Court of Appeal holds insurer entitled to rescind aircraft policy where jet was purchased with funds embezzled by Michael Avenatti
DALLAS — October 1, 2026 — Cunningham Swaim, LLP today announced a significant appellate victory on behalf of its client, Starr Indemnity & Liability Company. In a unanimous opinion certified for publication, the California Court of Appeal, Second Appellate District, Division Six, reversed in its entirety a Santa Barbara County jury verdict and judgment against Starr totaling more than $21.5 million, including $15 million in punitive damages. Passport 420, LLC v. Starr Indemnity & Liability Co., 2d Civ. Nos. B343113, B344423.
The case arose from Starr’s aircraft insurance policy covering a jet owned by Passport 420, LLC, an entity whose manager was former attorney Michael Avenatti. In 2019, the United States government seized the aircraft in connection with Avenatti’s federal criminal prosecution. It was undisputed that Avenatti had embezzled approximately $2 million from a client and used those funds to pay for his share of the jet’s purchase price. When Passport sued for the insured value of the aircraft, Starr contended that Passport’s concealment of the embezzlement entitled Starr to rescind the policy. The trial court disagreed, and the jury awarded Passport $3.99 million in policy benefits and $15 million in punitive damages. With prejudgment interest, attorney’s fees, and costs, the judgment exceeded $21.5 million.
The Court of Appeal reversed, holding that the trial court erred in denying Starr’s motion for judgment. In an opinion authored by Justice Kenneth Yegan and joined by Presiding Justice Cody and Justice Baltodano, the Court established two important principles of California insurance law:
- An applicant’s duty of disclosure does not depend on the insurer’s questions. Under Insurance Code sections 332, 334, and 336, an applicant must affirmatively disclose material facts within its knowledge, and an insurer may rescind for concealment of a material fact even if its application never asked about that fact. The Court held, as a matter of law, that the use of embezzled funds to purchase the aircraft was material because no reasonable insurer would knowingly cover property against government seizure under those circumstances.
- The “malevolent agent” exception does not shield an insured that benefited from its agent’s conduct. The Court held that Avenatti’s knowledge of his crime was imputed to Passport because he was acting as Passport’s manager, and for Passport’s benefit, when he applied the funds to the aircraft purchase and when Passport obtained the Starr policy.
“This published decision is vindication for the Cunningham Swaim trial team, who were entitled to prevail as a matter of law in the trial court,” said Steven D. Sanfelippo, the Cunningham Swaim partner who led the appeal. “The Court of Appeal’s decision restores the proper balance of the disclosure obligations that make the insurance system work, and it confirms that an insurer cannot be forced to pay for a loss that arose from a risk deliberately hidden from it. We are grateful to Starr for its trust and for its resolve in seeing this case through.”
“This is an outstanding result for Starr and an important precedent for the insurance industry,” said Ross Cunningham, Managing Partner of Cunningham Swaim. “Steve and his team brought exceptional skill, persistence, and judgment to a difficult appeal. Starr stood on principle in refusing to underwrite the consequences of a committed criminal’s fraud, and Steve championed that position from pretrial through the appellate court. I could not be prouder of the work he and our team did on Starr’s behalf.”
The Cunningham Swaim trial team included Ross Cunningham and Don Swaim. The appellate team included Steven D. Sanfelippo and Jonathan E. Hembree.
The opinion can be found here: https://app.box.com/s/xkv4v2iz1qfo2eefdx96wb1tl854fquq
