Adding my son to our auto policy

[VolAgent]

I would be willing to be that the State Insurance Commissioner would see it differently. Maybe go back and adjust premiums, but the claim would have to be paid.

Another hypothetical...I buy $100,000 life insurance policy. I am asked if I am a smoker. I say no. But, the company accepts smokers and has a rate for them. My rate should be $100. But, I lied and say no. So, they charge me $90. Six months later I get in a car crash and die. Upon investigation, it turns out I was a life long smoker. Did you mean to tell me that an insurance company would try to rescind? I think a first year attorney would get that claim paid.

Different example.... I buy $100,000 life insurance policy. I am asked if I am a smoker. I say no. But, the company accepts smokers and has a rate for them. My rate should be $100. But, I lied and say no. So, they charge me $90. Six months later I have a massive heart attack and die. Upon investigation, it turns out I was a life long smoker. Did you mean to tell me that an insurance company would try to rescind? I think a first year attorney would get that claim paid.

Material mispresentation also includes anything that would cause the policy to be issued under different terms.

Material Misrepresentation Law and Legal Definition | USLegal, Inc.

 

[marc82much]

I think reading that citation makes my point. Using my life insurance example, In the real world. "It is a misrepresentation that would be likely to induce a reasonable person to manifest his assent"... that is the problem for your argument. The insurer would have "assented" in either case. The only difference would be premium charged. Not acceptance or denial. Now, if the insurer did not accept smokers, the rescission might hold. But, in front of an insurance commissioner, with the gallery filled with his grieving, now destitute wife and grieving now penurious children...methinks the claim would be paid and adjusted for the incorrect premium. Show me a case like this anywhere in the US where the insured was represented and a rescission stuck.

 

[VolAgent]

I think reading that citation makes my point. Using my life insurance example, In the real world. "It is a misrepresentation that would be likely to induce a reasonable person to manifest his assent"... that is the problem for your argument. The insurer would have "assented" in either case. The only difference would be premium charged. Not acceptance or denial. Now, if the insurer did not accept smokers, the rescission might hold. But, in front of an insurance commissioner, with the gallery filled with his grieving, now destitute wife and grieving now penurious children...methinks the claim would be paid and adjusted for the incorrect premium. Show me a case like this anywhere in the US where the insured was represented and a rescission stuck.

Smith v. Tennessee Farmers. The basis of Morrison v. Allen.

There are plenty more. It merely need be material to the risk and charging a different premium is material to the risk.

 

[adjusterjack]

Also, I thought rescission could only be used when there was a material mis-representation of fact that would have caused the carrier to NOT issue the policy to begin with.

There are three elements to materiality, not just one:

1 - The carrier would not have issued the policy.
2 - The carrier would have charged more for the policy.
3 - The carrier would have limited some of the coverage.

I buy auto insurance, put down my DOB as 1-1-1970 when it should have been 1-1-1960. Carrier charges me accordingly. I have an accident. In the investigation, they find the mistake in age. Can they rescind?

You are thinking about life insurance where a misstatement of age allows for only an adjustment of premium by law. Not so with auto insurance where the age of the driver is material. A 26 year old driver is a much lower risk and is charged much lower rates than a 16 year old driver.

If I buy a family auto policy and my oldest is 13...three years later he turns 16, gets a license and starts driving. I don't inform my carrier. Is that fraud.

Yes. You are intentionally concealing a material fact for monetary gain.

I would be willing to be that the State Insurance Commissioner would see it differently. Maybe go back and adjust premiums, but the claim would have to be paid.

Denial and rescission involve company lawyers who very carefully research the intent before allowing it to happen. If there is even the slightest doubt we go to court and seek a declaratory judgment. The insurance commissioner's opinion in the matter is superfluous.

With regard to smoking and life insurance, here is one example of a denial and rescission because the insured lied about smoking on the application. The denial and rescission was upheld by the Court of Appeals:

MONTGOMERY v. FIDELITY & GUARANTY LIFE INSURANCE CO., et al.

There are many more like that in all states where the courts have upheld denial and rescission when there was no doubt about the applicant's lie.

 

[InsCommentary]

What AdjusterJack said. In some states, intentional misrepresentation does not have to be material and where it does, premium is often considered material. I'm publishing a book on resolving claim disputes in a couple of months and here's an excerpt:

Application

An insurance contract, like any other contract, in order to be legally binding, must meet several tests, one of which is that there must be offer and acceptance supported by consideration. In most cases, the application for insurance is the request by a prospective insured for an offer. The importance of the application to the insurer is that it, and often supporting documents in the underwriting file, is used to determine eligibility, insurability, and price.

Therefore, as a matter of utmost good faith, it is important that the information on the application be as complete and accurate as possible. Most policies allow the insurer to void the contract if there is any (usually intentional) material misrepresentation, concealment, or fraud on the part of the insured. Therefore, if a claim occurs that involves such a breach of contract by the insured, the insurer may deny the claim and/or rescind the policy.

