Filed 7/24/14 PWPG v. Primerica Life Ins. CA4/1

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA



PWPG, LLC,                                                          D065467

         Plaintiff and Appellant,

         v.                                                         (Super. Ct. No. CIV-DS-1015088)

PRIMERICA LIFE INSURANCE
COMPANY,

         Defendant and Respondent.


         APPEAL from a judgment of the Superior Court of San Bernardino, Brian S.

McCarville, Judge. Affirmed.

         David W. Allor for Plaintiff and Appellant.

         Barger & Wolen and Gail E. Cohen for Defendant and Respondent.

         This action arises out of defendant and respondent Primerica Life Insurance

Company's (Primerica's) rescission of a life insurance policy issued on the life of

Herschel White, D.C. (White), one of the principals of plaintiff and appellant PWPG,

LLC (PWPG), in whose favor the policy was written.
          When White applied for the policy, he denied having ever used or been treated for

use of illegal drugs. After he passed away from cancer, Primerica discovered he had a

history of cocaine use. On that basis, Primerica rescinded the policy.

          PWPG sued, alleging breach of contract and bad faith on the part of Primerica.

The court granted summary judgment in favor of Primerica, concluding that Primerica

had properly rescinded White's policy because: (1) Primerica's policy application

inquired about White's history of illegal drug use and counseling and/or treatment for that

use, (2) White had a history of cocaine abuse and drug/alcohol counseling during the two

years preceding his completion of the application, (3) White misrepresented and

concealed his cocaine use and counseling on his application, and (4) White's history of

cocaine abuse and counseling was material to the issuance of the Primerica policy.

          PWPG appeals, asserting (1) the question on the application concerning prior drug

use was ambiguous, (2) there was no admissible evidence establishing a

misrepresentation, (3) there was a triable issue of fact concerning the materiality of the

alleged misrepresentation, and (4) Primerica's notice of rescission was untimely. We

affirm.

                     FACTUAL AND PROCEDURAL BACKGROUND.

          A. White's Application for Life Insurance

          White, in addition to working as a chiropractor, was also a principal of PWPG,

which owned property next to his chiropractic practice. On March 16, 2007, White met

with a Primerica insurance agent and completed an application for a $2 million life

insurance policy (the Policy). Question 2.d. in the application asked: "In the past 10

                                               2
years, has any person named in this application: . . . [¶] Received professional

counseling or medical treatment due to the use of; alcohol or drugs; used illegal or

illegally obtained drugs; been convicted of drug or alcohol related charges; been

convicted of a felony; or been incarcerated for any felony?" (Italics added.) White

answered "no" to question 2.d.

       White thereafter signed the application, verifying that all information provided

was true and complete and agreed that Primerica could void and rescind the Policy within

two years after its date of issuance if any information was determined to be false or

incomplete. The application was also signed by PWPG as the Policy's owner.

       After receiving the application, Primerica conducted its underwriting process. As

part of that process Primerica arranged to have an outside vendor interview White by

telephone to confirm his answers to the questions on the Primerica policy application. Of

relevance to this appeal, a transcript of the portion of the recorded interview pertaining to

White's history of alcohol and drug use states:

          "Interviewer: In the past 10 years have you received professional
          counseling or medical treatment due to the use of alcohol or drugs?

          "Dr. White: No.

          "Interviewer: Or used illegal or illegally obtained drugs?

          "Dr. White: No."

       Additionally, Primerica requested copies of all medical records pertaining to

White from his health insurer, Kaiser Permanente (Kaiser), and reviewed those records

before deciding to issue the Policy. The records produced by Kaiser to Primerica


                                              3
contained no mention of illegal drug use or drug counseling. Primerica also conducted a

medical examination of White, but his urinalysis was negative at that point for cocaine

use.

       B. Primerica Issues the Policy

       Primerica thereafter issued the Policy with a September 20, 2007 "date of issue."

The Policy contains an incontestability clause which permits Primerica to contest the

Policy's validity by rescission for material misrepresentation or concealment within two

years after its date of issue. The Policy defines "date of issue" as "[t]he date shown on

Page 3 on which We issue the Policy to You. This date controls the Incontestability and

Suicide Exclusion provisions . . . ." The date shown on page 3 was September 20, 2007.

       C. PWPG Submits a Claim Under the Policy

       In 2008 PPWG learned that White was terminally ill from lung cancer. In

November 2008 PWPG, as the Policy's owner and beneficiary, submitted a claim for

benefits under the Policy's "Terminal Illness Accelerated Benefit" rider. That rider

provides for an advance payment of benefits when the insured is diagnosed with a

terminal illness. Since the Policy was within two years of its issuance, and thus within

the two-year contestability period, Primerica conducted a routine investigation of White's

medical history. Primerica again requested all medical records pertaining to White from

Kaiser.

       This time, Kaiser produced a behavioral health record dated June 30, 2005, which

had not been produced in response to Primerica's initial records request during the

underwriting process. This record showed that on June 30, 2005, White underwent an

                                             4
assessment and was diagnosed by Carole Oliver (C. Oliver), a licensed clinical social

worker, with: "Cocaine Abuse . . . R/O Alcohol Abuse. . . Partner Relational Problem."

