Low, Ball & Lynch’s

WEEKLY LAW RESUME

March 23, 2026 Issue  By: Ray Coates

Coverage - Rescission - Material Misrepresentation

TIG Insurance Co. of Michigan v. Homestore, Inc., et al.

 (March 13, 2026)

Court of Appeal, Second District

Rescission of an insurance policy by an insurer allows an insurer to void a policy, even after a claim has been made.  This case explores the permissible grounds for rescission.

Homestore, a publicly traded company, announced an audit of its books for a possible restatement of certain financial statements.  As a result, federal securities class-actions and derivative liability lawsuits were filed against Homestore and its current and former officers and directors.  Homestore's former Chief Financial Officer pled guilty to one count of conspiracy to commit securities fraud. 

The Chief Financial Officer had signed an application for Directors & Officers Liability coverage with Genesis Insurance Company.  As part of the application process, Homestore  was required to submit a financial statement.  A $10 million D&O policy was issued based on the application, which stated that the application and the materials submitted therewith were material to the acceptance of the risk.  Further, the application stated that, if any misrepresentations were made, the policy was void, and could be rescinded.  The same application was submitted to TIG to obtain excess D&O coverage. 

TIG filed a complaint to rescind the policy.  The trial court granted summary judgment for TIG.  A similar action was filed by Genesis in Federal Court, and a similar summary judgment motion was granted.  Homestore and several of its officers and directors appealed the judgment for TIG.

The Court of Appeal affirmed.  The Court noted that California law permitted rescission of a policy where there is a misrepresentation or concealment in the application.  The Court held that rescission was effective even as to innocent directors and officers who did not know of the misrepresentation.  This was because the policy was void in its entirety.  Relying on Insurance Code Section 650, the Court stated that the right to rescind applied as to all insureds.  The Court stated that this result could be avoided by obtaining a policy with a severability provision, which would render the policy void only as to the insured who made the misrepresentation.  This policy did not contain such a provision.

The Court further refused to apply the rules of interpretation used for exclusions to the rescission provision.  The Court stated the provision was not an exclusion, and therefore, did not need to comply with those types of provisions.  In addition, the Court found the provision to be clear.

Finally, the Court held that the financial statements attached to the application overstated Homestore's revenues and understated its losses.  The Court found the misrepresentations to be material to acceptance of the risk as a matter of law.  Testimony was presented by the TIG underwriter as to the materiality of the information.  As such, the trial court correctly reached its decision.  The judgment was therefore affirmed.

COMMENT

The rules regarding rescission of policies are complex and require strict compliance with policy and statutory provisions.  This case is helpful in laying out those standards.

____
To order a printed version of this analysis, or change your subscription information, reply to this transmission. Information regarding this and other WEEKLY LAW RESUME TM articles is available from Raymond Coates at (650) 366-4000, [email protected] or at WWW.LOWBALL.COM. The WEEKLY LAW RESUME TM is published fifty-two times a year, and is a complimentary publication of LOW, BALL & LYNCH, Attorneys at Law, a Professional Corporation, with offices in San Francisco, Redwood City and Monterey, California.