Insurance Policy Rescission

Dallas insurance lawyers and those in Mesquite, Garland, Richardson, and other places in Dallas need to know the different ways insurance companies operate. One of those is rescinding a policy.
As a general principle, prior to a loss an insurance company has the right to rescind the policy procured through mutual mistake or fraud. This is old law from the Amarillo Court of Appeals in 1931.
An insurance company may rescind a policy based on the insured’s misrepresentation, if the insurance company pleads and proves the following elements:
1) the making of the misrepresentation;
2) the falsity of the representation;
3) reliance thereon by the insurer;
4) the intent to deceive on the part of the insured in making the misrepresentation; and 5) the materiality of the representation.
Courts have held that the same rules for avoiding a policy based on a misrepresentation in the application would apply when the insured’s answers, although initially true, become false because of a change in the insured’s health before the policy was issued.
Here is an example:
The El Paso Court of Appeals issued an opinion in 1989, wherein the insured had a history of alcoholism and died from liver disease, with a final diagnosis of chronic alcoholism accompanied by cirrhosis of the liver. A psychologist testified, as an expert, that the insured was an alcoholic, that a telltale trait of alcoholism is denial, and therefore the insured had no intent to deceive the insurance company when he stated on his application that he had no alcohol problem. The court upheld the jury finding that the insured did not intend to deceive the insurance company.
Courts have clearly stated the rule requiring proof of a material misrepresentation made with with an intent to deceive applies to the insured’s failure to disclose a change in condition. There are cases where the insurance company was able to successfully void a policy if the insured failed to disclose any material change.
Something for an insurance law attorney to know about is that the “intent to deceive” element of the material misrepresentation defense creates an inevitable fact issue that will preclude the defense from being determined as a matter of law. As such, an insurance company can obtain summary judgment on all the elements of the material misrepresentation except the “intent to deceive” element. This is vital for an insurance law attorney to know. Even on very weak cases this one element often times makes an otherwise weak case, much stronger.