Life Insurance Claim Denials are getting more and more common. But, the insurance companies are beginning to jump ahead of the denials and starting to rescind the policies based on their assertion that there were/are misrepresentations in the insurance application.
Statutory Requirements – In addition to common law standards, several statutory provisions regulate an insurer’s ability to avoid coverage based on a misrepresentation by the insured. These are found in the Texas Insurance Code, Chapter 705.
The statutes provide:
a. A provision stating that a misrepresentation in a proof of loss makes the policy void or voidable is of no effect and is not a defense, unless the misrepresentation was: (1) fraudulently made; (2) misrepresented a fact that was material to the insurer’s liability; and (3) misled the insurer and caused it to waive or lose a policy defense. This is found in Section 705.003.
b. A provision stating that a misrepresentation in the application makes the policy void or voidable is of no effect and is not a defense, unless the misrepresentation was material to the risk, or contributed to the contingency or event on which the policy became due and payable. This is found in Section 705.004.
c. To rely on a misrepresentation in an application as a defense, the insurer must prove it gave the insured or beneficiary notice that it refused to be bound by the policy, before the 91st day after discovering the falsity of the representation. This is found in Section 705.005.
d. A misrepresentation in an application for a life, accident, or health insurance policy does not defeat recovery under the policy unless the misrepresentation was of a material fact and effects the risks assumed. This is found in Section 705.051.
e. A life insurance policy must be accompanied by a copy of the application and any questions and answers. This is found in Section 705.103. This statute has been construed to preclude a defense based on a misrepresentation in the application, if the application is not attached.
f. A defense based on a misrepresentation in a life insurance application is not valid after the second anniversary of the policy, if the premiums have been paid, unless: (1) the insurer notified the insured of its intention to rescind the policy because of the misrepresentation; or (2) the misrepresentation was material to the risk and was intentionally made. This is found in Section 705.104.
g. The falsity of a statement in an application for an individual accident and health insurance policy does not bar a right to recovery under the policy unless the statement materially affected the acceptance of the risk or hazard assumed by the insurer. This is found in Section 1201.272.