During the application process for a personal homeowners policy, an applicant leaves a question regarding the presence of a swimming pool entirely blank. The insurance company's underwriter issues the policy without requesting the missing information. Six months later, a guest is injured at the pool, and the insurer attempts to deny the liability claim by arguing the applicant concealed the pool's existence. Based on insurance contract law, which of the following best explains why the insurer will be required to pay this claim?
- By issuing the policy without the requested information, the insurer waived its right to that information and is now estopped from using it to deny coverage.Answer
- BThe insurer is protected from paying the claim because the applicant's failure to answer constitutes a breach of a material warranty.
- CThe agent's implied authority automatically guarantees coverage for unaddressed hazards when the policy is delivered to the insured.
- DBecause insurance policies are contracts of adhesion, the ambiguity of the blank answer is strictly interpreted in favor of the insurer's right to deny the claim.
Answer
The insurer waived its right to the missing information by issuing the policy and is now estopped from denying the claim based on that omission.
Waiver is the voluntary relinquishment of a known legal right. When an insurer accepts an incomplete application and issues a policy anyway, it waives its right to demand that information later. Estoppel is the legal consequence that prevents the insurer from reasserting that waived right to deny a claim.
Step-by-Step Solution
Key Concept
Waiver is the intentional relinquishment of a known right, and estoppel is the legal consequence that prevents a party from reclaiming a right that has been waived.