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Buyer Beware: Insurance Coverage and Misrepresentation

Buyer Beware: Insurance Coverage and Misrepresentation

December 28, 2023

By Brian Babcock

Did you know that even an innocent misrepresentation on an application for insurance can result in a denial of coverage?

The result of non-disclosure or misrepresentation may be that the coverage is void. No one buys insurance hoping that will happen.

One of the fundamental principles of insurance is said to be the duty of utmost good faith. The duty is supposed to run in both directions, but at the application stage, the onus is on the applicant for insurance (the buyer) to get the facts right.  This is justified on the basis that the applicant, not the insurer, has the knowledge. For that reason, insurers are required to be aware of “public facts” not unique to the applicant. In the digital age, this may be an area of dispute.

The difficulty with the onus being on the applicant view is that the applicant must disclose all “material facts” affecting the risk. But how does the average person know what is material? Some cases suggest that the insurer must ask the right questions, but the prevalent view is that insurers cannot ask about everything, so that leaves the least knowledgeable and most vulnerable person in the transaction with the onus.

No one wants to reward lying, or even negligent misrepresentation, but what about a case where an applicant for insurance checks off “no” to “do you have diabetes?” because their kindly doctor used the less scary term “high blood sugar”? They are likely to be denied their travel, disability, or life insurance.

Travel insurance is particularly tricky. It is usually sold through channels where there are not expert brokers or agents to explain terminology. How does the average person know what “stable high blood pressure” is, as opposed to unstable? Yet, if you have a stroke in Florida and face a $40,000,00 (US) hospital bill, you may be denied coverage if your medication was tweaked a few months before your trip. When you seek payment, your insurer will order all your medical records just to look for a reason NOT to pay the bill.

Which is no reason not to buy the travel insurance, because without it, you are at great risk of a devastating bill. Just be aware that insurance reduces the risk, it does not fully eliminate it.

A typical life insurance policy defines a single cigarette, or even a birthday cigar, as a reason to charge smoker’s rates, often twice the non-smoker price. But many people buy the insurance unaware of this fine print- they think of themselves as a non-smoker, and tick that box. Some applications help by asking better questions, but it still pays to be careful. Life insurance is about peace of mind, and you want to protect your family, not set them up for disappointment at the moment they are still mourning your passing.

As with any other purchase, ask questions. If you cannot get answers, you should have greater concern.

If you are denied coverage, you might want to seek legal advice. At Weilers LLP we understand insurance law. If you have a good claim, we may agree to represent you against the insurer. If you feel like your claim has wrongfully been denied, consider whether Weilers LLP are the right lawyers for you.