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I Cannot Tell A Lie — Insurance Misrepresentation

February 14, 2012

In American folklore, when George Washington’s father asks about his favorite cherry tree being cut down, the future president famously says, “I cannot tell a lie.” When completing an insurance application, how many of us can say the same? After all, how many of us have personal auto policies that state we drive less than five miles to work?

At its core, insurance is an agreement that transfers the risk of a loss from one entity to another in exchange for payment. When reviewing a request for coverage, the insurance carrier determines the price and coverage terms by relying on the insurance application and other information such as financial statements, marketing materials or your web site. While it is assumed that the information presented is true, most insurance policies do contain a misrepresentation clause, which can void coverage or allow the carrier to refuse a claim.

If there is a misrepresentation the policy will usually contain a provision which will determine how coverage will be impacted — generally the carrier will have to show that the misrepresentation was material and influenced whether to offer coverage. For example, a business owner seeking a property policy states that he lives nearby, the fact that carrier subsequently discovers that the applicant lives 40 miles away will probably not allow the carrier to void coverage. On the other hand, if the business owner purchases a personal auto policy, such a misrepresentation may justify cancellation of the policy or a denial of coverage.

Since denial of coverage due to misrepresentation can occur only if the insurance applicant was aware of the inaccuracy of the statement, take the time to review the application and answer each question accurately. Because some application questions may seem not to apply and others questions may not relate to the true course and scope of insured operations, explain an answer by typing in the margin or add a notes page. Lastly, as a general rule, never leave any question blank. If necessary write “Not Applicable”.

Thanks reading and enjoy the President’s Day holiday weekend. Read more about George Washington and the cherry tree fable by visiting “The Papers of George Washington”.  Subscribe to Avanti Services via RSS or follow us on Twitter and Facebook.

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