Misrepresentations On Insurance Application

It may sound strange, but while public policy doesn’t encourage people to lie on insurance applications, it also recognizes that it is more important for society that insurance coverage is settled than that the truth prevail in every instance. That’s why almost every state has a two-year period after which life insurance policies can’t be contested for misrepresentations made on the application. Most states also have statutes that forbid insurers from voiding a policy based on an insurance application unless the application is attached to the policy and given to the insured when the policy is issued. They also have statutes that preclude insurers from voiding a policy based on misrepresentations that are not material to the insurer’s risk.
That is also why cases about misrepresentations on policy applications continue to be litigated in large numbers, and why cases like Stafford v. Allstate Insurance Co., 2006 Wl 335588 (W.D. Tenn. February 13, 2006) continue to be decided. The case is about whether misrepresentations on a homeowners’ policy were material to the insurer’s risk. The homeowners’ argument is an old one: if they had given full disclosure, the insurer still would have issued the policy, just at a higher premium. Courts seldom buy this argument, and this court was no exception. As the judge said, the misrepresentations were material to the risk not because the insurer would have refused to issue a policy at all, but because they increased the insurer’s risk.

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