Question

Insurable Interest

Patrick contracts with an Ajax Insurance Company, an agent for a $50,000 ordinary life insurance policy. The application form is filled in to show Patrick’s age as thirty-two. In addition, the application form asks whether Patrick has ever had any heart ailments or problems. Patrick answers no, forgetting that as a young child he was diagnosed as having a slight heart murmur. A policy is issued. Four years later, Patrick becomes seriously ill and dies. A review of the policy discloses that Patrick was actually thirty-three at the time of the application and the issuance of the policy, and that he answered the question about a history of heart ailments incorrectly.

e). The insurer (Select A. is B.) is not bound by any false statements that appear in the application.

f). One exception to this rule is the (Select A.incontestability B.binder C.coinsurance D.antilapse clause), which provides that after the policy has been in force for a specified length of time, generally (Select A.one to two B. two or three C. three to five) years, the insurer (Select A.can B.cannot) contest statements made in the application.

g). State statutes (Select A.commonly B.rarely C.never) require that a policy for life or health insurance include an incontestability clause.

h). In this case, Ajax likely (Select A. will B. will not) be able to void the policy because (Select A.more than three years elapsed B.he lied on his application).

Answer 1

e. The insurer is not bound by false statements if they fall under the following categories :

- are made with the intent to deceive : Patrick provided the incorrect information about his age unintentionally and it cannot be viewed as an intent to deceive. The information about his prior sickness was forgotten and again not withheld intentionally.

- increased the risk : Patrick's age difference was 1 year and so did not increase the risk by a significant margin. Also the illness he did not remember was an old one and not one currently affecting him. The information did not therefore show an exaggerated claim of health by Patrick.

- contributed to the loss : Neither Patrick's age nor his heart murmur were responsible for his illness and death so the statements are not material to the claim.

(Crowell, 1935) (Criminal Defense Lawyer, 2020)

Since the false statements did not contribute to the final outcome of illness and death, they cannot be used by the insurer to void the policy.

f. A Incontestability. B Two or Three. B Cannot

The incontestability clause states that after a policy has been in force for 2 years and with all payment of premiums, it cannot be contested post that period. The period can be set by the insurer and is usually 2 years, but can be set to 3 years in some states.

An insurance binder is a written confirmation/agreement between insurer and insurance company.

Coinsurance ins a clause used to encourage policy holders to have a reasonable amount of insurance, which if not maintained can result in higher losses for the insured.

Anti-lapse clauses are used to manage situations where the beneficiary of a policy has pre-deceased the policy holder.

g. A Commonly

Most states maintain statutes that require incontestability clauses in life/health insurance policies.

(Humphreys, 2017)

h. B Will not. A. More than three years elapsed.

Assuming Ajax uses the incontestability clause, it will not be able to void the policy due to it being more than the prescribed term (2/3) years.

References :

Criminal Defense Lawyer (2020) Insurance Fraud Laws and Penalties

Crowell, G. Kenneth. (1935) False Statements by Appicants for Policies of Life Insurance. Marquette Law Review 19(4).

Humphreys, Mark S. (2017) Life Insurance – 2 Year Incontestability Clause. Law office of Mark S Humphreys.