This record also indicated outpatient treatment by a Dr. Hacar.

       D. Primerica Attempts To Contact White

       As part of its contestability investigation, Primerica attempted to contact White,

directly and through a third-party vendor, Broyles Claims Decision Support, Inc.

(Broyles). Broyles placed several phone calls to White at his office, but was unable to

reach him. Broyles also sent a letter dated November 24, 2008, to White's residence via

Federal Express, requesting that White contact Broyles for a recorded statement. Dr.

White received and signed for the letter on November 26, 2008, but never responded to

any of Primerica's or Broyles's communications.

       E. Primerica Rescinds the Policy

       Primerica determined that, pursuant to its underwriting guidelines and practice, it

would not have issued the Policy if it had known about White's history of cocaine abuse.

Primerica sent letters on March 20, 2009 to White and PWPG, notifying them that it had

rescinded the Policy. In its letter to White, Primerica advised him of the basis for its

decision: White's history of cocaine use and professional counseling for that use. That

letter also asked him to contact Primerica if he had any additional information that he

would like Primerica to consider. White never contacted Primerica in response to that

letter, either to challenge the rescission or to provide any additional information

regarding the basis of the rescission, nor did he ever suggest that he was at all confused

by the application.

                                              5
       After receipt of Primerica's rescission letter White wrote to Kaiser to request a

copy of his records pertaining to "treatment at the mental health center . . . in San

Bernardino and also at the chemical dependency treatment center on Marygold in

Fontana, both sometime in 2005."

       F. Primerica Discovers Additional Evidence of White's Cocaine Use

      1. White's Drug and Alcohol Counseling at Kaiser's Behavioral Health
Department

       During this litigation, Primerica served subpoenas on Kaiser. In response to those

subpoenas Primerica received more records further confirming that White had used

cocaine extensively and as recently as June 2005. The records produced by Kaiser

Behavioral Health in San Bernardino show that White received counseling there on June

30, 2005 from C. Oliver. Oliver's June 30, 2005 treatment records stated that White

argued with his girlfriend over his "using cocaine," that he liked to use cocaine, that he

had been using cocaine for at least two years, and that he feared he would lose his

girlfriend over his habits.

       C. Oliver noted diagnoses of "Cocaine Abuse," "R/O Alcohol Abuse," and

"Partner Relational Problem." Under "[t]reatment plans and recommendations," she

stated, in part: "Client's goals: Unclear. Ambivalent whether he wants help because he

knows he will be told he needs to quit substances, and he does not want to;" "CDRP

[Chemical Dependency Recovery Program] referral. Given recommendation to go and

discuss this with counselor there and make his decision."




                                              6
      2. White's Drug and Alcohol Counseling at Kaiser's Chemical Dependency
Recovery Program

       On July 5, 2005, White went to Kaiser's Chemical Dependency Recovery Program

(CDRP) in Fontana, California. The "Addiction Medicine Nursing Initial Assessment"

form completed at that time indicated a diagnosis of "cocaine and etoh [alcohol]

dependency." White reported that he had "six drinks or two drinks three times per week"

for 12 years, and White also reported that he snorted "several lines" of cocaine once or

twice per week. He stated that he had been using cocaine for 11 years, his most recent

use being the previous Friday, and that he had "cravings" for alcohol and cocaine.

       On July 7, 2005, White returned to CDRP for a counseling session with Brenda

Oliver (B. Oliver),1 a chemical dependency recovery program counselor. After that

counseling session, B. Oliver created a "problem list" which documented "cocaine and

alcohol dependence" as a problem and noted White's perception of this problem as

follows: "I'm here because of cocaine and my [girlfriend's] ultimatum." B. Oliver also

noted that White's problem "[m]ust be addressed by CDRP Outpatient Care Provider."

       B. Oliver's treatment notes from White's counseling session contain several

statements by White regarding his cocaine and alcohol abuse: "Drug(s) of Choice:

Cocaine;" "Relationship(s): Shaky due to drug use;" "Unsafe Environment: Easy access

to cocaine;" "Initial Treatment Plan: [Education] series? Reluctant to attend 12 step;"

"Chief Complaint: Girlfriend found out I was using cocaine and not acceptable;"

"[Patient] not very motivated to quit alcohol use but wants to stop using cocaine for his


1      Brenda Oliver is not related to C. Oliver.
                                             7
[girlfriend];" "Problems Identified: Cocaine and alcohol dependent." White also

informed B. Oliver during that counseling session that he had started using cocaine

socially but now used cocaine "once or twice per week."

       B. Oliver diagnosed White with cocaine and alcohol abuse and referred him for

further treatment, including an educational series (classroom lectures regarding the

impact of substance abuse), a 12-step program, and case management (individual

counseling sessions). She also gave White Alcoholics Anonymous and Cocaine

Anonymous booklets detailing various locations where he could attend meetings.

       G. Primerica's Underwriting Guidelines Regarding Cocaine Use

       Primerica's written underwriting guidelines and underwriting practices provide

that cocaine use by an applicant within two years prior to the application, regardless of

amount or frequency, results in the declination of coverage. Therefore, had Primerica

known about White's cocaine use, it would not have issued the Policy.

