An architect is applying for an individual disability income policy. The application requires the individual to list all current recreational activities. The applicant lists golf and tennis but deliberately leaves out their frequent participation in amateur rock climbing. The applicant knows this high-risk activity would likely result in a much higher premium or a declined application. Six months after the policy is issued, the insured is severely injured in an automobile accident and submits a claim for disability benefits. According to the legal concepts of insurance contracts, what is the most likely outcome of this claim?
- AThe insurer will void the policy based on a breach of warranty, because all statements provided on an insurance application are considered absolute guarantees of truth.
- BThe insurer is barred from denying the claim under the doctrine of estoppel, because accepting the initial premium legally prevents the insurer from challenging application statements.
- The insurer will deny the claim and rescind the policy because the intentional omission constitutes a material concealment.Answer
- DThe insurer will process the claim but direct the agent to unilaterally amend the original application to include the undisclosed hobby.
Answer
The insurer will deny the claim and rescind the policy because the intentional omission constitutes a material concealment.
The correct answer accurately states that intentional and material concealment gives the insurer the right to rescind the policy. Because the underwriter would have made a different decision had they known about the high-risk hobby, the concealment is material. It does not matter that the actual cause of the disability (an automobile accident) was unrelated to the concealed hobby.
Step-by-Step Solution
Key Concept
Material Concealment
Estimated Time:1m 15s