Elena submits a life insurance application along with the initial premium and is issued a conditional receipt. During underwriting, the insurer discovers her involvement in a hazardous hobby and issues the policy with a premium surcharge. The insurer mails the rated policy to Elena's producer on August 10th. The producer receives the document on August 12th and leaves a voicemail for Elena to schedule a delivery meeting. Tragically, Elena dies on August 14th before returning the call or signing any documents. Which of the following statements is correct regarding the delivery and the insurer's liability?
- The insurer is not liable because the rated policy represents a counteroffer that was never legally delivered and accepted.Answer
- BThe insurer is liable because constructive delivery occurred on August 10th when the policy was placed in the mail.
- CThe insurer is liable because the conditional receipt established irrevocable coverage on the date of application.
- DThe insurer is not liable because the producer failed to use their express authority to sign the policy amendment on Elena's behalf.
Answer
The insurer is not liable for the death benefit because the rated policy is a counteroffer that required actual delivery, acceptance, and additional premium.
The correct answer identifies that issuing a policy with a premium surcharge changes the original terms of the application, thereby turning the policy into a legal counteroffer. Because it is a counteroffer, the insurer cannot simply mail it to complete delivery. Actual delivery must take place so the agent can explain the changes, collect the additional required premium, and obtain the applicant's signature on the amendment. Since the applicant died before accepting these new terms, no insurance contract was ever formed.
Step-by-Step Solution
Key Concept
Actual vs. Constructive Delivery and Counteroffers
Estimated Time:1m 15s