Vanguard Consulting, a business partnership, initiates a key-person life insurance application for its executive director, Marcus. The partnership is designated as the sole policyowner, while Marcus is the proposed insured. Prior to submitting the physical documents, the insurance producer realizes that a section regarding Marcus's private aviation activities was left entirely blank. The producer forwards the paperwork as-is. The insurer's underwriting department also misses the omission and issues the policy. Ten months later, Marcus dies in a private aircraft accident. Which of the following describes the legal obligation of the insurer in this scenario?
- The insurer is obligated to pay the death benefit because issuing the contract with an unanswered question acts as a waiver of the insurer's right to that information.Answer
- BThe insurer will deny the claim because the producer was required to obtain verbal authorization from the insured to complete the missing section prior to submission.
- CThe insurer will deny the claim on the grounds of material concealment, as the proposed insured had a strict duty to affirmatively disclose the hazardous activity.
- DThe insurer will temporarily suspend the claim and return the application so the policyowner can retroactively answer and initial the omitted section.
Answer
The insurer is obligated to pay the death benefit because issuing the contract with an unanswered question acts as a waiver of the insurer's right to that information.
In insurance contract law, if an insurer receives an application with missing information or unanswered questions and issues the policy anyway, the insurer has legally waived its right to that information. Consequently, the insurer cannot later deny a claim on the basis that the question was left blank. The burden was entirely on the underwriter to return the incomplete application prior to policy issuance.
Step-by-Step Solution
Key Concept
Waiver of Unanswered Application Questions