Area life insurance attorneys need to know the reasons an insurance company can rescind an insurance policy.
In addition to the 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 Texas Insurance Code, Chapter 705.
The statute provides:
Section 705.003 – 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.
Section 705.004 – A provision stating that a misrepresentation in the application makes the policy void or vaoidable 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.
Section 705.005(b) – To rely on a misrepresentation in an application as a defense, the insurer must prove it gave to 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.
Section 705.051 – 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 affects the risks assumed.
Section 705.103 – A life insurance policy must be accompanied by a copy of the application and any questions and answers.
Section 705.104 – 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.