Six months after issuing a Business Owners Policy (BOP) to a restaurant, the insurer discovers that the applicant provided inaccurate answers regarding the business's prior loss history on the original application. Under typical state insurance laws, which of the following conditions must be satisfied for the insurer to legally void the contract due to this misrepresentation? (Select all that apply.)
- The inaccurate statement was material to the acceptance of the risk or the hazard assumed by the insurer.Answer
- The insurer relied upon the inaccurate statement when making the underwriting decision to issue the policy.Answer
- CThe inaccurate statement must be legally classified as an absolute warranty rather than a standard representation.
- DThe insurer must demonstrate that the inaccurate information relates to a question the applicant left blank, which the underwriting department initially overlooked.
Answer
The conditions that must be satisfied are that the statement was material to the acceptance of the risk and that the insurer relied upon the statement when making the underwriting decision.
For an insurer to successfully void a contract based on a misrepresentation, the false statement must be material to the risk and the insurer must have relied upon it when making the underwriting decision. This means the insurer would not have issued the policy, or would have issued it under different terms or premiums, if the true facts were known.
Step-by-Step Solution
Key Concept
Warranties, Representations, and Concealment