       Moreover, under Primerica's written guidelines, even if White's cocaine use were

more remote (between two and five years prior to the date of the application) Primerica

would not have issued the Policy at the same premium rate. Primerica would have

charged a significantly higher premium rate for the Policy, amounting to an additional

$10,000 in premiums per year.

       H. The Instant Action

       In November 2010 PWPG filed this action. On November 24, 2010, PWPG filed

a first amended complaint, asserting causes of action for breach of contract and bad faith



                                             8
against Primerica and a cause of action for negligence/breach of fiduciary duty against

David Calzaretta, the insurance agent who sold the Policy.2

       In January 2012 Primerica filed its motion for summary judgment, seeking

dismissal of the action on the grounds that it properly rescinded the Policy due to White's

material misrepresentation. The court granted the motion, finding that Primerica was

entitled to summary judgment based on undisputed evidence that White misrepresented

his prior drug use and that the misrepresentation was material.

       In this regard, the court found:

          "Primerica properly rescinded the subject Primerica life insurance
          policy based upon [White's] material misrepresentation and
          concealment on the insurance application. It is undisputed that
          Question 2.d. on the application inquired whether [White] had used
          any illegal drugs in the previous 10 years, that [White] responded
          'no' to that question, and that he signed the application attesting to
          the purported truthfulness of his response. It is further undisputed
          that [White] used cocaine on multiple occasions within five years
          prior to the insurance application, including during the two years
          preceding the application. As such, [White's] response to Question
          2.d. was false. [¶] Moreover, it is undisputed that [White's]
          misrepresentation and concealment were material to Primerica's
          decision to issue the policy. The undisputed evidence shows that
          Primerica would not have issued the policy if it had known that
          [White] had used cocaine within the two years preceding the
          application. The undisputed evidence also shows that, even if
          [White] had not used cocaine within the two years preceding the
          application, Primerica would have charged significantly higher
          premiums for the policy due to his cocaine use within the years
          preceding the application."

       This timely appeal follows.




2      Calzaretta was later dismissed from the action.
                                             9
                                        DISCUSSION

                      I. PRIMERICA'S RESCISSION WAS PROPER

      A. Rescission Is Proper if the Application Contains a Material Misrepresentation
or Omission

       "It is generally held that an insurer has a right to know all that the applicant for

insurance knows regarding the state of his health and medical history. [Citations.]

Material misrepresentation or concealment of such facts are grounds for rescission of the

policy, and an actual intent to deceive need not be shown. [Citations.] Materiality is

determined solely by the probable and reasonable effect which truthful answers would

have had upon the insurer. [Citations.] The fact that the insurer has demanded answers

to specific questions in an application for insurance is in itself usually sufficient to

establish materiality as a matter of law." (Thompson v. Occidental Life Ins. Co. (1973) 9

Cal.3d 904, 915-916 (Thompson); Telford v. New York Life Ins. Co. (1937) 9 Cal.2d 103,

105 (Telford) ["A false representation or a concealment of fact whether intentional or

unintentional, which is material to the risk vitiates the policy. The presence of an intent

to deceive is not essential."]; Kurtz, Richards, Wilson & Co. v. Insurance Communicators

Marketing Corp. (1993) 12 Cal.App.4th 1249, 1258 ["Under the Insurance Code, a false

representation of material fact is a basis for rescission, and insurers are known to avail

themselves of that remedy."].)

       In Telford, supra, 9 Cal.2d 103, in reversing a judgment after trial favoring the

insured plaintiff, the California Supreme Court rejected a contention that because of

knowledge imputed from its agent, the defendant insurer was not actually deceived by its


                                              10
insured's incomplete answer on the application for the policy. (Id. at p. 107.) Noting

case law recognizing that "the requirement of fair dealing is laid on both parties to the

contract," the Supreme Court observed: "This requirement entails a duty on the part of

the insured to read the contract and the application in accordance with her representations

and to report to the company any misrepresentations or omissions. There is no showing

in the present case that the failure to read the application was due to any act of the

defendant and under the decisions the facts herein do not make an exception so as to

excuse the insured's failure to read it. By neglecting to inform the company of the

material omissions, the insured became responsible for such misrepresentations or

omissions." (Ibid.) Our high court concluded: "There are no circumstances in the

present case which could be said to indicate that the defendant has waived the false

answer of the insured by knowledge of its falsity, except the inference afforded by the

[knowledge imputed from its agent]. Under the decisions the effect of this imputation of

knowledge is overcome by the failure of the insured to conform to the requirement of fair

dealing as a result of which she must be deemed to have adopted and approved as her

own act the [agent's] omission to convey the knowledge to the defendant." (Id. at p. 108.)

       Here, it is clear that in his application submitted to Primerica, White gave false

answers to questions about medical history/treatment that were material to the risk to be

insured. (Thompson, supra, 9 Cal.3d at pp. 915-916; Telford, supra, 9 Cal.2d at p. 105.)

In issuing PWPG the policy Primerica was "entitled to rely on answers which negatived

any such treatment." (Telford, supra, at p. 106.) By submitting indisputably false



                                             11
answers to Primerica, White (and PWPF) became responsible for such

misrepresentations. (Ibid.)

