Appeals court affirms policy application inaccurate

An insurer that was given inaccurate and incomplete information does not have to defend or indemnify a policyholder for damages associated with a fire, a federal appeals court said Thursday in affirming a lower court.

In December 2020, a fire broke out in a Riverside, California, property where Jose Barragan operated Popelino’s Green Waste Recycling, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Century Surety Co. v. Popelino’s Transportation Inc. et al. and D&R Woods Enterprise Corp.

The fire spread to adjacent properties, including one owned by D&R Woods, which sued a different business owned by Mr. Barragan, Popelino’s Transportation.

Southfield, Michigan-based Century Surety, a unit of Century Insurance Group Inc., had issued a general commercial liability policy that insured PTI and Mr. Barragan solely with respect to his duties as PTI’s president at the time of the fire. Century agreed to defend PTI and Mr. Barragan in the D&R lawsuit, subject to the reservation of rights.

Century filed suit in the U.S. District Court in Riverside, California, which granted its request for a declaration that it had no duty to defend or indemnify and that it was entitled to rescind the policy because of the concealment of material information in the policy application.

A three-judge appeals court panel affirmed the ruling, saying,  “The central question is whether the concealed fact could reasonably influence the insurer in deciding whether to issue the policy, in evaluating the degree of risk, or in calculating the appropriate premium.”

A Century official said in a declaration that the application stated the insured did not have any exposure to flammables; that the insurer’s inspector was told Mr. Barragan did not own or operate any other businesses at that time; and that he did not disclose his ownership of the Riverside property or any of his operations at that address. 

The official also said the insurer would not have issued the policy to PTI had it been aware of Popelino’s Green Waste Recycling’s existence and the operations at the property. Instead, it would have calculated the premium based upon the proper classification code for the recycling operations in addition to the trucking classification, according to the ruling.

The ruling said the failure to disclose these undisputed facts “constituted concealment,” and, therefore, Century was entitled to rescind the policy. “Because there is no coverage, there is also no duty to defend or indemnify,” it said.

Attorneys in the case did not respond to requests for comment.