Auto Insurance Uberrimae Fidei
Can your SR22 or car insurance company nullify your auto policy?
Many of us heard of some horrible stories about insurance companies refusing to pay some insurance claims based on certain 'discovery' related to the insured. The question that is asked repeatedly: Does the insurance company have the right to nullify a car insurance policy after it policy is issued? And if so, what are the circumstances under which a company may cancel an auto policy. Before answering this question, we need to be briefed about a fundamental principle of the insurance business: The Principle of Utmost Good Faith. In Latin, this principle is called uberrimae fidei.
The Principle of Utmost Good Faith is related to the doctrine underlining most financial contracts which require certain minimum standard from parties of the contract (ie the client and the insurance company) to act honestly toward each others, not to mislead, and not to withhold critical information from each others. That requires the insurance company, for example, to disclose its financial data, its claims procedures, etc. At the same time, the insured is required to disclose all pertinent information about self or about the subject of insurance, answer all questions in a truthful manner.
If someone breaches this doctrine and acts deliberately in a different manner, then the other party will have the right to nullify the contract, or rescind the contract, or canceling the contract from the beginning like it never took place. Nullifying an insurance policy after a loss can be devastating not only to the person insured, but also to other victims that might have been involved in the car accident.Answering that question above we can conclude that the insurance company does indeed have the right to cancel the policy from the date of inception (the date the car insurance started, like no insurance has ever taken place. The following are major reasons why insurance companies may do that:
1. Fraud. If a person purchases a car insurance policy with the intent to defraud the insurance company then the insurance company has the right to rescind that policy. If someone purchases a full coverage car insurance policy on a car that is badly damaged with the intent of making claims on that damage later then this will be classified as fraud. In this case the insurance company may also report this to the local authority for investigation. Deliberately concealing facts may be classified as fraud.
2. Misrepresentation. Representations are statements made by the car insurance applicant in the course of obtaining the car insurance policy. There are many questions pertaining to age, gender, marital status, other drivers in the household, and driving records on the application. If the misrepresentation is material then the company may have the right to nullify the insurance contract. What is a material representation? A material misrepresentation is related to the fact that if the truth were known by the insurance company, then the insurance company either would not have issued the policy, or would have issued it with different conditions and terms, and most likely would have charged the customer higher premiums. With that definition in mind, failure to disclose modification of the insured vehicle, failure to disclose youthful drivers in the same household is a material misrepresentation, so is failure to disclose motor vehicles activities related to the driving histories of all the people listed on the application.
Fronting: Almost everyone knows that youthful drivers (widely defined as operators under age 25) are charged higher premiums than other operators. If an insurance policy is obtained under the parent's name, while the operator is a youthful driver then this will be classified as fronting, and companies under these circumstances do have the right to nullify the policy. While many companies pay for claims resulting from undisclosed youthful drivers, others (especially if the claim is big) will fight and declare policy null and void (rescind policy.)
It is always better to tell the truth when getting an automobile policy because failure to do so may result in you paying to accidents from your pocket.
posted on Wednesday, April 05, 2017