In California there is much publicity for what the plaintiffs' bar calls "post loss underwriting" as a pejorative way of speaking of the equitable remedy of rescission. Post loss underwriting does not exist. Underwriting is a decision making process. It is made before insurance is issued. Rescission is an equitable remedy when an insurer is deceived regarding a material fact. If the rescission is improper the insured is not without a remedy.

As the Court of Appeal stated in Imperial Casualty & Indemnity Company v. Levon Sogomonian, 198 Cal. App. 3d 169 (1988), "Our conclusion here should not result in an assumption by insurers that policy liability can, with impunity, be avoided or delayed by assertion of a claim for rescission. That is a tactic which is fraught with peril. Where no valid ground for rescission exists, the threat or attempt to seek such relief may itself constitute (1) a breach of the covenant of good faith and fair dealing which is implied in the policy (citations omitted) and/or (2) the commission of one or more of the unfair claims settlement practices proscribed by Insurance Code section 790.03, subdivision (h)."

Post-loss underwriting sounds devious and wrong and that is why it is used by the plaintiffs' bar. Rescission because an insurer was deceived sounds appropriate and fair. Language used properly can avoid a great deal of litigation. Insurers and HMO's who rescind policies do not "cancel" the policy to avoid paying a claim, they exercise the right to be protected from insuring someone it would not insure if it knew the true facts.

In LA Sound USA, Inc. v. St. Paul Fire & Marine Insurance Co., No. G036691 Cal. 2007 LEXIS 2348 (Cal.App. Dist.4 11/14/2007) the California Court of Appeal affirmed rescission of a policy for an innocent misrepresentation on an application.

More recently, the Ninth Circuit, in Certain Underwriters at Lloyds, London v. Inlet Fisheries Inc. 518 F.3d 645 ( Feb. 11, 2008) found the doctrine of uberrimae fidei (utmost good faith) required a marine insurance applicant to disclose all facts material to the calculation of risk. Even if not asked, the insured had a good faith duty to reveal material facts about its vessels in applying for insurance. Rescission by the insurer was proper because they were deceived.

To paraphrase George Orwell in Animal Farm, "All litigants in California are equal, some are just more equal than others." Insurers should carefully use the remedy of rescission and if truly deceived should exercise the remedy with the assistance of competent counsel.