Facts

Plaintiffs Inderjit Kalia and Joy Mukherji sued AMCO Insurance Co. in relation to a property insurance claim that they had made in November 2011 after the gas station that they operated in Santa Rosa suffered damage from an explosion caused by thieves attempting to steal gasoline.

AMCO filed a counterclaim against plaintiffs.

PLAINTIFF'S CONTENTIONS: Plaintiffs conceded that their application for insurance inaccurately stated that they had not filed for bankruptcy in the previous five years. They also conceded that they did not have any tax liens against them in the previous five years, and did not have any insurance policies canceled in the previous three years.
However, plaintiffs argued that AMCO waived its right to rescind the policy based on those misrepresentations, AMCO should be equitably estopped from rescinding the policy, and the doctrine of laches barred AMCO from rescinding the policy. Plaintiffs asserted causes of action for breach of contract and bad faith.

DEFENDANT'S CONTENTIONS: AMCO argued that plaintiffs' insurance application falsely stated that they had not filed for bankruptcy in the previous five years, did not have any tax liens against them in the previous five years, and they did not have any insurance policies canceled in the previous three years.

According to AMCO, if plaintiffs' insurance application had represented those facts, AMCO's underwriting department would not have issued a policy to plaintiffs. AMCO further argued that plaintiffs' defenses of waiver, estoppel, and laches failed as a matter of law.

On the counterclaim, AMCO asserted claims for fraud and rescission of plaintiffs' insurance policy based on alleged misrepresentations in their application for insurance.

Damages

Plaintiffs claimed $31 million in damages against AMCO.

Result

Upon AMCO's request, the court bifurcated the trial of the matter into two phases. Phase One of the trial pertained solely to AMCO's counterclaim and affirmative defense against plaintiffs for rescission of the policy and restitution. Phase Two of the trial was intended to address plaintiffs' claims against AMCO for breach of contract and bad faith if plaintiffs prevailed in Phase One. In Phase One of the trial, after a five day bench trial, the court filed an 8-page judgment in AMCO's favor. The court held that AMCO was entitled to rescind plaintiffs' policy, and that AMCO was entitled to $25,000 in restitution against plaintiffs, plus costs.