Since statements on an application are usually considered representations and not warranties, it is commonly incumbent upon the insurer to prove intentional deception and/or materiality. In some states, like California and New York, a material misrepresentation or concealment, even if innocently made, are grounds for rescission, though exceptions may be made for statutorily mandated coverages (e.g., in NY, the so-called “Teeter Rule” as established in Teeter v. Allstate Ins. Co., 9 N.Y.2d 655, 212 N.Y.S.2d 71, 173 N.E.2d 47).

 

[VolAgent]

Taking a step back. My question to everyone involved in insurance, whether a consumer, an agent, or company representative: If you want the company to treat you right, good faith, then why is it acceptable for you not to extend the same to the company?

Why is it ok to lie as a consumer, but demand utmost integrity, honesty and good faith from a company?

Why can you demand better than you are willing to give?

 

[InsCommentary]

Another book excerpt:

Doctrine #5: All parties have a duty of utmost good faith.
Despite what many recent “insurtech” startups would like consumers to believe, buying insurance is not like buying a product on Amazon, for many reasons we won’t go into right now. But one of those reasons is that the insurance transaction is one of trust based on conditional promises. The insured pays a premium with the expectation that IF a covered claim occurs, the insurer will fulfill its contractual obligation to pay promptly and fairly. The insurer relies on the insured to abide by a number of contractual conditions, including not deliberately concealing or misrepresenting material information and the prompt and honest reporting of claims. The insurance transaction, the product, the process is one of utmost good faith, referred to in insurance contract parlance as the doctrine of uberrimae fidei, or “most abundant faith.”

 

[LostDollar]

The cost of liability insurance for teenage drivers is so onerous for many, many families that it stretches issues of morality somewhere between "almost to" and "beyond" a breaking point.

 

[VolAgent]

The cost of liability insurance for teenage drivers is so onerous for many, many families that it stretches issues of morality somewhere between "almost to" and "beyond" a breaking point.

Tell them to stop getting in accidents then. Get them an old beater to drive instead of a new car. Companies are scared to death of teen drivers and the potential claims.

 

[InsCommentary]

An article I wrote quite a while ago:

Keeping Auto Premiums Low by Failing to Disclose Teenage Drivers

Author: Bill Wilson

“In our local market it has become fairly typical for certain (non-independent) agents to tell their insureds that they don't have to disclose/rate their teenage drivers because ‘we'll cover them if they're in an accident and you will just have to pay back premium.’ As you can imagine, this puts us at a big competitive disadvantage. Anything out there that you're familiar with that we can use to combat this? Case law or other? I always tell people when they hear this to 'ask your agent to put it in writing'."

Our response depends on the answers to two questions:

1. Can you PROVE this?

2. Are you willing to pursue this with your insurance department?

If so, and while we're certainly not legal experts, if the rates/rules filing a carrier has made with the state DOI calls for premium charges for teenager operators and these agents are deliberately not charging premium for them, that sounds like insurance fraud to me. If this is being done unilaterally by the agent without the knowledge or consent of the carrier, they may also be defrauding the insurer.

This is reminiscent of what some agents did as "guaranteed replacement cost" because popular. They were deliberately undervaluing property for competitive reasons, knowing that the actual available insurance was 20% or more higher than the declared limit on the policy. As a result, many insurers discontinued GRC coverage.

Based on the information below, what you describe appears to be insurance fraud in your state:

20-443.01. Misrepresentation in sale of insurance; violation; classification
A. It is unlawful for a person to knowingly make any misrepresentation as proscribed by section 20-443 in the sale of insurance.
B. A person who violates this section is guilty of a class 5 felony.

20-466.01. Fraud; classification
A person who violates section 20-463 or 20-463.01 with the intent to injure, defraud or deceive an insurer is guilty of a class 6 felony.

20-463. Fraud; injunction; penalties; restitution; definitions
A. It is a fraudulent practice and unlawful for a person to knowingly:
1. Present, cause to be presented or prepare with the knowledge or belief that it will be presented an oral or written statement, including computer generated documents, to or by an insurer, reinsurer, purported insurer or reinsurer, insurance producer or agent of a reinsurer that contains untrue statements of material fact or that fails to state any material fact with respect to any of the following:
(a) An application for the issuance or renewal of an insurance policy.
(b) The rating of an insurance policy.
(d) Premiums paid on any insurance policy.

In addition to possible rates/rules/forms filing law and fraud statutes, would this qualify as an unfair trade practice?

20-448. Unfair discrimination; definitions
C. As to kinds of insurance other than life and disability, a person shall not make or permit any unfair discrimination in favor of particular persons or between insureds or subjects of insurance having substantially like insuring, risk and exposure factors, or expense elements, in the terms or conditions of any insurance contract, or in the rate or amount of premium charged.

If evidence is lacking and/or you do not want to pursue specific individuals, perhaps this situation can be discussed with the insurance department and they can be coaxed into issuing a bulletin to agents and insurers outlining this or similar practices as being major violations of the insurance code.

Virtual University - Keeping Auto Premiums Low by Failing to Disclose Teenage Drivers