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Difficulty: MediumWarranties, Representations, and Concealment

A manufacturing company applies for a commercial general liability policy. The risk manager answers all questions on the application to the best of their knowledge. Later, the insurer discovers that some of the information provided was incorrect. In order for the insurer to legally void the contract based on misrepresentation, which of the following conditions must be satisfied? (Select all that apply)

  1. The false statement must be material to the insurer's acceptance of the risk.Answer
  2. The insurer must have relied upon the misstatement when making the underwriting decision.Answer
  3. C
    The applicant's statement must be classified as an absolute warranty rather than a representation.
  4. D
    The insurance producer must have unilaterally amended the application to correct the error prior to submission.

Answer

The false statement must be material to the insurer's acceptance of the risk, and the insurer must have relied upon the misstatement when making the underwriting decision.
For an insurer to legally void an insurance contract based on a misrepresentation, the false statement must be material to the risk (meaning the insurer would have altered the terms, raised the premium, or denied coverage had the truth been known) and the insurer must have actually relied upon it during the underwriting process.

Step-by-Step Solution

1
Analyze the legal grounds for voiding a contract due to misrepresentation.
Identify that the statement must be false, material to the risk, and relied upon by the insurer.
Statutory insurance law dictates that innocent or minor misstatements do not void a policy unless they directly impact the underwriting decision.
2
Evaluate the options against the required statutory criteria.
Materiality and insurer reliance are mandatory conditions for voiding the contract.
If the insurer would have issued the policy on the exact same terms even if the truth were known, the misrepresentation is not material and the policy remains valid.

Key Concept

Statutory criteria for voiding a policy based on misrepresentation (Materiality and Reliance)
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Topics

Warranties, Representations, and Concealment

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