Expert Article Library
All Should Use Greater Care Handling Underwriting Information
by Akos Swierkiewicz, CPCU
By Akos Swierkiewicz, CPCU Email: firstname.lastname@example.org
One of the tenets of insurance law is that parties to an insurance policy are expected to deal with each other in utmost good faith. Applicants for insurance or their brokers must disclose all relevant underwriting information fully and accurately to prospective insurers. If the application contains any misrepresentation or omits information that could affect the underwriting decision of the insurer, the standard of utmost good faith is not met and the insurer may deny coverage for claims or rescind the policy.
Allegations about misrepresentation or omission usually surface in the course claim investigations by insurers. In many instances the ensuing litigation may result in denial of the claim or rescission of the policy. Even if misrepresentation or omission is not proven, litigation inevitably causes significant delays in claims adjustment and direct and indirect expenses to the parties.
Misrepresentations or omissions primarily originate from negligence by the applicant or broker during the course of the obtaining underwriting information and completing the application.
Misrepresentation or concealment is material if it affects the underwriting decision of the insurer. For example, the premium would have been higher had the insurer been aware of the true and complete facts.
State insurance laws generally allow the insurer to deny claims or rescind
the policy for misrepresentation or omission, including concealment fact or
incorrect statement, if:
[space]While most misrepresentations or omissions are unintentional, the insurer's right to deny claim payment or to rescind the policy is not limited to intentional or fraudulent misrepresentation under a number state laws, when either of the above two criteria applies.
The following are examples are alleged misrepresentations or omissions
[space]The need for greater
care with handling of underwriting information is not limited to applicants
and brokers. Insurers should ask all pertinent questions in the application
form because, in many instances, the applicant may be aware of important underwriting
information but does not disclose it simply because it was not asked.
[space]Application questions should be limited to seeking factual information rather than eliciting the opinion or judgment of the applicant. For example, when the applicant answered "no" to a professional liability application question as to whether future claims were expected, based on the applicant's opinion or judgment, the insurer concluded that the response was a misrepresentation or omission just because a claim did occur.
[space]In some instances, there may be an appearance of misrepresentation or omission due to the failure by the insurer to clarify responses to application questions. When presented with ambiguous or conflicting information, it behooves insurers to seek clarification prior to binding coverage or issuing the policy. For example, when an applicant found an application question inapplicable to its business, he amended it in a good faith attempt to provide accurate and complete information, and the insurer issued the policy without seeking clarifications. When a claim occurred, the insurer denied it, citing the answer to the modified question as evidence of misrepresentation.
[space] In certain circumstances only litigation can resolve allegations of misrepresentation or omission. However, the exercise of greater care in obtaining and preparing underwriting information by applicants or brokers, and clarification of ambiguous information by insurers can substantially reduce the number of cases requiring litigation and inevitable delays and costs..