Producer Patel assists a client in completing a life insurance application. The client signs the document and pays the initial premium. During the home office underwriting review, the underwriter notices that a question asking whether the applicant engages in hazardous hobbies was left entirely blank. Instead of returning the application to the applicant for completion, the insurer proceeds to issue the policy as applied for. Six months later, the insured dies in a scuba diving accident—a hazardous hobby that typically requires a higher premium classification. Based on insurance contract law regarding application completion, how must the insurer respond to the death claim?
- The insurer must pay the full death benefit because issuing the policy with an unanswered question constitutes a waiver of the right to that information.Answer
- BThe insurer will deny the claim because the underwriter originally overlooked the blank question, allowing the insurer to retroactively void the policy.
- CThe insurer will deny the claim because all answers on a life insurance application are considered warranties, and an omission guarantees policy voidance.
- DThe insurer will deny the claim and refund all premiums because the incomplete application invalidates the applicant's legal consideration.
Answer
The insurer must pay the full death benefit because issuing the policy with an unanswered question constitutes a waiver of the right to that information.
The correct answer accurately applies the legal doctrine of waiver. If an insurer receives an application with missing information and chooses to issue the policy anyway, they have voluntarily relinquished (waived) the right to that information. Consequently, they cannot use the missing information as grounds to deny a future death claim.
Step-by-Step Solution
Key Concept
Waiver of Incomplete Application Questions
Estimated Time:1m 30s