What is “Material Misrepresentation” in Life Insurance?

Life Insurance Misrepresentation defined by a national life insurance beneficiary attorney.

Material misrepresentation is an untrue statement or omission that affects an insurer’s decision whether to issue a life insurance policy, and if issuing the policy, what premium the insured will pay. Usually the omission or untrue statement is meant to work in the insured’s favor, making the insured seem like less of a risk to the insurance company..

The two year period after the insurer issues a life insurance policy is called the “contestability period.” During the contestability period, the insurer has the right to rescind a life insurance policy if, after an investigation, it finds that the insured made a mistake or lied on the initial application and medical questionnaire.

In virtually every state in the U.S., our attorneys have been very successful in getting clients’ claims paid when they were initially denied due to alleged misrepresentation on a life insurance application or medical questionnaire. Call us at 1-855-865-4335 to discuss your case. We don’t get paid unless you do!

What is Rescission in Life Insurance?

When insurers deny a beneficiary’s claim due to alleged misrepresentation on the part of the insured, they are exercising their right to “rescind” the policy, meaning, they never would have written the policy but for the insured’s untrue statement or omission. The policy is deemed void ab initio, which means it is treated as invalid from the outset.

When Can an Insurer Rescind a Life Insurance Policy?

An insurer can rescind a life insurance policy when the insurer can show any material misrepresentation on the part of the insured. The insurer’s burden of proof varies by state.

Some common defenses to an allegation of material misrepresentation are:

  • The insured made a mistake on the application, and had no intent to deceive;
  • The alleged life insurance misrepresentation had nothing to do with the cause of death;
  • The life insurance agent made the mistake or misrepresentation;
  • The insured merely should have paid more in premiums if the insurer knew about the mistake or lie;
  • A material question on the application was ambiguous;
  • The insured’s answers should have prompted further investigation.

What if there was No Intent to Deceive on the Part of the Insured?

It depends where the insured took out the policy. Many states allow an insurer to rescind a life insurance policy and deny the claim even if there was no intent to deceive on the part of the insured. Those states do not differentiate between an honest mistake and a lie, and rescission can happen whether the death occurred within the contestability period or not.

Case Study: in South Carolina, a death benefit claim was denied for misrepresentation about COPD, however, the insured was never diagnosed with COPD.  South Carolina law requires proof that (1) the insured’s statement was false; (2) the falsity was known to the insured; (3) the falsity was material to the risk; (4) the falsity was made with the intent to defraud the insurer; (5) the false statement was relied on by the insurer. False answers made to the best of insured’s knowledge and belief does not satisfy the element of intent. We got our client beneficiary paid.

Case Study: in Illinois, an insured disclosed all medical information, including a hospital trip and follow up visits. The agent prepared the application. When the insured died, the insurer denied the claim for death benefits because the agent had neglected to record the insured’s disclosures completely. Under Illinois law, misrepresentation requires actual intent to defraud. Because the insurer cannot use fraudulent, careless, negligent, or mistaken actions of an agent to avoid payment, we got our client paid.

What if the Alleged Misrepresentation Had Nothing to Do with the Cause of Death?

In some states, an insurer will rescind the policy even if the alleged misrepresentation had nothing to do with the cause of death, even if the contestability period expired. We have gotten our beneficiary clients’ claims paid when the alleged misrepresentation was not “material” to the cause of death.

Case Study: in Kansas, an insured died of natural causes but the insurer tried to rescind the policy due to incorrectly-answered questions on the questionnaire. Under Kansas law, an insurer can only rescind a policy if it proves that the insured made an untrue statement or omission of material fact with the intent to deceive. In order for a misrepresentation to be material, it must have directly contributed to the insured’s death. Because the insured died due to natural causes, we got our beneficiary client paid.

Case Study: in Maryland, an insured and his fiance completed a life insurance application via agent with five people present and the insured was never asked about drug abuse. Insured was later murdered. An insurer has the burden to prove fraud and materiality of misrepresentation. Although the insured did not disclose drug use, he was not asked about it and did not receive medical treatment for it. Because the drug use was not material to the death and the insured was not asked about it, we got our client paid.

Wondering if drug overdose is an accidental death covered by life insurance? It can be. Call us if your life insurance claim was denied because of drug overdose.

If you or someone you know is abusing drugs or suffers from drug addiction, call the Substance Abuse and Mental Health Services Administration (SAMHSA) hotline at 1-800-662-HELP (4357) for free and confidential help, 24 hours a day.

What if the Life Insurance Agent Made the Misrepresentation?

We have seen many, many cases where the agent or broker completed the application and medical questionnaire for the insured, and either made a mistake or intentionally omitted a fact.

In these cases, we have argued successfully that knowledge of the disputed fact is imputed to the insurer through the actions of its agent, and that there was no intent to deceive on the part of the insured.

Case Study: in Georgia, a life insurance agent completed the application for the insured indicating that the insured had no material medical history at all, although the insured was confined to a wheelchair and visibly had an amputation of lower extremities. Because actual knowledge of the agent’s incorrect statements in the application is imputed to the insurer, we got our beneficiary client paid.

