Arson for Profit Scheme Defeated by RescissionPosted on September 14, 2023 by Barry Zalma Rescission of Insurance for Innocent Misrepresentation of Material Facts
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in 2001 I examined James E. Mitchell under oath on behalf of his
insurer, United National Insurance Company who admitted to
misrepresenting material facts when he applied for the insurance. As a
result of that EUO and the testimony of the underwriter, United National
decided to rescind the policy rather than accuse him of fraud and arson
for profit, but still refuse his claim for fire damage and offered to
return the premium he paid. Of course, in an expression of “chutzpah”
(unlimited gall) he sued only to have the court conclude the rescission
was appropriate.
In James E. Mitchell, Individually and as Trustee of the Mitchell Family Trust v. United National Insurance Company,
No. B170364, Court of Appeal, Second District, Division 5, 25
Cal.Rptr.3d 627, 127 Cal.App.4th 457 (March 8, 2005) the Court of Appeal
established a standard for dealing with rescission of an insurance
policy. It concluded that an insurer may, under Insurance Code sections
331 and 359, rescind a fire insurance policy based on an insured’s
negligent or unintentional misrepresentation of a material fact in an
insurance application. Because there was undisputed evidence that the
insurer relied upon the misstatements of material facts in the insured’s
application for insurance, the summary judgment granted by the trial
court was affirmed.
During the policy period, the building was destroyed by arson. The
arsonist, an acquaintance of Mitchell’s, perished in the fire. The trial
court granted summary judgment. Mitchell purchased the building in
February 2000 in the name of his trust. On April 11, 2000, Mitchell’s
brokers applied for insurance to Debra Messina of Excess & Surplus
Lines Insurance Brokers, Inc., an authorized underwriter for United
National.
Mitchell represented in the application that:
In fact, the seven representations were false including the fact that
the building was subject to a City of Los Angeles abatement order
stating that the building could not be occupied without a clearance or
repaired without a permit and contained such deficiencies as being open
to unauthorized entry, littered with combustible debris, excessive dry
weeds or vegetation, broken windows, damaged or missing doors, damaged
exterior wall covering, damaged interior wall and ceiling covering, and
deteriorated flooring (and no permit had been obtained for corrective
work on these deficiencies).
Carl Robinson a business consultant with a prospective buyer for the
property. Mitchell gave Robinson the keys to the property for the
purpose of showing it to the prospective buyer. On November 22, 2000,
while Mitchell was in Chicago, Robinson set fire to the building and was
killed in the ensuing blaze.
Although evidence indicated that Mitchell retained Robinson to burn
the building, his death in the fire, made proving Robinson and Mitchell
were working an arson-for-profit scheme, United National limited its
denial of Mitchell’s claim on the ground that it had rescinded the
policy based on material misrepresentations in Mitchell’s application
for insurance.