P&CCaliforniahard
On a homeowners application, an applicant states an estimated home value of $580,000. After a fire loss, the carrier discovers the appraised market value at application was $620,000. The carrier alleges material misrepresentation. Under California Insurance Code §§ 350-361, what is the most accurate analysis?
AThe misrepresentation is automatically and conclusively material as a matter of law because it concerns the insured property's value, so the carrier may rescind the policy regardless of the insured's good-faith intent or the small magnitude of the variance
A representation is false if materially untrue; whether the statement is 'materially untrue' turns on whether the variance would have influenced a reasonable insurer's decision, and the carrier bears the burden
CBecause the statement is an estimate of opinion rather than a statement of fact, no rescission is permitted under § 358 even if the variance is shown to be material to underwriting
DMisrepresentation requires affirmative proof of fraudulent intent under California law, so mere inaccuracy in the stated value is legally insufficient to support rescission
Why this is the answer
California Insurance Code § 359 entitles the injured party to rescind when a representation is false in a material point. Materiality is judged under the § 334 'reasonable insurer' test — whether the variance would have influenced a prudent insurer's underwriting decision. The insurer bears the burden of proving both falsity and materiality. A 6-7% value variance may or may not be material depending on whether it would have changed underwriting acceptance, premium, or coverage limits offered. Estimates given in good faith are governed by § 358 — substantial truth suffices. See Ins. Code §§ 350-361.
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