       Moreover, if an insured misrepresents or omits even one material fact in his or her

application, the insurer is entitled to rescind the entire contract. (Thompson, supra, 9

Cal.3d at p. 911; Old Line Life Ins. Co. v. Superior Court (1991) 229 Cal.App.3d 1600,

1604 (Old Line).)

       Further, it is of no moment that White's cause of death was unrelated to his

cocaine use. Rescission is appropriate regardless of whether there is any relation between

the misrepresentation and the ultimate loss. (Torbensen v. Family Life Ins. Co. (1958)

163 Cal.App.2d 401, 405.)

       As PWPG concedes, the test for whether a misrepresentation or omission is

material, so as to provide a basis for rescission, is subjective. It is determined based on

the effect of the misrepresentation or omission on the insurer in question. (Thompson,

supra, 9 Cal.3d at p. 916; Imperial Casualty & Indem. Co. v. Sogomonian (1988) 198

Cal.App.3d 169, 181 (Sogomonian).) The only question is whether the misrepresented or

omitted fact would have affected the insurer's decision to underwrite the contract. (Old

Line, supra, 229 Cal.App.3d at p. 1604.) If the insurer would not have issued the policy

if it had known the true facts, or if it would have charged a higher premium for the

policy, materiality is established. (Id. at pp. 1605-1606.) Where the facts are undisputed,

materiality is a question of law. (Sogomonian, supra, 198 Cal.App.3d at p. 181.)




                                             12
       B. The Application Was Not Ambiguous

       PWPG asserts that Primerica may not rescind the Policy because question 2.d. on

the Policy application was ambiguous as to whether White was required to disclose his

cocaine use history. Specifically, PWPG contends that question 2.d is so ambiguous that

an applicant could have interpreted it as only asking about prior drug use that resulted in

criminal consequences or drug counseling or treatment. This contention is unavailing.

       Question 2.d. clearly asks about illegal drug use, irrespective of professional

counseling or treatment for such use. Moreover, even if the question could be interpreted

as requiring only the disclosure of drug use that resulted in counseling or treatment, as

opposed to mere drug use, it is undisputed that White did seek and receive professional

counseling and treatment for his cocaine use.

       PWPG asserts question 2.d. is ambiguous because it inquires about more than one

aspect of White's history: drug use, alcohol counseling, alcohol treatment, drug

counseling, drug treatment, and provides for a single "yes" or "no" response. We reject

this contention.

       Insurance applications routinely ask about multiple different medical conditions

within the same question. (Thompson, supra, 9 Cal.3d at pp. 914-915; Cohen v. Penn

Mutual Life Ins. Co. (1957) 48 Cal.2d 720, 723.) Moreover, question 2.d. is phrased in

the disjunctive, meaning that it requires a "yes" response if any of the items listed in the

question occurred. White answered "no" to the entire question, indicating that none of

the activities relating to drug use or counseling or treatment occurred.



                                             13
       PWPG asserts that "a compound application question which allows only for a

single yes or no response must be considered ambiguous on its face." However, PWPG

does not cite any legal authority for this proposition.

       Moreover, the only case authority cited by PWPG in its opening brief on the

subject of compound questions, People ex rel. Dept. of Public Works v. Leadership

Housing Sys., Inc. (1972) 24 Cal.App.3d 164, 170 (Leadership Housing), is inapposite.

In that case, the court analyzed a response by a witness to a compound question asked

during a trial to determine which part of the question the witness was responding to. The

issue on appeal was whether an expert appraiser had failed to consider the appellant's out-

of-pocket, indirect, overhead costs in his analysis. The appellant argued that he did,

pointing to the following testimony from the appraiser: "'Q Mr. Cotton, we have now

heard the testimony in this case that the actual indirect cost—one method of allocation

shows $91,000 to this particular project. Did you include any of those, or have you seen

those sheets? A I don't think I have.'" (Ibid.)

       The Court of Appeal concluded that counsel's question did not establish that the

appraiser failed to include the costs in his calculation. Instead, the court held that "[i]n

light of other testimony it is obvious the answer of the witness is he did not think he had

'seen those sheets.'" (Leadership Housing, supra, 24 Cal.App.3d at p. 170.) Thus, the

court did not find the question inherently ambiguous, but rather found that other evidence

presented at trial demonstrated that the witness's answer meant something other than

what the appellant asserted it meant.



                                              14
         PWPG also asserts the use of semicolons in question 2.d. created an ambiguity.

Specifically, PWPG claims that Primerica's use of semicolons to separate the various

items enumerated in the question suggests that all six of the clauses were intended to ask

a single question. PWPG bases this argument on the assertion that "[s]emicolons are

generally used to connect two closely related ideas and they are not used to connect

multiple clauses (unless they are separating complex lists with internal punctuation)."

However, PWPG again cites no authority for this proposition.

         The use of a semicolon to separate multiple alternative clauses within one

sentence, as it is used in question 2.d., is proper. Question 2.d. unambiguously uses

semicolons to separate a list of items, each of which is a potential alternative answer to

the phrase "[i]n the past 10 years, has any person named in this application . . . ." It is

clear that question 2.d. calls for a "yes" response if the applicant used illegal or illegally

obtained drugs or received professional counseling or medical treatment due to the use of

drugs.

