While completing an application for a comprehensive life insurance policy, an applicant is asked if they engage in any hazardous activities. The applicant answers "no," genuinely forgetting that they went scuba diving once on a vacation three years prior. The insurer issues the policy at standard rates. Later, the insurer learns about the past scuba diving trip but determines that this single instance would not have changed the premium or the underwriting decision. Under insurance contract law, how is the applicant's inaccurate statement classified and what is the legal consequence?
- AIt is considered an absolute warranty by default, allowing the insurer to void the policy because the statement was not strictly true.
- BIt constitutes intentional concealment, but because the contract is one of adhesion, ambiguities are resolved in the insurer's favor to automatically rescind the coverage.
- It is a representation that is not material to the risk, meaning the insurer cannot void the policy.Answer
- DIt is a material misrepresentation that voids the contract, unless the insurance agent unilaterally corrects the original application without the applicant's initials.
Answer
It is a representation that is not material to the risk, meaning the insurer cannot void the policy.
The statement made on the application is a representation. Because the undisclosed past activity would not have affected the insurer's underwriting decision or premium, the omission is not material to the risk. Therefore, the insurer has no legal grounds to void the policy or deny coverage.
Step-by-Step Solution
Key Concept
Representations and Materiality