California Civil Jury Instructions (CACI)

2308. Rescission for Misrepresentation or Concealment in Insurance Application - Essential Factual Elements

[Name of insurer] claims that no insurance contract was created because [name of insured] [concealed an important fact/made a false representation] in [his/her/its] application for insurance. To establish this claim, [name of insurer] must prove all of the following:

1. That [name of insured] submitted an application for insurance with [name of insurer];

2. That in the application for insurance [name of insured] [intentionally] [failed to state/represented] that [insert omission or alleged misrepresentation];

3. [That the application asked for that information;]

4. That [name of insured] [select one of the following:]

[knew that [insert omission];]

[knew that this representation was not true;]

5. That [name of insurer] would not have issued the insurance policy if [name of insured] had stated the true facts in the application;

6. That [name of insurer] gave [name of insured] notice that it was rescinding the insurance policy; and

7. That [name of insurer] [returned/offered to return] the insurance premiums paid by [name of insured].

New September 2003; Revised April 2004, October 2004

Directions for Use

Use the bracketed word “intentionally” for cases involving Insurance Code section 2071.

Element 3 applies only if plaintiff omitted information, not if he or she misrepresented information. Elements 5 and 6 may be resolved by the language of the complaint, in which case these could be decided as a matter of law. (Civ. Code, § 1691.)

If the insured’s misrepresentation or concealment in the insurance application is raised as an affirmative defense by the insurer, this instruction may be modified for use. The elements of the defense would be the same as stated above.

If it is alleged that omission occurred in circumstances other than a written application, this instruction should be modified accordingly.

Sources and Authority

  • Civil Code section 1689(b)(1) provides that a party may rescind a contract under the following circumstances: “If the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party.”
  • Insurance Code section 650 provides: “Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this part such right may be exercised at any time previous to the commencement of an action on the contract. The rescission shall apply to all insureds under the contract, including additional insureds, unless the contract provides otherwise.”
  • Insurance Code section 330 provides: “Neglect to communicate that which a party knows, and ought to communicate, is concealment.”
  • Insurance Code section 331 provides: “Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance.”
  • Insurance Code section 332 provides: “Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.”
  • Insurance Code section 334 provides: “Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.”
  • Insurance Code section 338 provides: “An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.”
  • Insurance Code section 359 provides: “If a representation is false in a material point . . . the injured party is entitled to rescind the contract from the time the representation becomes false.”
  • “When the [automobile] insurer fails . . . to conduct . . . a reasonable investigation [of insurability] it cannot assert . . . a right of rescission” under section 650 of the Insurance Code as an affirmative defense to an action by an injured third party. (Barrera v. State Farm Mutual Automobile Insurance Co. (1969) 71 Cal.2d 659, 678 [79 Cal.Rptr. 106, 456 P.2d 674].)
  • “[A]n insurer has a right to know all that the applicant for insurance knows regarding the state of his health and medical history. Material misrepresentation or concealment of such facts [is] grounds for rescission of the policy, and an actual intent to deceive need not be shown. Materiality is determined solely by the probable and reasonable effect [that] truthful answers would have had upon the insurer. The fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law.” (Thompson v. Occidental Life Insurance Co. of California (1973) 9 Cal.3d 904, 915—916 [109 Cal.Rptr. 473, 513 P.2d 353], internal citations omitted.)
  • “[I]f the applicant for insurance had no present knowledge of the facts sought, or failed to appreciate the significance of information related to him, his incorrect or incomplete responses would not constitute grounds for rescission. Moreover, ‘[questions] concerning illness or disease do not relate to minor indispositions but are to be construed as referring to serious ailments which undermine the general health.’ Finally, as the misrepresentation must be a material one, ‘incorrect answer on an insurance application does not give rise to the defense of fraud where the true facts, if known, would not have made the contract less desirable to the insurer.’ And the trier of fact is not required to believe the ‘post mortem’ testimony of an insurer’s agents that insurance would have been refused had the true facts been disclosed.” (Thompson, supra, 9 Cal.3d at p. 916, internal citations omitted.)
  • “[T]he burden of proving misrepresentation [for purposes of rescission] rests upon the insurer.” (Thompson, supra, 9 Cal.3d at p. 919.)
  • “The materiality of a representation made in an application for a contract of insurance is determined by a subjective standard (i.e., its effect on the particular insurer to whom it was made) and rescission will be allowed even though the misrepresentation was the result of negligence or the product of innocence. On the other hand, in order to void a policy based upon the insured’s violation of the standard fraud and concealment clause . . . , the false statement must have been knowingly and wilfully made with the intent (express or implied) of deceiving the insurer. The materiality of the statement will be determined by the objective standard of its effect upon a reasonable insurer.” (Cummings v. Fire Insurance Exchange (1988) 202 Cal.App.3d 1407, 1415, fn.7 [249 Cal.Rptr. 568], original italics, internal citation omitted.)
  • “Cancellation and rescission are not synonymous. One is prospective, while the other is retroactive.” (Fireman’s Fund American Insurance Co. v. Escobedo (1978) 80 Cal.App.3d 610, 619 [145 Cal.Rptr. 785].)
  • “[U]pon a rescission of a policy of insurance, based upon a material concealment or misrepresentation, all rights of the insured thereunder (except the right to recover any consideration paid in the purchase of the policy) are extinguished …” (Imperial Casualty & Indemnity Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 184 [243 Cal.Rptr. 639].)
  • “The consequence of rescission is not only the termination of further liability, but also the restoration of the parties to their former positions by requiring each to return whatever consideration has been received… [T]his would require the refund by [the insurer] of any premiums and the repayment by the defendants of any proceed advance which they may have received.” (Imperial Casualty & Indemnity Co., supra, 198 Cal.App.3d at p. 184, internal citation omitted.)

Secondary Sources

Croskey et al., California Practice Guide: Insurance Litigation (The Rutter Group) ΒΆΒΆ 5:143—5:146, 5:153—5:159.1, 5:160—5:287, 15:241—15:256

2 California Liability Insurance Practice: Claims & Litigation (Cont.Ed.Bar) Rescission and Reformation, §§ 21.2—21.12, 21.35—21.37

2 California Insurance Law & Practice, Ch. 8, The Insurance Contract, § 8.10[1] (Matthew Bender)

2 California Uninsured Motorist Law, Ch. 24, Bad Faith in Uninsured Motorist Law, § 24.40 (Matthew Bender)

26 California Forms of Pleading and Practice, Ch. 308, Insurance (Matthew Bender)

12 California Points and Authorities, Ch. 120, Insurance, §§ 120.250—120.251, 120.260 (Matthew Bender)