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 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 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.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com,  the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/  The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4