Cancellation and rescission of insurance contracts

  The Courts and the Legislature have been very generous to insurers, allowing them to cancel, rescind or void insurance contracts where there is any evidence of fraud , misrepresentation, or incomplete disclosure in insurance applications.  In some cases, the misrepresentation must be of a "material" fact.

     While many insurers talk about insurance fraud as though it were a large, continuing problem, we see very few cases that even hint of insured misconduct.  When we do see something suspicious, it has usually been identified at the outset by the insurer involved, and the state has provided numerous remedies.

     For example, we represent the family of a middle-aged school teacher who was killed in a motor vehicle collision on her way to school.  The man who crossed the centerline and killed her had a terrible driving record with numerous alcohol issues and suspensions.  He had allegedly procured insurance through his father, who had allegedly failed to disclose the man's regular and frequent use of the insured vehicle.  If these facts are documented, the insurance company will be able to avoid paying for damage to the car,it won't have to pay for the at-fault's significant medical expenses and wage loss, and it will be obligated to pay only the statutory minimum liability coverage of $20,000.00 to the victim's family--even though the father purchased a larger policy.  The insurer will have to pay the latter amount because of a Michigan statute--applicable to auto coverage only--that requires the insurer to honor that minimum obligation to any innocent victim of an insured car.

     All insurers enjoy the right to rescind or void any policy that was procured by fraud or the failure to disclose a material fact, if the insurance company would have refused to issue the policy had it known all of the facts.  This right to rescind exists even if the insured's failure to disclose is not intentional.  Another pertinent example is the recent Continental General v. Gershonowicz case:  in that case, the insured died as a result of complications of a basal cell tumor on the back of her skull.  The insurer proved that she had evidence of the existence of the lump on the back of her head two years before she died and 18 months before she bought her insurance.  She had denied any evidence of tumors or cancer in her application and the Court held that this was a material non-disclosure, given her knowledge of the lump (even though it had not been medically identified or treated). 

There have been many similar decisions in every insurance field.  The Courts have extended this basic approach into the claims process as well:  an insured who materially exaggerates his claim or misrepresents the loss he has suffered will be denied any recovery under the policy.