An insured violated a condition of their commercial property policy that normally grants the insurer the right to cancel coverage. The insured openly disclosed this violation to their insurance agent. Despite having full knowledge of the breach, the agent accepted the insured's renewal premium, and the insurer subsequently issued the renewal policy. Several months later, a covered loss occurs, and the insurer attempts to deny the claim by citing the original policy violation. Which of the following best describes the legal principles that would require the insurer to pay this claim?
- The acceptance of the premium with knowledge of the violation constituted a waiver, and the insurer is now bound by estoppel from denying the claim.Answer
- BThe doctrine of estoppel protected the insurer's right to enforce the policy conditions, invalidating the agent's implied waiver.
- CBecause the agent exceeded their apparent authority by accepting the premium, the insurer retains the right to deny the claim.
- DThe agent's actions created an express warranty that the violation was acceptable, overriding the insurer's right to cancel.
Answer
The acceptance of the premium with knowledge of the violation constituted a waiver, and the insurer is now bound by estoppel from denying the claim.
Waiver is the intentional relinquishment of a known right. When the agent accepted the premium with full knowledge of the violation, the insurer waived its right to cancel the policy. Estoppel is the subsequent legal consequence that prevents the insurer from changing its mind and asserting the previously waived right to deny the claim.
Step-by-Step Solution
Key Concept
Waiver and Estoppel