Case Study: in New Mexico, an insured had cancer 15 years earlier and disclosed to the insurance agent that she visited an oncologist every six months. The agent did not disclose this on the application for life insurance. When the insured died, the insurer tried to rescind the policy due to misrepresentation, but we got our beneficiary client paid because information conveyed to the agent is imputed to the insurer.

Case Study: in Oklahoma, an employer switched the company’s group policy to another insurer, and the insured was asked only if she wanted the same coverage, which she did. After she died, the new insurer claimed misrepresentation because the insured did not disclose her full medical history. However, the new insurer did not require the insured to complete an updated medical questionnaire at the time. We got our client beneficiary paid.

Case Study: in New York, an applicant who was blind and had diabetes had an agent fill out the life insurance application. The agent marked “No” for both conditions. When the insured died, the insurer sought to rescind the policy for misrepresentation, but because the insured was blind she could not have seen the application. We got our beneficiary client paid.

When the Insured Would Have Paid More in Premiums but for the Alleged Misrepresentation.

People who are older or who have existing medical conditions or previous surgeries will pay more in premiums because they present more of a risk of loss to an insurer. If a person lies about age or medical history on their application, the insurer will charge less in premiums but may have the right to rescind the policy if they discover the misrepresentation.

Case Study: the application listed the insured’s age as seven (7) years younger than he was. When he died, the insurer tried to rescind the policy due to misstatement of age. This policy was governed by Delaware law, and the solution was to settle for most of the death benefit amount by calculating what premiums the insured would have paid if the insurer knew his correct age, and subtracting that amount from the death benefit.

Ambiguous Questions on the Questionnaire Resulted in Misrepresentation.

If a question on a medical questionnaire is ambiguous, it and the insured’s response can be construed against the insured. Often a question will prompt an incomplete answer or an answer that puts the insurer on notice that there may be more to the story.

Case Study: In response to  “In the past 3 months, have you consulted a doctor or had treatment, medication or diagnostic tests of any type?” the insured answered “Yes.” Underneath the question, the insured added, “Taking Nexium 40mg for Acid Reflux.” When she passed, the insurer denied the beneficiary’s claim due to alleged misrepresentations, asserting that insured was diagnosed with dyspepsia, gastroesophageal reflux disease with esophagitis, gastritis and helicobacter pylori, weight loss, was taking Nexium, Biaxin, Zantac and Flagyl, and was recommended to have an upper endoscopy.Under Georgia law, the existence of circumstances from which constructive knowledge of material information may be imputed to the insurer will estop the insurer from relying upon the falsity of such answers in seeking to avoid liability under the policy. The insured made no further inquiry, therefore it was no failure of the insured to disclose. Also, under Georgia law, courts have consistently found that compound questions to be answered with a “Yes” or “No” are ambiguous by law, and ambiguities are always be construed in favor of the insured.

Case Study: in New Hampshire, a family took out a life insurance policy. The application had room for five names, but only two doctor’s names, so it was unclear to the parents whether the medical questions applied to the children or not. Questions are ambiguous when there are two reasonable interpretations, and because ambiguous questions are interpreted in favor of the insured, we got our client paid.

Case Study: in Arizona, an agent prepared a life insurance application for an insured and her son. She only spoke Spanish, and several questions on the application were ambiguous in that it was not clear whether facts or an opinion regarding the son’s health were sought. The son later died. Because in Arizona an insurer must prove actual fraud to rescind a policy for misrepresentation, we got our client paid.

What if the Insured’s Answers Should Have Triggered Investigation by the Insurer?

In some states, an insurer has a duty to investigate if any answers on the insured’s application or medical questionnaire indicate there may be more to the story.

Case Study: in New Mexico, an agent completed an application for the insured and the insured stated that she reviewed the application and approved it. Although she did not disclose any medical conditions, that day she was using an oxygen tank and, in fact, had been diagnosed with congestive heart failure, atrial fibrillation, and diabetes. The agent failed to take note of this and his failure to disclose facts that may affect the insured’s interest makes him liable for the loss. The insurer has a duty to investigate when an applicant gives sufficient information to alert the insurer to a medical condition. Because the agent failed to warn the insurer of an observable health condition, the insurer could not rescind the policy and we got our client beneficiary paid.

If Your Claim Has Been Denied Due to Material Misrepresentation, Talk with us – our lawyers are among the Best Life Insurance Beneficiary Attorneys in the United States. As you have read, in many states beneficiaries can successfully defend against insurance companies’ allegations of material misrepresentation. Regardless of where you live or what state law controls, you need vigorous representation to get paid. Contact us for a free case evaluation.  You pay no fee unless we get you paid.
Written By: Chad Boonswang
Chad G. Boonswang, Esquire is a litigation lawyer based in Philadelphia, PA. Selected as an ASLA 2014, 2015, 2016, 2017 and 2018 Top 100 Litigation Lawyer, Mr. Boonswang plays to win. As a lawyer, athlete, and scholar, he has always put in the energy, time, and commitment to be the best. After working for several prominent law firms in Philadelphia, including Montgomery McCracken Walker & Rhoads LLP, he founded his own practice in 2002.  Since then Chad has recovered tens of millions of dollars on behalf of his clients from life insurance claims and catastrophic injury cases.  Year after year, he has earned a 10.00 Superb rating on Avvo.

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