What happened: A California appeals court affirmed the rescission of two Scottsdale policies after the insured contractor misrepresented its operations, including asbestos work, on its application.
Who’s involved: Scottsdale Insurance Company and the California Military Department, with TL Veterans Construction as the insured.
What’s at stake: A $9,787,124 default judgment and coverage under $5 million in combined primary and excess policies.
Why it matters: Insurers can rescind for material application misrepresentations even when innocent additional insureds relied on the coverage.
Where it stands: Affirmed on October 14, 2026, and certified for publication.
A light fixture left on flammable materials burned down a military base building. A $9.7 million judgment now has no insurance behind it.
The California Court of Appeal, Fourth Appellate District, affirmed summary judgment for Scottsdale Insurance Company, upholding the rescission of two policies issued to TL Veterans Construction. The California Military Department (CMD), which had relied on those policies as an additional insured when it awarded TL Veterans a roughly $3 million contract, lost its bid to preserve coverage.
The trouble traces to the application. TL Veterans told Scottsdale its gross receipts were $300,000 and its largest recent project was a $135,000 school remodel. In reality, it had already landed a $2.2 million state contract for roof work at a skilled nursing facility and was about to take on the $3 million Los Alamitos Base project - which included asbestos abatement. On the application, TL Veterans checked “No” when asked whether it worked with asbestos.
Scottsdale issued primary and excess policies totaling $5 million.
In May 2022, TL Veterans reported a fire at the Los Alamitos project. Construction crews had left a powered light fixture on flammable roofing materials, and the heat ignited them. Total loss. TL Veterans accepted responsibility.
The investigation that followed uncovered the misrepresentations. Scottsdale and TL Veterans agreed to rescind the policies.
CMD made two arguments. First, that Scottsdale had waived its right to rescind by failing to investigate after an earlier water-intrusion claim on a separate project hinted at larger operations. The court acknowledged the hint but held that nothing in that earlier claim revealed asbestos abatement - an independent and unwaived ground for rescission.
Second, CMD argued that once it relied on the policies to award the contract, Scottsdale could not rescind. The court pointed to Insurance Code section 650, which permits rescission “at any time” before a coverage lawsuit and expressly extends it to additional insureds. The equitable doctrine CMD cited does not override the statute.
CMD had separately obtained a default judgment of $9,787,124 against TL Veterans. Without coverage behind it, what that judgment is worth in practice remains to be seen.
One misrepresentation on an application unwound $5 million in coverage for every party on the policy - including an additional insured that had no part in the misrepresentation and no reason to suspect it.