         PWPG proposes what it considers to be more effective ways of inquiring into

illegal drug use in the application by redrafting question 2.d. in various ways. However,

these proposals are of no moment. The only relevant inquiry is whether question 2.d., as

drafted, is unambiguous, which we conclude it is.

         PWPG cites two insurance cases in an attempt to support its position that the

application is ambiguous. However, neither of these cases supports its position.

         For example, in O'Riordan v. Federal Kemper Life Assurance Co. (2005) 36

Cal.4th 281 (O'Riordan), the court did not determine that the application question at issue

                                              15
in that case was ambiguous as a matter of law. In that case, the applicant failed to

disclose that she smoked a "cigarette or two" during a 36-month period, and the

application question arguably could be construed to inquire only about habitual use. The

court found that there was "a triable issue of fact whether [the applicant] concealed or

failed to communicate material information to [the insurer] regarding her use of cigarettes

in the 36 months preceding her application for life insurance at a nonsmoker rate." (Id. at

p. 287.)

       Here, by contrast, the evidence shows that White was a habitual user of cocaine,

and that he snorted "several lines" of cocaine "once or twice per week" for years.

       Further, in O'Riordan the Court of Appeal found that the applicant "did not

conceal [her smoking history] from [the insurer]" because she in fact disclosed it to the

insurer's agent at the time of the application and the agent told her, "That's not really what

they're looking for. They're looking for smokers." (O'Riordan, supra, 36 Cal.4th at p.

284.) Thus, the O'Riordan case is inapposite.

       Farmers Auto. Inter-Ins. Exchange v. Calkins (1940) 39 Cal.App.2d 390 also does

not support PWPG's position. In that case, the Court of Appeal examined the definition

of the term "occupation" and concluded that the application answers provided by the

insured, that he was a rancher, were truthful given that definition. (Id. at p. 395.) The

Court of Appeal found it irrelevant that he did not disclose that he also volunteered as a

firefighter because that was not considered an "occupation." (Id. at pp. 394, 396.) The

Farmers case is inapposite because, here, the application asked directly whether White

had used illegal drugs.

                                             16
       Further, the undisputed facts show White actually understood the question.

Question 2.d. was orally read to White by the insurance agent, Calzaretta, and White

responded orally. Following the submission of the application, question 2.d. again was

orally read to White, in a recorded telephone interview, in four separate parts. White

gave four separate "no" responses, including a "no" response immediately following the

question "or used illegal or illegally obtained drugs?"

       Even after Primerica notified White that it was rescinding the Policy due to his

undisclosed cocaine use, White never claimed that he was confused by the application

question or that he did not know that it required him to disclose his cocaine use.

Primerica even attempted to contact White prior to the rescission. However, White did

not respond to Primerica's communications.

       As we have discussed in the factual background, ante, the undisputed evidence

demonstrates that White's answer to question 2.d. was false. And the fact that some of

the evidence of White's cocaine use was uncovered postlitigation does not preclude

Primerica from relying on that evidence to support the rescission. (Waller v. Truck Ins.

Exchange (1995) 11 Cal.4th 1, 31; Earl v. Saks & Co. (1951) 36 Cal.2d 602, 609 ["One

may justify an asserted rescission by proving that at the time there was an adequate cause

although it did not become known to [the rescinding party] until later."].)

       C. White's Misrepresentation Was Material

       It is clear that White's undisclosed cocaine use was material. In her declaration in

support of Primerica's motion for summary judgment, Debra Walker, a 25-year employee



                                             17
of Primerica and its director of underwriting, stated that Primerica would not have issued

the Policy at all if it had known about White's cocaine use history.

       Moreover, Walker's testimony is supported by Primerica's written underwriting

guidelines and practices. Those guidelines provide that cocaine use by an applicant

within two years prior to the application, regardless of amount or frequency,

automatically results in the "postponement" of any application for coverage. As Walker

explained, under these guidelines, Primerica would not literally "hold" an application for

life insurance; it would decline the application and consider a future application from the

applicant only if and when he or she reapplies for coverage and is insurable. This

testimony is not challenged by PWPG.

       Accordingly, White's misrepresentation was material.

       PWPG asserts that, rather than decline to issue the Policy, Primerica would have

merely delayed (or "postponed") its issuance until the expiration of two years from

White's last-known use of cocaine, at which time Primerica would have automatically

issued the Policy.

       As discussed, ante, however, the materiality inquiry must be determined based on

Primerica's actual underwriting practices, not PWPG's speculation as to what those

practices might or should be. (Sogomonian, supra, 198 Cal.App.3d at p. 181.) The

undisputed evidence establishes that if Primerica had known the truth about White's

cocaine use history, it would have declined to issue any coverage to him.




                                            18
        It is undisputed that White used cocaine as recently as July 1, 2005, and that he

signed the application for his Primerica policy less than two years later, on March 16,

2007.

        PWPG asserts that White's July 1, 2005 cocaine use falls outside of the two-year

period referenced in Primerica's underwriting guidelines because it occurred more than

two years prior to the Policy's issuance date. This contention is unavailing.

