Liars Never Prosper
No Coverage for Loss at Unidentified Property
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Posted on December 9, 2021 by Barry Zalma
Dignity Housing West is a California nonprofit corporation that provides low-income housing. Describing itself as a housing developer and listing its only premises as 200 square feet of office space, it applied for and received a commercial general liability insurance policy from Atain Specialty Insurance In Atain Specialty Insurance Company v. Dignity Housing West, Inc., a California nonprofit corporation, No. 21-15127, United States Court of Appeals, Ninth Circuit (December 3, 2021) the Ninth Circuit dealt with a claim seeking defense and indemnity for a loss at a property not identified at the time the policy was acquired.
FACTS
Though the application asked whether Dignity conducted any “lodging operations including apartments,” Dignity did not disclose the three apartment buildings it owned or maintained.
After a deadly fire broke out at Dignity’s apartment building on San Pablo Avenue in Oakland, Dignity was named in several lawsuits by former tenants. Atain initially tendered defense to Dignity in those actions, but it subsequently withdrew.
Atain sued seeking a declaration that the policy did not cover the San Pablo building. The district court granted summary judgment in Atain’s favor, concluding that the policy did not cover the apartment building and that even if it did, omissions in Dignity’s application entitled Atain to rescind the policy
ANALYSIS
On Dignity’s insurance application, it disclosed only 200 square feet of office space and represented it was a tenant. The Commercial General Liability Supplemental Declarations page of the policy lists that space as the only premises that Dignity owns, rents, or occupies.
A Dignity officer stated in a deposition that Dignity actually owned the building where the office was located as well as the apartment where the fire occurred.
The Ninth Circuit made clear that information in policy declarations controls the scope of insurance coverage. If the declarations indicate that the policy does not provide coverage, “no further review of the policy is necessary.” [Fidelity &Deposit Co. v. Charter Oak Fire Ins. Co., 78 Cal.Rptr.2d 429, 432 (Cal.Ct.App. 1998).]
Because nothing in the Declaration supports the view that the policy applied to any of Dignity’s three undisclosed apartment buildings, the policy did not cover the San Pablo building.
The premium Dignity paid further supports the conclusion that coverage is limited to its office. Dignity paid $360 to receive commercial general liability coverage for a year. A $360 yearly premium could not reasonably be expected to pay for general liability insurance for dozens of apartments in three separate buildings.
Dignity also argues that Atain acted in bad faith when it refused to accept the tort plaintiffs’ settlement offer.
However, California law is clear that if there is no potential for coverage, there can be no action for breach of the implied covenant of good faith and fair dealing. [Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 639 (Cal. 1995).]
Because the policy did not cover the San Pablo building, Atain did not act in bad faith when it did not accept the settlement offer.
ZALMA OPINION
Even the Ninth Circuit found it easy to conclude that there could be no coverage for the liability exposure at an apartment building owned and operated by the insured that was neither disclosed nor identified at the time the policy was acquired. Although rescission was appropriate the Ninth Circuit found it easier to deny coverage on the contract. Attain should immediately, if the policy is still in effect, advise Dignity that the policy is rescinded and return the premium to avoid any further exposure. No insurer should insure any person or entity that has fraudulently obtained the policy.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
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He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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