Examkin

Question

Difficulty: MediumFraud and False Statements

A freelance graphic designer fills out an application for a personal health insurance policy. The application asks if the individual has ever been diagnosed with or treated for high blood pressure. The designer answers "no," which is completely truthful based on their current knowledge, as they have not visited a doctor in five years and feel perfectly healthy. Four months after the policy takes effect, the designer suffers a medical emergency and is diagnosed with chronic hypertension that, according to specialists, has been developing for over a decade. The insurance company investigates the claim. Which of the following describes the legal status of the insurance contract?

  1. The contract remains valid and the claim must be paid, because the applicant made a representation believed to be true rather than committing intentional fraud or concealment.Answer
  2. B
    The contract is immediately voided, because all answers provided on an insurance application are legally considered strict warranties that must be absolutely true.
  3. C
    The contract is canceled from its inception, because the applicant failed to sign a Statement of Good Health acknowledging the pre-existing condition upon policy delivery.
  4. D
    The contract remains valid, but the claim is denied because the undetected health condition represents a moral hazard that the insurer did not agree to cover.

Answer

The contract remains valid and the claim must be paid, because the applicant made a representation believed to be true rather than committing intentional fraud or concealment.
The insurance contract remains in force because the applicant's statement was a representation—a statement believed to be true to the best of their knowledge. Since the applicant had no prior diagnosis, symptoms, or knowledge of the high blood pressure, there was no intentional misrepresentation, concealment, or fraud. An innocent misstatement regarding an undiscovered medical condition does not give the insurer grounds to void the policy.

Step-by-Step Solution

1
Analyze the applicant's intent regarding the statement provided on the application.
The applicant answered truthfully based on their own knowledge, without any intent to deceive or hide information.
Fraud and concealment require a deliberate and intentional act to hide or misrepresent material facts.
2
Determine the legal standard applied to statements made by an applicant on an insurance application.
Statements made by an applicant are legally considered representations, not warranties.
A representation is a statement believed to be true to the best of one's knowledge, protecting applicants from being penalized for innocent mistakes about unknown health conditions.
3
Evaluate the insurer's right to void the policy under these specific facts.
Because the statement was an innocent misrepresentation rather than a breached warranty or intentional fraud, the insurer cannot void the policy or deny the claim.
Insurance contracts cannot be voided for innocent misrepresentations of medical conditions that the applicant was completely unaware of at the time of application.

Key Concept

Representations vs. Warranties and Innocent Misrepresentation
Estimated Time:1m 30s
Rate this question

Topics

Fraud and False Statements

More questions from this topic