Under California law, if an insured's statement constitutes a warranty and the warranty is breached and material to the risk, the insurer may:

Why D is correct

California Insurance Code Section 447 provides that the violation of a material warranty entitles the insurer to rescind, which means treating the contract as void and being relieved of liability. A warranty is a statement or promise that the facts are as represented, and it may be express or implied. If the warranty proves false and is material to the risk, the insurer's obligation to provide coverage ends, which is the remedy the statute authorizes.

Why the other options are wrong

• A) Rescission, not a premium adjustment, is the remedy for a material breach of warranty.
• B) The insurer is relieved of liability rather than forced to continue the policy and sue for damages.
• C) Warranties are recognized in California under CIC Sections 440 through 449 and may be express or implied.

Memory hook

A broken material warranty means the policy is undone.

Why A is correct

Section 447 provides that a breach of warranty is a defense to the insurer's liability if the warranty was material to the risk or contributed to the loss. Because a warranty is part of the contract, the insurer may rescind or avoid the policy when a material warranty is broken. This contrasts with a representation, which must be both false and material to support rescission.

Why the other options are wrong

• B) The statute gives the insurer a defense to liability; it does not provide a premium adjustment remedy.
• C) Fraud need not be proven; breach of a material warranty is itself a defense under Section 447.
• D) Extending coverage is the opposite of the statute's effect; a material breach defeats, not extends, liability.

Memory hook

Warranty = part of the contract; break a material one and the policy can be voided. Fraud is not required.