Although the equitable remedy of rescission dates back to the common law of Great Britain, it remains an effective tool for insurers. I look forward to presenting the topic of Rescission in the Modern Age: Overlooked Tool or Obsolete Relic? at the upcoming annual DRI Life, Health, Disability and ERISA Seminar.
The notion that both parties to an agreement must operate in good faith is a historical tenet of contract law. Further, insurance policies are considered to be contracts of utmost good faith. For this reason, and because parties to insurance contracts could be more vulnerable to misrepresentation or concealment of material fact than other contracting parties, rescission has been applied to insurance policies to allow an insurer to void a contract.
Today, state laws vary as to the requirements an insurance company must meet to employ the remedy of rescission to void an insurance contract. Some states merely require a material misrepresentation in the policy application to rescind the contract. In this context, a material misrepresentation generally occurs when the insured makes an untrue statement that would have changed the rate at which insurance would have been provided or which would have changed the insurer’s decision to issue the contract. Typically, the burden is on the insurer to show that there is a material misrepresentation. In these states, the insurer must simply show that it would not have issued the policy had it known the true facts that were misrepresented. At the other end of the spectrum, some states may require that intent to deceive be proven in order to rescind the contract. Additionally, some states have specific standards for rescission of life, health, and disability insurance policies that differ from other types of insurance. Finally, another wrinkle in the availability of rescission has been the Affordable Care Act. Under the ACA, rescission is illegal except in cases of fraud or intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage. If a plan or health insurance issuer wants to rescind coverage, the ACA requires thirty days’ written notice and proof that an insured intentionally put false or incomplete information in his or her application.
In addition to the varying laws affecting an insurer’s access to rescission, we will cover incontestability clauses, arguments against rescission that an insurer is likely to encounter and relay some practical pointers on rescission.
As always, I look forward seeing you all in Chicago!