California Court Upholds Contractor Insurance Rescission After Los Alamitos Fire

On October 14, 2026, a California appeals court upheld an insurer’s rescission of a contractor’s liability policies following a fire that destroyed a building being renovated at the Joint Forces Training Base in Los Alamitos, Orange County. ¹

The California Military Department argued that it had relied on the contractor’s insurance when awarding the project. The court nevertheless concluded that the insurer could rescind the policies because of material misrepresentations in the contractor’s insurance application. The department did not make those misrepresentations. ¹

The ruling illustrates a significant risk: additional-insured status does not necessarily guarantee coverage when the underlying policy is lawfully rescinded.

The department awarded TL Veterans Construction, Inc. an approximately $3 million contract to renovate two buildings at the Los Alamitos facility. The work included asbestos abatement. ²

TL Veterans held liability insurance from Scottsdale Insurance Company: $1 million in primary coverage and $4 million in excess coverage. The contractor gave the department a certificate of liability insurance reflecting those policies. ²

In May 2022, a construction fire destroyed one of the buildings. TL Veterans accepted responsibility for causing the fire. ²

Scottsdale’s investigation identified material misrepresentations in the contractor’s 2022 application, including the size of its projects and its statement that it was not performing asbestos work. Scottsdale and TL Veterans agreed to rescind the policies in January 2023, and Scottsdale later sought judicial confirmation of the rescission. ²

In a separate lawsuit, the department obtained a $9,787,124 default judgment against TL Veterans, not against Scottsdale. The Orange County Superior Court granted summary judgment confirming the rescission, and the Court of Appeal affirmed. ²

The department relied on an older equitable rule that rescission may be denied when third parties’ intervening rights would be harmed. The court held that rule does not apply when an insurer exercises its statutory right to rescind for an insured’s material misrepresentation or concealment. ³

Insurance Code section 650 provides that the insurer may exercise that right at any time before an action on the contract begins, and that the rescission applies to all insureds, including additional insureds, unless the contract provides otherwise. The court noted that an additional insured is essentially what the department claimed to be. ⁴

The decision does not establish that every additional-insured endorsement is ineffective. Its holding concerns a qualifying statutory rescission on the facts presented. The court also observed that neither party before it did anything wrong under the law. ³

The department also argued that Scottsdale should have investigated information from an earlier claim suggesting inaccuracies in the contractor’s application.

The court disagreed. Even assuming that information put Scottsdale on notice about project size, it did not reveal the separate misrepresentation about asbestos work. Under Insurance Code section 336, a waiver is limited to the particular facts the insurer neglected, so any waiver on one point did not waive rescission based on the asbestos misrepresentation. ⁵

The decision highlights three practical considerations when hiring contractors:

Owners may consider reviewing the actual policy documents, additional-insured endorsements, exclusions, limits, and contractual safeguards before substantial work begins. These precautions can reduce risk, but they cannot eliminate every potential coverage dispute.

For the separate question of an applicant’s own disclosure obligations, see our earlier article on insurance rescission for material concealment. For claims against the contractor itself, see can I sue a contractor for damaging my property in California. Related firm services are described on the Commercial Property, Equipment & Cargo Damage and Small Business & Commercial Litigation practice pages.