A misrepresentation insurance policy covers a false or misleading statement that; if intentional and material, allows the insurer to cancel the insurance contract. Some insurance policies and state laws governing insurance contract provisions differ in the precise details of the conditions; under which coverage may be voided; these variations are usually denoted in state amendatory endorsements.
What is a Material Misrepresentation
The insurance company will ask you questions about yourself and your lifestyle during the insurance application process. The questions range from the mundane (name, age, and birthdate) to your family’s medical history. Cases of heart disease and cancer in your family, as well as a history of drinking; smoking, are all health-related factors that influence your insurance rates.
If your family has a history of hereditary diseases, for example, you may have to pay higher premiums; because you are more likely to succumb to those diseases than an applicant with a better family medical history.
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This fact may cause some applicants to withhold their true family medical history. Some people lie about previous hospitalizations or outright lie about family members having hereditary diseases in order to avoid paying higher premiums.
However, it is advisable that you disclose only accurate information during the application process. When you are approved for a life insurance policy in the state of California; your policy will enter a two-year contestability period. This means that your insurance provider will investigate the veracity of the information you provided for two years; after you paid your first premium. If they obtain evidence that contradicts what you said, your policy may be void.
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However, minor errors, such as the street name in your address or your surname, will not be considered a material misrepresentation. It is only “material” if the incorrect information you provided was significant enough that if the insurer had known about it from the start; it would have resulted in a fundamentally different insurance policy with different premiums.
Furthermore, even in cases of material misrepresentation, some insurance providers may still approve insurance claims. You should not, however, rely on this. To avoid complications later on, always ensure that the information you provide; when applying for a life insurance policy is correct and factual.
Material Misrepresentation Insurance Claim
A material misrepresentation is any omission, concealment of facts, or incorrect statement on the application; that would have caused the insurer to deny life insurance or issue a policy with less coverage; a higher premium if the insurer had known about this information prior to issuing the policy. It usually implies that the false statement or omission was made; to benefit the insured by making them appear to be at a lower risk.
Insurance companies claim material misrepresentation even when an applicant discloses his or her medical history in good faith; but makes an innocent mistake in one of the answers. For example, an applicant may be aware of his or her diagnosis but may be unaware; that it falls under one of the diseases listed in the application.
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We have successfully handled many denied life insurance claims at our law firm due to material misrepresentations on the application. In almost all of these cases, the insureds provided accurate information; about their medical history, but were perplexed by the wording of the question.
What Happens When an Insurance Company Discovers a Material Misrepresentation?
According to state statutes, insurers have the right to rescind or cancel, a life insurance policy issued to an individual based on incorrect information provided in an application. That is, the life insurance company can avoid paying the benefits by refunding any premiums paid and canceling the policy.
However, each state has its own set of laws that limit the extent to which life insurance companies can rely on material misrepresentation to avoid liability. Typically, one or both of the following criteria must be met:
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- Physicality. Most states require a material misrepresentation to void a policy or deny a life insurance claim. In other words, a policy will be cancelled if an insurer can demonstrate that if it had known the correct information; it would not have issued the policy or would not have issued the policy at the same premium.
- Intention. In some states, insurers must prove that the policyholder knowingly and willfully made false statements; with the intent to deceive the insurance company. That means the applicant lied on the life insurance application.
What Is Considered Material Misrepresentation: Common Examples
These are documents that may contain material misrepresentation:
- Application form for life insurance;
- Life insurance application for reinstatement;
- Amendment to a life insurance policy;
- Late enrollment life insurance application
Some of the most common material misrepresentations are as follows:
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- Misrepresenting one’s background information (criminal, financial, and employment history);
- Incorrect weight;
- Missing data, such as doctor visits or medical tests;
- Incorrect age;
When would a misrepresentation on an insurance application be term as fraud?
When applicants make willful misrepresentations with the intent to defraud or deceive, they commit fraud. If the insurance company can demonstrate that the insured intended to deceive by providing false information on the application; it can revoke the policy after a two-year incontestable period. For example, if an applicant for life insurance fails to fully disclose health conditions that the insurer claims; would have resulted in a refusal to issue a life insurance policy, the applicant claims; she has never received disability payments in the past but fails to disclose that she has previously received; disability insurance payments for the past 20 years.
What if the misrepresentation was made by the life insurance agent?
The insurance agent may have made a material misrepresentation when completing the insured’s application form and medical questionnaire; either negligently or intentionally. An experienced life insurance lawyer can assist in proving; that the insurance company is liable due to the actions of its agent in such cases.
What Should You Do If a Life Insurance Policy Applicant Fails to Complete the Application Properly?
A denied life insurance claim due to material misrepresentation has legal recourse. As a life insurance beneficiary, you have the right to investigate the denial reason and appeal the claim denial, either through an appeal process or through litigation.
