Texas General Lines — Life, Accident, Health and HMOGeneral InsuranceMedium
An insurance company receives an application from an individual who fails to disclose a significant medical condition on their health insurance application. If the insurer discovers this omission after the policy has been issued, what concept allows the insurer to void the contract?
- AWarranty
- BConcealment
- CRepresentation
- DEstoppel
Show answer & explanationAnswer & explanation
Correct answer: B. Concealment
Concealment is the intentional withholding of material facts that are crucial to the insurer's decision-making process. If material and intentional, it can lead to the voiding of a policy.
Why the other options are wrong
- A. A warranty is a statement guaranteed to be true; if untrue, it can void a policy, but this scenario describes an omission.
- C. A representation is a statement believed to be true to the best of one's knowledge; misrepresentation must be material and intentional to void a policy.
- D. Estoppel prevents a party from asserting a right or fact inconsistent with a previous position or representation.
Concealment
The intentional withholding of material information pertinent to the insurance risk by the applicant, which, if known, would have altered the insurer's decision to issue the policy or the premium charged.
- Must be intentional and material.
- Can lead to voiding of the insurance contract.
- Differs from misrepresentation (which is a false statement).
Memory trick: When you hide the truth, it's concealment; when you speak a lie, it's misrepresentation.