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Horvitz & Levy LLP successfully defended summary judgment in favor of Fireman’s Fund (FFIC) in this rescission action based on fraudulent representations made by insureds regarding one of their commercial properties.  When the insureds applied for coverage, they stated the property was being used for retail sales, furniture storage, and banquets.  In fact, the insured’s tenant was using the property in part to operate an auto repair shop.  The tenant also constructed 10 illegal, make-shift apartments on the property, which he then rented out to individual tenants.  During the policy term, a fire broke out when one of the subtenants left cigarette butts and a glass pipe on a futon.  Two people were killed and a third suffered serious injuries.  FFIC defended and settled the underlying claims against the insureds arising from the fire, then sued the insureds and obtained summary judgment on its claims for rescission and restitution of the amount of the settlement and the attorney fees.

On appeal, the insureds argued there was a triable issue whether their misrepresentations were material, but the Court of Appeal (Second District, Division One) agreed with Horvitz & Levy’s arguments on the materiality issue and affirmed the summary adjudication of the rescission claim.  The court concluded that had FFIC known the property was being used as an auto-repair facility, it would have assessed the risk differently and increased the premium accordingly. The court also affirmed the portion of the judgment awarding FFIC reimbursement for the insureds’ defense costs, but held that there was a triable issue whether the amount FFIC paid to settle the third-party claims was reasonable.