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Difficulty: HardSources of Underwriting Information

A home office underwriter is cross-referencing multiple third-party reports for a complex life insurance case. An Attending Physician's Statement (APS) indicates a past, minor health condition that the applicant honestly forgot to include on Part II of the application. Concurrently, an Investigative Consumer Report reveals a documented history of severe reckless driving. To expedite the policy issuance, the assigned agent proposes correcting the medical omission directly on the submitted application documents. Based on the regulations governing underwriting information sources, which of the following is the correct assessment of this scenario?

  1. The omitted medical history is considered a representation, not a warranty, and any resulting alterations to the application must be verified and initialed directly by the applicant.Answer
  2. B
    The discrepancy discovered via the APS constitutes a false warranty, rendering the contract automatically voidable, which grants the agent the authority to correct the document.
  3. C
    Since the APS provides verifiable medical facts from a licensed physician, the agent is permitted to unilaterally correct the application's medical section to ensure the underwriter has an accurate risk profile.
  4. D
    The driving history revealed by the Investigative Consumer Report represents a physical hazard, which immediately disqualifies the applicant without the need for further Fair Credit Reporting Act disclosures.

Answer

The omitted medical history is considered a representation, not a warranty, and any resulting alterations to the application must be verified and initialed directly by the applicant.
The correct answer accurately applies two fundamental rules regarding sources of underwriting information: first, that information provided by the applicant on Part II of the application is treated legally as a representation. Second, when an underwriter finds a discrepancy using a third-party source like an APS, the agent cannot simply rewrite the application; procedural rules require the applicant to initial any changes to their original statements.

Step-by-Step Solution

1
Analyze the legal nature of the applicant's statements on the application source.
Statements made by an applicant are representations (believed to be true to the best of their knowledge), not warranties (absolute guarantees of truth).
Because the applicant honestly forgot the minor condition, it is a misrepresentation, but not necessarily fraud or a breach of warranty.
2
Evaluate the legality of the agent's proposed action regarding the application document.
The agent cannot unilaterally change the application. The applicant must be present to initial any corrections or a new application must be filled out.
The application is a primary legal source of underwriting information and forms the basis of the contract; unauthorized alterations violate agency law.
3
Classify the hazard found in the Investigative Consumer Report.
Reckless driving is classified as a morale hazard (an attitude or behavioral pattern that increases risk), not a physical hazard.
Accurately classifying information from third-party sources is required for proper risk rating and determining which federal regulations (like FCRA) apply to adverse actions.

Key Concept

Interaction of Underwriting Sources and Procedural Rules
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Topics

Sources of Underwriting Information

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