        As Primerica's underwriters stated in support of the motion for summary

judgment, the two-year period referenced in Primerica's underwriting guidelines for

cocaine use history is calculated by Primerica to run back from the date of the insurance

application, not the Policy's date of issuance. Again, PWPG does not point to any

evidence in the record to the contrary.

        D. Insurance Code Section 356

        PWPG asserts that Insurance Code section 356 mandates that when Primerica

underwrote White's coverage, Primerica was required to calculate the two-year timeframe

for cocaine use considered by the underwriters from the date of the Policy's issuance,

rather than from the application date. We reject this contention.

        Insurance Code section 356 provides: "The completion of the contract of

insurance is the time to which a representation must be presumed to refer." Courts have

interpreted this statute to impose a duty upon an applicant to disclose to the insurer any

material changes in his or her health that occur after he or she signs the application and

before the policy is issued. (Security Life Ins. Co. v. Booms (1916) 31 Cal.App. 119,

120-122 [interpreting Ins. Code section 356's predecessor (Civ. Code, § 2577) to permit

                                             19
rescission where the insured truthfully denied any history of illness on the application but

was diagnosed with typhoid fever between the time of the application and the time of the

policy's issuance]; Casey v. Old Line Life Ins. Co. of Am. (N.D.Cal. 1998) 996 F.Supp.

939, 945 (Casey).)

       Thus, Insurance Code section 356 does not support PWPG's position.

      E. Even if Primerica Had Accepted Coverage of White It Would Have Charged a
Higher Premium

       Even if PWPG would not have declined to issue the Policy based upon White's

cocaine use, it is clear that, at a minimum, Primerica would have charged significantly

higher premiums based on White's cocaine use history. This fact by itself suffices to

render White's misrepresentation material for purposes of Primerica's rescission. (Holz

Rubber Co., Inc. v. American Star Ins. Co. (1975) 14 Cal.3d 45, 61; Old Line, supra, 229

Cal.App.3d at p. 1604 ["'The most generally accepted test of materiality is whether or not

the matter misstated could reasonably be considered material in affecting the insurer's

decision as to whether or not to enter into the contract, in estimating the degree or

character of the risk, or in fixing the premium rate thereon.'"]; Bennett v. Northwestern

Nat'l Ins. Co. (1927) 84 Cal.App. 130, 136 ["a misrepresentation is material which would

affect the rate of premium"].)

       PWPG asserts that rescission should be precluded where the misrepresented facts

would have resulted in higher premiums because the remedy of reformation is available

to insurers in cases of mutual mistake. This contention is unavailing.




                                             20
       This is not a case of mutual mistake. White knew about his cocaine use history,

and Primerica did not.

       PWPG asserts that Primerica would not have charged a higher premium if it had

known about White's cocaine use history. We reject this contention.

       PWPG's argument is directly contradicted by the undisputed evidence presented

on PWPG's motion for summary judgment. Pursuant to Primerica's underwriting

guidelines, even if White's cocaine use were more remote (between two and five years

prior to the date of the application), Primerica would have charged a higher premium rate

for the Policy. Specifically, Primerica's written underwriting guidelines show that an

applicant with a history of cocaine use between two and five years prior to the application

is charged a "flat extra" premium, in addition to the premium rate otherwise applicable to

that applicant, in the amount of $5 per each $1,000 of coverage. In White's case, if he

had stopped using cocaine more than two but less than five years prior to the date of his

application (March 16, 2007), his cocaine use history would have increased his premiums

by an additional $10,000 per year for the $2 million policy.

       PWPG also contends that because White initially was approved for coverage at a

higher "tobacco" rate, his cocaine use history would not have resulted in higher

premiums. This contention is unavailing.

       In making this assertion, PWPG does not cite to the record or any authority.

Moreover, the deposition testimony of Walker, Primerica's director of underwriting,

establishes the opposite:



                                            21
          "Q. All right. So an applicant that uses tobacco or has used tobacco
          is put into a smoker category, correct?

          "A. Tobacco category.

          "Q. A tobacco category. Under what circumstances would they
          have to pay an even higher premium than another tobacco user?

          "A. If there was additional medical history or occupation or
          hazardous. If they were rated for something else in addition.

          "Q. Are these considered extras?

          "A. Well, it could either be a table rating or an additional flat extra
          or one or the other." (Italics added.)

       Based upon this testimony it is clear that "flat extras" based upon "additional

medical history," i.e., cocaine abuse, are added to tobacco and non-tobacco rating tables

alike. The tables provide the starting point in determining the rate (e.g., based on age,

coverage amount, tobacco/non-tobacco), and the "flat extras" (additional charges) are

added on top of the table rating as appropriate based on the applicant's medical and

personal history (i.e., cocaine use, heart disease, cancer, occupational hazards, etc.).

       F. PWPG's Contention That Primerica Would Have Made an "Exception" for
White's Cocaine Use

       PWPG asserts that summary judgment should be reversed because there is a

triable issue of fact as to whether Primerica would have made an "exception" by issuing

coverage to a cocaine user at no additional premium. This contention is also unavailing.

