P&CCaliforniamedium
During application for a commercial property policy, Acme Manufacturing fails to disclose a serious prior arson fire at the same location three years earlier. The carrier issues the policy unaware of this history. Under Ins. Code §§ 330-331, what is the carrier's remedy?
Rescind the policy because concealment of a material fact, regardless of intent, entitles the injured party to rescission
BReform the policy to add an arson exclusion going forward and continue coverage for all other insured perils at the same premium
CCancel the policy prospectively on statutory notice but remain obligated to pay any claims that are already pending at the time of cancellation
DTake no action because concealment under California law requires affirmative proof of the insured's fraudulent or deceptive intent
Why this is the answer
California Insurance Code § 330 defines concealment as the neglect to communicate that which a party knows and ought to communicate. Section 331 provides that concealment — whether intentional or unintentional — entitles the injured party to rescind the insurance. A prior arson loss at the same location is plainly material under Ins. Code § 334 (a fact is material if a reasonably prudent insurer would have considered it in setting terms). The carrier may rescind ab initio, void the policy from inception, and return premium less any administrative offset. See Ins. Code §§ 330, 331.
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