This published opinion wipes out a $15 million punitive damages award, but not on the basis of any principle of punitive damages law.
The plaintiff, Passport 420, LLC, was formed to buy a private jet. Its two members were the law firm of disgraced former lawyer Michael Avenatti and a company controlled by William Parrish, an Avenatti client. Avenatti served as Passport’s manager. He embezzled about $2 million from a client and used the money to pay his share of the jet’s purchase price. Parrish knew nothing about the theft.
Passport insured the jet with Starr Indemnity & Liability Company under a policy that covered seizure by a government. In 2019, the U.S. Treasury Department seized the jet, and Avenatti was indicted the same day. Starr denied the claim. Remarkably, Passport parlayed that denial into a judgment against Starr for over $20 million, including $15 million in punitive damages.
The victory proved short-lived. The Court of Appeal (Second District, Division Six) held that Starr was entitled to rescind the policy because Passport concealed a material fact: stolen money paid for the jet. It did not matter that Starr never asked where the money came from. An applicant must volunteer material facts, and a fact is material if the truth would have changed the insurer’s underwriting decision.
Nor did it matter that Parrish was innocent. The court imputed Avenatti’s knowledge to Passport because he was its manager when he applied the stolen funds to the purchase and when Passport bought the policy.
Because rescission was dispositive, the court reversed the entire judgment, punitive damages and all.
