Rescission: A Case Study
Recently we’ve seen that insurance companies are conducting more rescission reviews. Rescission is a legal principle where insurance companies can avoid payment and even void a policy if there were any misstatements made in a policy application. We typically see this happening when it comes to the health questionnaire portion of policies. Insurance companies may even sue a policyholder in order to rescind a policy, and seek attorney fees and costs.
One such example is the case of Principal v. Hill. Principal sued Ms. Hill seeking to rescind her deceased husband’s life insurance policy, after Principal discovered that the husband had made material misrepresentations and omissions on his life insurance application within the policy’s two-year contestability period. As part of the application, Mr. Hill was required to submit a Statement of Health. According to Principal’s complaint, Mr. Hill did not disclose consultations with physicians, tests, treatments, medications, symptoms and medical conditions. The Statement of Health also contained language to the effect that, by signing it, the Hills were confirming that the answers “were complete and true to the best of my knowledge” and that “any false statements, omissions or material misrepresentations regarding age or health information could cause coverage, if issued, to be cancelled as never effective.” Principal asked the Court to rescind the policy as to amounts over the guaranteed issue amount of $20,000.00, stating that it had relied on these misrepresentations when it issued the policy.
In this instance, the policy was an ERISA policy, and ERISA law allows for the rescission of insurance contracts entered into under false representations of health. Here, the Court found in favor of Principal and rescinded the policy. The Court also awarded attorney fees and costs, as Principal had demonstrated that they achieved “some degree of success on the merits” of the case, including that they had shown a valid basis for rescission.
While this is a life insurance case, we often seen similar situations when it comes to disability insurance cases. More and more, insurers are going through policy applications with a fine-toothed comb, looking for any misrepresentations. They may even request medical records from decades earlier in an attempt to find discrepancies. The takeaway is that it is imperative to be careful and accurate when filling out applications, or you may find yourself without coverage when needing to file a claim. If your insurance company has mentioned rescission, it is important to speak with an experienced disability insurance attorney right away.
If you have questions regarding how rescission works, or fear your insurance company may be seeking to rescind your policy, please feel free to reach out to one of our attorneys directly.
Every claim is unique and the discussion above is only a limited summary of the court’s ruling in this case. If you are concerned that your insurer is using any of the tactics above to evaluate your claim, an experienced disability insurance attorney can help you assess the situation and determine what options, if any, are available.