“Let’s Call the Whole Thing Off”: Why policyholders must pay special attention to application questions and answers

To paraphrase a famous quote, “Do something today that your future self will thank you for. Make sure you pay extra attention to that insurance application.”

For an insurance contract to be legally binding, just like any other contract, there must be an offer and acceptance, supported by consideration. In most cases, the insurance application is considered the initial offer to enter into an insurance contract.

What makes the insurance application process so important is that if not done correctly, your insurance company may have the ability to rescind your insurance policy. Rescissions have the effect of making a policy void, as if the policy had never existed in the first place. Insurance companies rely on the answers given by applicants to approve and deny issuance of policies and assign premiums. The harsh potential penalty of rescission acts as a tool to reduce the occurrence of insurance fraud.

Written within most policies, exist provisions that allow insurance companies to void a contract if there is any material representation, omission, concealment of fact, or incorrect statement made by the policyholder. Insurance contracts require that both parties operate under the duty of utmost good faith, starting on the day you fill out your insurance application! Therefore, it becomes extremely important to be as truthful, complete, and accurate as possible when filling out or answering questions in the insurance application.

For example, under Florida Law, statements on an application are deemed to be representations and not warranties.¹ The burden of proof is given to the insurer to prove intentional deception or materiality.² It’s important to note that generally, misstatements, concealment, or omissions in your application need not be intentional. As long as they are material, they can be grounds to seek rescission. Meaning, your policy might be rescinded for innocent mistakes!³ Courts uniformly hold that a representation is material if it would affect the insurer’s decision to accept or reject an application.⁴

A policyholder may argue that to their defense, the information they provided was accurate to the best of their knowledge and understanding, and there existed no deliberate intent to deceive. Some courts have held that ambiguity within the questions of an insurance application may hinder an insurer from prevailing on a rescission claim.⁵ Policyholders have argued that ambiguous insurance application questions caused the insured to misunderstand the alleged intent in asking the question. While most ambiguity determinations center on the policy language, one court⁶ noted that it could also extend to the insurance application:

[W]here a question on an application lends itself to more than one reasonable interpretation, an honest answer to one of those reasonable interpretations cannot be labeled a misrepresentation.

This case is an example of one of the challenges insurers face when drafting application questions. Insurance companies would be well-served to draft insurance application questions with the same level of care they do when drafting the actual policy language.

In conclusion, you can protect your future by paying careful attention to the questions and answers within your insurance application.
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¹ FL Stat. § 627.454 (2016).
² Gipps Brewing Corp. v. Central Manufacturers Ins., 147 F.2d 6 (7th Cir. 1945).
3 Florida Stat. § 627.409 Representation in applications
⁴ Dorsey v. Mutual of Omaha Ins. Co., 991 F. Supp. 868, 873-74 (E.D. Mich. 1998).
⁵ Ocean’s 11 Bar & Grill, Inc. v. Indemnity Ins. Corp., No. 11-61577 (S.D. Fla. July 6, 2012).
⁶ Schultz v. Tilley, 91 Mass. App. Ct 539 (Mass. App. 2017).