California Life-Only & Accident and Health AgentCalifornia Law - Life and Accident & HealthHard
A life insurance agent is completing an application for a client in California. The client discloses a previous bankruptcy that occurred 8 years ago. The agent believes this information is not relevant to underwriting and omits it from the application. Which of the following statements is true regarding the agent's actions?
- AThe insurer can only void the policy if the bankruptcy directly led to the cause of death.
- BThe agent acted appropriately, as bankruptcy older than 7 years is generally not considered material.
- CThe agent violated the duty to disclose all material facts, regardless of personal opinion.
- DThe agent is protected by the 'entire contract' provision, which limits disclosures to the policy document.
Show answer & explanationAnswer & explanation
Correct answer: C. The agent violated the duty to disclose all material facts, regardless of personal opinion.
An agent has a duty to disclose all material facts known to them, even if they personally believe the information is not relevant to underwriting. Omitting such information is a violation of this duty.
Why the other options are wrong
- A. This is incorrect. Misrepresentation or concealment of material facts can lead to policy rescission, regardless of the cause of death.
- B. This is incorrect. The agent's personal assessment of materiality is not the standard; all known material facts must be disclosed.
- D. This is incorrect. The 'entire contract' provision refers to what constitutes the policy, not the agent's pre-contractual disclosure obligations.
Agent's Duty to Disclose Material Facts
An agent has a legal and ethical obligation to disclose all known material facts relevant to an insurance application to the insurer.
- Applies to all information known to the agent.
- Materiality is determined by the insurer, not the agent.
- Failure to disclose can lead to policy rescission or agent penalties.
Memory trick: An agent's truth, like a beacon bright, must shine all facts in the insurer's light.