Examkin

Question

Difficulty: Very hardCompleting the Application

Independent Producer Lin is assisting a freelance architect with an application for an individual disability income policy. The architect provides a check for the initial premium. During the application interview, the architect discloses the existence of a small, active association disability policy but states they intend to cancel it next month.

Lin instructs the architect to leave the 'Existing Disability Coverage' section of the application entirely blank, stating, 'It will be canceled before this new policy is issued, so there is no need to declare it.' Both parties sign the application, and Lin submits it to the home office.

The insurer's underwriting department fails to notice the blank section and issues the policy as applied for. Five months later, the architect suffers a severe back injury and files a claim. The insurer's investigation reveals that the association policy was never canceled and is actively paying benefits.

Based on the regulatory standards for completing an insurance application, which of the following is the legally accurate outcome regarding the insurer's obligations?

  1. A
    The insurer may deny the claim and rescind the policy because the failure to disclose existing coverage constitutes a breach of warranty, which voids the contract regardless of the application's blank status.
  2. B
    The insurer must immediately return the original application to the insured for completion and signature before determining whether to pay or deny the pending claim.
  3. The insurer is prohibited from denying the claim based on the undisclosed prior coverage because issuing the policy with an unanswered question constitutes a legal waiver of the right to that information.Answer
  4. D
    The insurer may deny the claim because the producer exceeded her express authority by advising the applicant to omit material facts, which retroactively invalidates the contract's consideration.

Answer

The insurer is prohibited from denying the claim based on the undisclosed prior coverage because issuing the policy with an unanswered question constitutes a legal waiver of the right to that information.
When an insurance company receives an incomplete application and chooses to issue the policy anyway, it legally waives its right to the missing information. The insurer cannot later deny a claim based on facts that would have been revealed had they required the blank question to be answered prior to policy issuance. While the producer acted improperly during field underwriting, the ultimate responsibility to verify the application's completeness rests with the insurer's home office.

Step-by-Step Solution

1
Analyze the field underwriting actions
The producer improperly instructed the applicant to leave a material question blank, resulting in an incomplete application being submitted.
Identifies the core procedural error at the point of sale.
2
Evaluate the insurer's underwriting actions
The home office underwriter failed to notice the blank question and issued the policy anyway.
Determines the point where the legal doctrine of waiver was triggered.
3
Apply the legal doctrine of waiver
By issuing the contract without requiring the blank section to be completed, the insurer voluntarily relinquished its right to that specific underwriting information.
Connects the insurer's administrative oversight to contract law principles.
4
Determine the claim outcome
The insurer must honor the contract and process the claim, as they cannot penalize the insured for a blank question they previously accepted.
Provides the final legal resolution to the scenario.

Key Concept

Completing the Application: Waiver of Incomplete Information
Rate this question

Topics

Completing the Application

More questions from this topic