Representations
When an applicant wishes to obtain insurance, he is usually required to fill out an application. For example, to obtain life insurance, the applicant will be required to state information about his medical condition on the application and most likely undergo a physical examination. To obtain automobile insurance, the applicant will be required to provide information as to his driving record on the application.
Representations
The statements that an applicant makes in his application for insurance that are made a part of the policy are representations. A representation is a statement of fact or a condition affecting the risk made by the applicant to induce the insurer into making a contract of insurance. The insurer requests that the applicant make such representations in order to determine whether or not it should accept the risk of insuring the applicant and to fix the premium to be charged. Thus, the applicant should use good faith in honestly answering questions on the application.
Misrepresentations
If an applicant misstates a fact that is material to the insurer's decision to accept the risk and to issue an insurance policy or a fact that is substantially untrue, the insurer is generally relieved of liability if the insured brings an action on the policy. However, it is generally held that a representation need only be substantially true as to material facts in order for the statement to not constitute a misrepresentation. Thus, a misstatement with regard to immaterial matter does not relieve the insurer of liability under the policy. With regard to questions as to the applicant's opinion, strict accuracy is not required, however erroneous the opinion may be. The burden is usually on the insurer to prove the falsity of the representation.
Materiality of misrepresentations
There are several tests for determining whether or not an applicant's misrepresentation is material and thus will relieve the insurer of any liability under the policy. The insurer and the applicant may determine for themselves what matters will be considered material or immaterial. Another test is to look to the effect that a truthful answer would have had upon the insurer. If the misrepresentation materially induced the insurer to make the contract or to fix a certain premium, it is most likely material. In other words, it is material if the insurer would not have issued the policy or would have fixed a different premium had it known the true facts. In some jurisdictions, a misrepresentation will be held material only if the insurer relied upon it. The fact that an insurer makes an independent inquiry regarding the representations does not indicate nonreliance by the insurer on answers in the application. The materiality of a misrepresentation does not depend on the subjective knowledge of the applicant.
Misrepresentations that have been held to be material include: statements as to the applicant's health or medical treatment, attending physicians, or habits; prior rejections for insurance; and the nature of the applicant's relationship to the beneficiary.
Fraud
In addition to requiring an insurer to show that a misrepresentation was material, some courts also require an insurer to show that the applicant made the misrepresentations with a fraudulent intent and that the insurer was deceived. The making of a false answer in good faith generally does not void the policy. The knowledge of the applicant should be considered in determining whether he had a fraudulent intent because he could not intend to deceive if he did not know such statements to be false.
For example, a life insurance policy will not be voided by a statement that the applicant's health was good if made without knowledge to the contrary, but it would be voided if he knew that he had a serious medical condition.
If the insurer knows the truth about the statement, it is neither deceived nor defrauded. Thus, it cannot rely on the misrepresentation to avoid its liability under the policy.
Effect of misrepresentations
The insurance policy may provide that any misrepresentations shall void the policy. However, the policy is not required to so provide in order for an insurer to avoid liability based on a misrepresentation. If the representations are substantially untrue, the policy will be avoided. However, a mere misstatement unrelated to the risk usually will not prevent an insured from recovering under the policy. If the insurer is permitted to void the policy, it must tender back the premiums received prior to suing for rescission of the policy.
Warranties
An applicant's answers to questions on the application may also be construed as warranties, which enter into and become an integral part of the insurance contract. While a misrepresentation may make a policy voidable by the insurer if material and fraudulent, a falsity in even an immaterial matter may cause an insured to be in breach of a warranty. Copyright 2006 LexisNexis, a division of Reed Elsevier Inc.
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