A federal judge in California gave an entertaining reading of an opinion last week. Even if it takes out liability insurance, the principles for property insurance apply. The case is Northfield Insurance Company v. Tilted Turtle . 1 It presents a warning report of what happens when an insured person makes a false statement to his insurer, and what happens when a judge slams the president's club on absurd legal defense.
Tilted Turtle is a bar and grill. Tilted Turtle was insured for damages through Northfield. Tilted Turtle procured the Northfield policy through the Garcia Insurance Agency. Tilted Turtle missed a payment to its premium financing company, and under the financing agreement, the Northfield policy was terminated. Six days later, two people were injured in a shooting at the bar and grill. Tilted Turtle & # 39 ;s owner, Magana, called a lawyer for advice. She also called Garcia to discuss insurance in general but did not tell Garcia about the shot. Garcia told Magana about the missed premium payment and helped Magana reintroduce the policy. Northfield, however, demanded a sworn statement that there had been no losses in the meantime ̵
Unsurprisingly, Northfield was less than happy to learn about the shot, given that Magana swore that the retroactive period was uneventful. Northfield sued to repeal the policy based on Magana's misrepresentation. California law allows a property insurer to cancel an insurance policy when it learns that the insured has made a "material" petition or omission that affects the insurer's appreciation of the pros and cons of insuring the risk. 2 Northfield submitted a sworn statement. by its insurers that they would not have reintroduced the policy if the loss had been reported. No one can be surprised by that, right?
Well, the insured fought back. Magana, apparently in a tough position, tried to argue that the insurance statement was not sufficient evidence to prove that Northfield would not have reintroduced the policy if it knew the truth. As the court stated, "[I] t is beyond the accident that a shooting that resulted in injury to two people would have a significant impact on an insurer's assessment of the disadvantages of retroactively providing coverage for the period when the shooting took place."
Magana also claimed that Northfield waived its right to revoke because it knew or should have known about the shooting itself! Magana's proof was that the shot had made the news, and she was "pretty sure" that Garcia saw it or someone else told him about it. In addition to the fact that Garcia was the insured's broker and his knowledge could not bind the insurer, the court respectfully noted that the testimony was "speculative and unambiguous."
It is difficult to read an opinion like this and wonder how the strategic choice to make these arguments came about. The insured's argument went overboard from "creative" to absurd, and I would not be surprised to see a follow-up order requiring Magana to pay the insurer's legal costs. I hope this story was as entertaining as it was a good reminder of the consequences of misrepresentations during the insurance application and reintroduction process.
1 Northfield Ins. Co. v. Tilted Turtle, LLC 2021 WL 1060361, Case No. 1: 19-cv-01583 (ED Cal. March 18, 2021).
2 California Insurance Code requires that "[e] one party to an insurance contract shall notify the other in good faith of all facts within his knowledge which are or which he considers to be essential to the contract …" Cal. Ins. Code 332. "Concealment," which the California Insurance Code defines as "[n] eglect to communicate what a party knows and should communicate," Id. § 330, "entitles the injured party to cancel the insurance." Id. § 331. In the same way, "[i] if a petition is false in a material point, … the injured party has the right to terminate [an insurance] the contract from the time when the representation becomes false." Id. § 359.