The attorneys at Kadetskaya Law Firm have assisted many clients in collecting the life insurance payouts to which they were legally entitled. We understand how to fight denials of life insurance claims based on material misrepresentation.
Here are a few examples of successful material misrepresentation denial claims:
- $550,000 recovered for a claim denial based on a misrepresentation on a life insurance application form;
- $150,000 obtained for a client who was denied insurance proceeds after her husband died of a heart attack during the contestability period.
- Assisted a client in proving that the material misrepresentation was made in bad faith by the insurance agent.
Negligent Misrepresentation Insurance Coverage
While negligence misrepresentation claims are relatively uncommon, they may arise in the construction context under certain circumstances; such as using cheaper, substandard materials rather than the more expensive materials required by contract specifications; using unlicensed or unbounded subcontractors; underestimating usable space; and providing incorrect and unreasonable cost and completion time estimates.
The basis for a negligent misrepresentation claim in the context of professional services provided by architects, engineers; other design professionals in Section 552 of the Restatement (Second) of Torts:
“One who supplies false information for the guidance of others in their business transactions in the course of his business; profession, employment, or in any other transaction in which he has a pecuniary interest; is subject to liability for pecuniary loss caused to them by his failure to exercise reasonable care or competence; in obtaining or communicating the information.”
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Negligent misrepresentation is a separate and distinct tort of deception. When a defendant makes false statements, believing them to be true but lacking reasonable grounds for such a belief; he may be hold liable for negligent misrepresentation.
A negligent misrepresentation claim must include (a) a misrepresentation of a past or existing material fact; (b) without reasonable grounds for believing it to be true; (c) with the intent to induce another’s reliance on the fact misrepresented; (d) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed; and (e) damages.
Parties involved in construction disputes, on the other hand; cannot read something into a neutral statement to justify a claim for negligent misrepresentation. The tort requires a “positive assertion.” An “implied” assertion or representation is insufficient.
A contractor’s, architect’s, engineer’s, or other design professional’s opinion is not normally considered a representation of fact for the purposes; of a negligent misrepresentation claim. An opinion is a person’s belief in the existence of a fact, a prediction about a future event; or a judgment about its quality, value, authenticity, or other similar matters.
It is well established that a plaintiff must plead that he or she relied on the misrepresentation; in order to state a cause of action for negligent misrepresentation. Thus, on a claim for negligent misrepresentation, a plaintiff can recover from a developer, contractor; or design professional for a construction defect or real property; only if the plaintiff reasonably relied to his or her detriment; on the misrepresentation and suffered cognizable damages as a result of that reliance.
Example of Misrepresentation in Insurance
This instance is an example of insurance misrepresentation:
Roger is a homeowner who recently finished his basement and added a rental suite. He’s now renting it to a friend. It’s also time for his annual home insurance renewal, which he’s taking advantage of by shopping around. He discovers a much lower-cost insurance provider and decides to switch. While filling out the policy application, he must respond to a question; about whether he rents out any parts of his home to others.
Roger is fairly certain that answering “yes” will result in him having to pay higher premiums; despite the fact that he is only renting to a close friend. What’s the big deal about that? Instead, he chooses to answer “no.”
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In this case, Roger isn’t necessarily doing anything malicious; he simply wants to save some money. However, he continues to misrepresent the occupancy of his home to the insurance provider. Roger could theoretically get away with it completely. After all, if he buys home insurance online, it’s unlikely that anyone from the insurance company will ever visit him.
However, if Roger ever makes a claim, it’s much more likely that someone will stop by; he may have some problems. That’s a concern, given that the purpose of insurance is to be able to make claims.
Of course, not all misrepresentations are the same. Sometimes it’s just too small to matter; for example, an insurance company would not penalize a customer for misspelling their middle name on an application. In Roger’s case, however, the insurance provider may regard his false information as a material misrepresentation.
Frequently Asked Questions
What is an example of misrepresentation in insurance?
A misrepresentation is frequently a lie committed by commission or omission. Failure to inform your insurer that you installed a swimming pool is an example of an omission lie. A commission lie would be claiming that a sober passenger was driving when, in fact, the driver was the inebriated insured.
When would a misrepresentation on the insurance?
A material misrepresentation occurs in an insurance contract when the insured makes an untrue statement that:
1) is material to the acceptance of the risk;
2) would have changed the rate at which insurance would have been provided, or the insurer’s decision to issue the contract.
What is the most serious type of misrepresentation in insurance?
Intentional fraud is the most serious type of misrepresentation.
What are some examples of misrepresentation?
Fraudulent misrepresentation occurs when a party makes a false claim about a contract or transaction but knows it is false. For example, if a person is selling a car and knows it has a transmission problem but advertises it as being in perfect mechanical condition, they have committed fraudulent misrepresentation.