Marcus applies for a commercial property insurance policy for his restaurant. Six months later, a severe fire damages the building. During the claim investigation, the insurer reviews the original application. Based on the legal doctrines of representations, warranties, and concealment, which of the following discoveries would provide the insurer with valid legal grounds to rescind the policy and deny the claim? (Select all that apply)
- Marcus intentionally hid the fact that he was storing unapproved, highly flammable industrial chemicals in the basement because he knew it would increase his premium.Answer
- Marcus signed a specific declaration guaranteeing that the building's automatic sprinkler system was fully operational, even though he had permanently disconnected it the previous year.Answer
- CMarcus answered a question stating he believed the building's roof was replaced ten years ago, though property records later revealed it was actually replaced twelve years ago.
- DThe insurance agent noticed Marcus misspelled the street name on the application and unilaterally corrected the error without having Marcus initial the change.
Answer
The insurer can void the policy based on the intentional concealment of highly flammable chemicals and the breach of warranty regarding the disconnected sprinkler system.
Rescission of an insurance contract is legally justified when an applicant intentionally conceals a material hazard or breaches an express warranty. Storing undisclosed industrial chemicals is a material concealment because it drastically alters the risk profile. Guaranteeing an active sprinkler system that is actually disconnected is a breach of warranty and a material misrepresentation. Both acts violate the doctrine of utmost good faith.
Step-by-Step Solution
Key Concept
Representations, Warranties, and Concealment