       PWPG's contention is based on the opinion of its expert, Elliot Leitner. However,

Primerica asserted objections to 23 of Leitner's opinions, including his opinion that

Primerica granted an exception to White with respect to his cocaine use, and the trial


                                             22
court sustained each of those objections. On appeal, PWPG does not challenge the

court's ruling on those objections. Thus, PWPG may not rely on Leitner's opinions on

this appeal.

       Moreover, PWPG asserts that Leitner "offered the opinion that Primerica would

have granted PWPG an exception for White's cocaine use." Leitner did not render such

an opinion in his declaration. What Leitner did say is that, in his opinion, Primerica in

fact made an "exception" for White's cocaine use in deciding to issue the Policy in 2007

at no additional premium despite its knowledge of White's June 30, 2005 diagnosis of

"cocaine abuse." Leitner's opinion is contrary to the undisputed evidence. Primerica had

no knowledge of any cocaine use or cocaine abuse diagnosis until after PWPG made a

claim for benefits, long after the Policy was issued, and thus, the trial court properly

excluded that opinion.

       G. PWPG's Reliance on Thompson Decision

       Citing Thompson, supra, 9 Cal.3d 904, PWPG asserts that courts may choose to

disregard the evidence submitted by Primerica on materiality because "the trier of fact is

not required to believe the 'post mortem' testimony of an insurer's agents that insurance

would have been refused had the true facts been disclosed." (Id. at p. 916.) We reject

this contention.

       That language in the Thompson case has been explained by subsequent California

courts as applicable only to situations in which contradictory evidence regarding

materiality has been presented to a jury, not on a motion for summary judgment where

the evidence is uncontroverted. (Wilson v. Western National Life Ins. Co (1991) 235

                                             23
Cal.App.3d 981, 995-996; Casey, supra, 996 F.Supp. at p. 948.) As the court in Wilson,

supra, explained:

            "Plaintiff argues the trier of fact might not have believed Western's
            evidence that it would not have issued the policy had it known of the
            misrepresentation. She relies on the language we have quoted from
            Thompson . . . . [¶] The Thompson judgment resulted from a verdict
            following a jury trial, and the court was simply following the well-
            settled principle that a jury need not accept the testimony of any
            particular witness. Here, however, the evidence in support of the
            motion for summary judgment was uncontradicted." (Wilson,
            supra, 235 Cal.App.3d at pp. 995-996.)

         H. Primerica Timely Rescinded the Policy Within the Two-Year Contestability
Period

         PWPG asserts that the two-year contestability period commenced when Dr.

White's "temporary coverage" began upon his application on March 16, 2007, making

Primerica's notice of rescission on March 20, 2009, untimely. This contention is

unavailing.

         Insurance Code section 10113.5, subdivision (a) makes clear a policy "is

incontestable after it has been in force, during the lifetime of the insured, for a period of

not more than two years after its date of issue." (Italics added.)

         As we have discussed, ante, the Policy defines the "date of issue" as "[t]he date

shown on Page 3 on which we issue the Policy to you. This date controls the

Incontestability and Suicide provisions on Part 2." On page 3 of the Policy, the date

following the phrase "DATE OF ISSUE" states "September 20, 2007." Based upon that

date of issue, Primerica's March 20, 2009 rescission falls well within the two-year

limitation period prescribed by Insurance Code section 10113.5, subdivision (a).


                                              24
       Moreover, PWPG again does not cite any California case authority in support of

its position. The conditional receipt referenced by PWPG is simply a binder that

provides for temporary or preliminary insurance covering the applicant until the

insurance company's investigation of insurability is completed. (1A Couch on Insurance

(3d ed. 1997) § 13:1; Smith v. Westland Life Ins. Co. (1975) 15 Cal.3d 111, 122.)

       I. The Court's Evidentiary Rulings

       PWPG asserts the court erred in admitting White's statements to his treatment

advisers concerning his cocaine use because they were hearsay. We reject this

contention.

       White's statements to his medical providers about his cocaine use are admissible

both as nonhearsay admissions under Evidence Code section 1224 and as declarations

against interest under Evidence Code section 1230.

       Evidence Code section 1224 provides:

          "When the liability, obligation, or duty of a party to a civil action is
          based in whole or in part upon the liability, obligation, or duty of the
          declarant, or when the claim or right asserted by a party to a civil
          action is barred or diminished by a breach of duty by the declarant,
          evidence of a statement made by the declarant is as admissible
          against the party as it would be if offered against the declarant in an
          action involving that liability, obligation, duty, or breach of duty."
          (Italics added.)

       As we have discussed, ante, PWPG's claim for insurance benefits as the

beneficiary of the Policy is barred by White's breach of his duty to provide truthful and

accurate responses on the insurance application. White's breach, by misrepresenting his

cocaine use history on the application, voids the Policy and thus bars PWPG's entitlement


                                            25
to benefits. White's statements about his cocaine use would be admissible in any action

against him involving his liability for the misrepresentations. As such, White's

statements fall within the hearsay exception provided in Evidence Code section 1224.

       Atlas Assurance Co. v. McCombs Corp. (1983) 146 Cal.App.3d 135 (Atlas), is

instructive. In Atlas, an employee of a storage business stole items from the storage

locker of a tenant, and the tenant sued the storage business. The storage business

tendered its defense and indemnity in the lawsuit brought by the tenant to its insurer,

under a policy which provided that the insurer would defend the storage business in all

suits for damages except if liability arises from the criminal acts of the storage business's

employees.

