Summary
A California Court of Appeal just erased a judgment of more than $21 million against an aviation insurer, holding that a carrier can rescind a policy for a concealed material fact even when it never asked the applicant about that fact. The duty to disclose belongs to the applicant, not to the insurer's list of questions, and a manager's knowledge is charged to the company he runs.
Imagine winning more than $21 million from your own insurance carrier at trial, punitive damages included, and then watching an appeals court erase every dollar of it. That’s what just happened to a California business in an aviation coverage fight. The reason should get the attention of anyone who has ever signed an insurance application. The carrier never asked the one question that ended up sinking the claim. Yet the court still let it rescind the policy, which means cancel it from the start as if it had never existed.
The Case Behind the Reversal
The case is Passport 420, LLC v. Starr Indemnity & Liability Company (Cal. Ct. App., 2d Dist., Oct. 1, 2026). Passport 420 was a company Michael Avenatti and William Parrish formed to buy a private jet. Avenatti was the company’s manager. What Parrish, a successful engineer and pilot, didn’t know, and wouldn’t learn for years, was that Avenatti had funded his share of the purchase with roughly two million dollars he had embezzled from a legal client.
Starr issued an aircraft policy that covered government seizure of the plane. The application asked about the aircraft, the pilots, and maintenance. It said nothing about the source of the purchase money or anyone’s finances. In April 2019, the federal government seized the jet on the same day it indicted Avenatti for fraud. Passport filed a claim for about $3.99 million, Starr denied it and moved to rescind, and the fight was on.
When a Concealed Fact Lets an Insurer Rescind
Here’s the part that surprises people. The trial court sided with Passport, reasoning that Starr couldn’t complain about a fact it never bothered to ask about. It called the carrier’s underwriting “lackadaisical.” But the Court of Appeal read the Insurance Code differently, and it reversed.
Under California law, an applicant for insurance has an affirmative duty to disclose, meaning a legal obligation to volunteer, every fact within the applicant’s knowledge that’s material to the contract. Whether a fact is material doesn’t turn on whether the insurer asked. It turns on whether a truthful answer would have changed the insurer’s decision to issue the policy, set the premium, or write different terms. The court held that no rational insurer would knowingly insure a jet bought with stolen money against the risk of government seizure. The embezzlement was material as a matter of law, so concealing it gave Starr the right to rescind the policy once it learned the truth.
The Manager’s Knowledge Becomes the Company’s
Parrish was innocent, and the court said so plainly. Still, that didn’t save the claim. Avenatti was Passport’s manager when he applied the stolen funds to the purchase and when the company bought the policy, and the general rule is that an agent’s knowledge is imputed to the company he represents. Imputed means the law treats the company as knowing whatever its agent knew.
Passport tried to invoke an exception for a rogue agent who acts purely for himself and against the company. The court rejected it. Avenatti’s crime actually benefited Passport in the moment, because it let the company complete the purchase. An agent who betrays an outsider while helping his own company along the way doesn’t trigger the exception. So his guilty knowledge belonged to Passport, and with it, the concealment that let the insurer walk away.
What This Means for Business Owners
The lesson isn’t about aviation, and it isn’t really about Avenatti. If your company carries any kind of coverage, from property to management liability, the duty to disclose runs to everything material you actually know, not just to the boxes on the form. A blank space where the insurer failed to ask is not a safe harbor. And if a partner, officer, or manager knows something material, your company is usually treated as knowing it too, even if the rest of the leadership is in the dark.
That’s a governance problem as much as an insurance problem. The time to surface a troubling fact about where money came from, or what a co-owner has been doing, is before you sign, not after a loss. Our business litigation and insurance teams regularly help companies think through disclosure and coverage exposure, and you can find more on those practice areas on our resources page.
Bottom Line
Insurance is supposed to be the thing that holds when everything else goes wrong. It only holds if the policy is solid, and a policy built on a concealed material fact can be unwound long after the premiums are paid and the loss has hit. Treat every application as a full-disclosure document, vet what your co-owners and managers know, and don’t assume that an unasked question is a problem you get to keep quiet. The insurer that never asked can still rescind, and by the time you find out, the coverage you counted on may already be gone.