If you are in a dispute with your insurance company and have heard the words ‘material misrepresentation’ as part of the dispute, you may have a serious issue on your hands. In this article we’ll define material misrepresentation, talk about the possible causes and consequences, and finally, provide you with some possible avenues to help resolve any issues you might be having.
So, what exactly is ‘material misrepresentation’? Material misrepresentation is a misstatement to a question asked during the application process that is so important that, had the truth been known, the insurance company would not have issued the policy or would have issued it with a higher premium.
If material misrepresentation is confirmed by the auto insurance or home insurance company, it will usually void the policy and coverage retroactively to when the policy was signed. Material misrepresentation is therefore a breach of the legal contract (which an insurance policy is) by the policyholder, which the insurance company can then cite as reason to declare the policy null and void (the insurance company may decide to return to the ex-policyholder all premiums paid to that point).
That said, material misrepresentation is not always so black and white – there can gray areas depending on the situation. In general, the main questions that the auto insurance or home insurance company and its investigators will ask are:
- Was there misrepresentation that was ‘material’ – i.e. is it so important that if known from the outset it would have fundamentally altered the contract?
- If there was material misrepresentation, was it intentional or just an error?
Now let’s take a look at each of these questions.
1. Was there misrepresentation that was ‘material’ – i.e. is it so important that if known from the outset it would have fundamentally altered the contract?
Misrepresentation is basically an error(s) that the policyholder provided to the insurance company at the time of the policy being issued. So if someone accidentally had misstated something minor when applying for a policy – for example, stating that one had been with the current insurance carrier for 10 years when it was really 9 years - the most likely outcome when the error is discovered would be that the insurance company would simply update the policy, including any needed changes in the premium.
However, if the incorrect piece of information was ‘material’ (which could be either a missing piece(s) of information or a false claim of something in the application), then it is likely the insurance company will void the contract and return the premium, leaving the driver or homeowner uninsured from the time the policy was applied for (which could theoretically be up to any number of years). That said, it is possible that even with material misrepresentation, the insurance company may still decide that the policy is valid.
2. If there was material misrepresentation, was it intentional or just an error?
In certain cases, though, when the insurance company determines material misrepresentation and voids the contract, the insurance company may decide that insurance fraud has occurred if the investigators believe the misrepresentation was intentional. In this case, the investigators may also turn over the case to legal authorities and prosecution may occur.
As you can see, material misrepresentation is serious business that is taken very seriously by insurance companies and legal authorities. This blog does not offer legal advice, but we would suggest that anyone that receives a notice that their insurance company believes material misrepresentation has occurred should immediately speak with their insurance agent and possibly seek the advice of a lawyer as well.