       The insurer brought a declaratory relief action against the storage business,

asserting that it was not obligated to defend the business because the underlying theft was

committed by the storage business's employee. In support of its position, the insurer

introduced an out-of-court statement by the employee in which he admitted that he was

the thief. (Atlas, supra, 146 Cal.App.3d at pp. 143-144.) The trial court admitted the

statement under Evidence Code section 1224, and the storage business appealed. (Id. at

p. 146.)

       The Court of Appeal affirmed, holding that the statements were admissible under

Evidence Code section 1224. In doing so, the court stated:

           "[The insurer's] obligation to defend and indemnify [the storage
           business] depended on [the employee's] criminal liability or lack
           thereof. Conversely, [the storage business's] right to such indemnity
           and defense would be barred by [the employee's] criminal conduct.
           Accordingly, [the employee's] admissions were admissible against

                                             26
           [the storage business] if they would have been admissible against
           [the employee] in an action involving his liability for the theft. In the
           latter case they would be admissible as admissions of a party.
           [Citation.] They were therefore admissible against [the storage
           business]." (Atlas, supra, 146 Cal.App.3d at p. 146.)

       Primerica's obligation to pay benefits to PWPG under the Policy depends on

whether White provided truthful responses to the application's questions, including

question 2.d. Conversely, PWPG's right to such benefits as the beneficiary is barred by

White's admissions of cocaine use, which substantiate that he misrepresented information

on the application. Thus, White's statements would be admissible in an action against

him arising out of his misrepresentations.

       PWPG asserts that White, the person whose life was insured and the person

responsible for answering the health questionnaire on the application, and the person who

offered the "no" response to question 2.d., owed no duty to truthfully represent his history

to Primerica. Rather, PWPG contends that only PWPG owed the duty to fully disclose

the truth about White's medical history. This contention is unavailing.

       White, as the insured, was the one who completed the application concerning his

personal and health history and responded "no" to question 2.d. of the application about

his drug use history. Further, White signed the application as the primary insured,

certifying the veracity of those responses.

       Language in the Policy itself makes clear that it was White who had a duty of full

and accurate disclosure to Primerica. The Policy states that the application constitutes

part of the Policy: "A copy of the application . . . is attached and is part of the Policy.

Together, they are the entire contract." The application further provides: "By signing

                                              27
this application . . . [w]e (Applicant and/all insured(s)) represent that all of the

information in this Application . . . [is] true; complete; and are part of the

Application. . . . We acknowledge that Primerica Life Insurance Company relies on this

information to determine whether, and on what terms, to issue a policy. . . . [If] any

information is determined to be false; incomplete; or incorrect, our [the

applicant/insured's] policy may be rendered void."

       Thus, the Policy's express language placed the duty of disclosure on White, as

both the "applicant" and the "insured."

       Evidence Code section 1224 permits the introduction of an out-of-court statement

if, among other things, that statement would be admissible "if offered against the

declarant in an action involving" the liability, obligation, duty, or breach of duty in

question. PWPG asserts that this requirement is not satisfied in this case because

Primerica would not have a cause of action against White in connection with his

misrepresentation. We reject this contention.

       Evidence Code section 1224 does not require that an action ever could or would be

filed against the declarant. It merely requires that it would be admissible, i.e., that no

other evidentiary issues preclude the introduction of the statement other than the fact it

was made by a nonparty declarant.

       Thus, the court did not abuse its discretion by admitting White's statements under

Evidence Code section 1224.

       Alternatively, White's statements are admissible as declarations against interest

under Evidence Code section 1230, which provides:

                                              28
          "Evidence of a statement by a declarant having sufficient knowledge
          of the subject is not made inadmissible by the hearsay rule if the
          declarant is unavailable as a witness and the statement, when made,
          was so far contrary to the declarant's pecuniary or proprietary
          interest, or so far subjected him to the risk of civil or criminal
          liability, or so far tended to render invalid a claim by him against
          another, or created such a risk of making him an object of hatred,
          ridicule, or social disgrace in the community, that a reasonable man
          in his position would not have made the statement unless he believed
          it to be true."

       White's statements that he habitually had used cocaine, an illegal drug, for years,

and continued to do so on a regular basis, were contrary to his "pecuniary or proprietary

interest" such "that a reasonable man in his position would not have made the statement

unless he believed it to be true." (Evid. Code, § 1230.) White's medical records could be

requested and obtained by an insurance company in connection with any application by

White for life, health, or disability insurance, and the admissions could impact his ability

to obtain coverage. This could further impact the premium amount he would be required

to pay for such coverage.

       White would not have made those statements to multiple Kaiser employees

detailing his extensive cocaine use unless those statements were true. Those statements

were against his pecuniary and proprietary interests, and he had no motive to make them

if they were not true. White's statements thus are also admissible as declarations against

interest under Evidence Code section 1230.




                                             29
                                   DISPOSITION

     The judgment is affirmed. Primerica shall recover its costs on appeal.


                                                                              NARES, J.

WE CONCUR:


McCONNELL, P. J.


AARON, J.




                                         30
