Avoiding Arguments Regarding Waiver Of The Right To Rescind: An Examination Of California Law

Although rescission issues most frequently arise in connection with health and life insurance policies, they can appear in virtually any context. See, e.g., Unionamerica Ins. Co. v. Fort Miller Group, Inc. (N.D. Cal. 2008) 590 F. Supp. 2d 1254 (commercial general liability policy); Blum Collins LLP v. NCG Prof'l Risks, Ltd. (C.D. Cal. Jul. 31, 2014) 2014 U.S. Dist. LEXIS 109915 (professional liability policy). Thus, it is important to understand the necessary steps for properly rescinding an insurance policy, especially so that arguments over waiver of the right to rescind can be avoided.

Recently, in DuBeck v. California Physicians' Service (2015) 234 Cal. App. 4th 1254, the California Court of Appeal noted that an insurer can waive its right to rescind an insurance policy if it does not promptly investigate suspicious facts within its knowledge, even if those facts do not, on their face, establish a proper basis for rescission. Id. at 1267 ("[a]ctual knowledge...is not essential to establish a waiver...[i]t is sufficient that [an] insurer has information which if pursued with reasonable diligence would lead to the discovery of the breach.") (citations omitted). DuBeck also provides guidance on the steps an insurer should take once it has established that rescission is proper. Accordingly, DuBeck is a case any claims representative considering rescission should be aware of.

In DuBeck, the insured represented that she had never received professional advice or treatment for breast cancer despite being diagnosed with breast cancer five days earlier. Shortly after the policy went into effect, the insurer began receiving medical bills related to the insured's breast cancer surgery. Despite the receipt of these invoices, the insurer waited over a year to investigate the insured's medical history and to attempt to rescind the policy. Under these circumstances, the DuBeck court found that the insurer had waived the right to rescind. 234 Cal. App. 4th at 1267.

In rare cases, courts have gone further than DuBeck. For example, in Mao Xiong v. Lincoln Nat'l Life Ins. Co. (E.D. Cal. May 28, 2009) 2009 U.S. Dist. LEXIS 45280, the insurer argued that the insured's concealment of his other policies of insurance was a material misrepresentation because the insurer never would have issued coverage had it known the truth. Finding that any right to rescind based on the insured's failure to disclose his additional policies was waived even if material, the...