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Arson for Profit Scheme Defeated by Rescission

Rescission of Insurance for Innocent Misrepresentation of Material Facts


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Evidence of Arson Not Needed to Defeat Arson-for-Profit

Back 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.

  1. Mitchell represented in the application that:

  2. the property to be insured consisted of a 3,420-square-foot commercial building;

  3. the building was to be used by Mitchell as a “video production studio and offices”;

  4. the business to be conducted in the building had $20,000 in payroll and generated $300,000 in receipts;

  5. there was no existing insurance on the building;

  6. the building had no uncorrected fire code violations;

  7. the building had a burglar alarm; and

Records & Records & Filmworks, Inc. (later changed to James E. Mitchell) was the purchaser of the building.

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.

Mitchell admitted that the application for insurance submitted to United National “contained inaccuracies” that caused United National to rescind the policy but claimed that those inaccuracies were not material and were solely the fault of his brokers.

The trial court granted summary judgment in favor of United National finding as a matter of law on the undisputed facts that the information sought by United’s underwriter and denied to it by plaintiff’s false answers and omissions was material to United’s decision to provide insurance coverage.


United National based its right to rescind the policy on the California Insurance Code including section 331 that states: “Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance” and Insurance Code section 359 that similarly provides: “If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false.”

An insured’s negligent or inadvertent failure to disclose a material fact in the application that materiality is determined under “a subjective test; the critical question is the effect the truthful answers would have had on [the insurer], not on some ‘average reasonable’ insurer.”

For the purpose of rescission of an insurance policy the materiality of a misrepresentation is determined by its probable and reasonable effect upon the insurer.

The application questions in this case plainly impacted decisions on whether to insure and the premium to charge. In his response to defendant’s statement of undisputed material facts Mitchell admitted that questions concerning the ownership, size and condition of the building, the nature of the business to be conducted, and its payroll and receipts, and the existence of insurance under the FAIR Plan were factors impacting either the underwriting decision or the amount of the premium and coverage, and that his answers to these questions may have affected the decision to bind coverage and the amount of the premium.

United National’s representative, Ms. Messina, said she relied upon Mitchell’s answers to the questions, including the condition of the building, its use, and whether it was covered by insurance. Contrary to Mitchell’s argument, Ms. Messina had no obligation to verify the accuracy of the representations since she could rely on the covenant of good faith and fair dealing that required the insured to honestly apply for the insurance.

The undisputed evidence showed that there were material misrepresentations in Mitchell’s application for insurance. United National had the right to, and did, rescind the policy based on these misrepresentations. The trial court therefore properly granted summary judgment. The judgment was affirmed and United National was awarded its costs on appeal.


It is often difficult to prove that an insured was involved in an arson-for-profit scheme. Mitchell was out of the state when the fire occurred and the arsonist died in the fire he set. Evidence indicated that Robinson was only trying, on behalf of Mitchell, to sell the property to United National by destroying the building by fire. Since Robinson’s death made the intentional arson fraud difficult to prove United National decided to use the lies on the application to defeat the fraud since, although Mitchell understood fraud he did not understand insurance and lied to get the policy. The rescission established that that liars never prosper.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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