CHAPTER § 5.07 Applying for Insurance

• Jurisdiction: United States

§ 5.07 Applying for Insurance

[1] Application Process

Like all contracts, an insurance contract requires both offer and acceptance.¹⁸⁵ The offer happens when an applicant returns a completed application to the insurer.¹⁸⁶ The applicant must thoroughly and truthfully complete the application. An omission or falsehood could hinder, or even prevent, an insured's recovery.¹⁸⁷ If the potential insured changes its mind about wanting to bind coverage, it can withdraw the application any time before the insurer accepts.¹⁸⁸

Once accepted, the application often becomes part of the insurance contract.¹⁸⁹ This means the application's terms remain binding on both the insured and the insurer.¹⁹⁰ The application terms are subject to the same rules of construction and interpretation as any contract.¹⁹¹

[2] Working with Brokers to Benchmark and Negotiate Terms

Insurance brokers usually operate as independent third parties who negotiate on the insured's behalf with the insurer.¹⁹² Brokers' knowledge of the insurance market and common trends may help them negotiate for more favorable policy and benchmark terms than those proposed by insurers.¹⁹³ Insureds typically work with their brokers to evaluate how much insurance coverage they need for various types of risks.

Because a broker is the insured's agent while procuring insurance, it must act according to the insured's instructions.¹⁹⁴ Absent clear instructions, however, a broker may exercise its discretion when acting on the insured's behalf.¹⁹⁵ At all times, whether following clear instructions or exercising its discretion, a broker must exercise skill, care, and good faith.¹⁹⁶

[3] Rescission

If an insured procured their policy through fraud or misrepresentation, the insurer may seek rescission of the entire contract.¹⁹⁷ This concept often comes into play once a claim arises, as an insurer may attempt to rescind an insurance policy if the insurer can demonstrate that the insured intentionally made a material misrepresentation or omission upon which the insurer relied in accepting risk under the policy.¹⁹⁸

The insurer should seek rescission "without unreasonable delay upon learning the grounds for rescission."¹⁹⁹ If, however, the insurer "fails to rescind the policy promptly" upon learning of the grounds for rescission, it may have waived the right to rescind.²⁰⁰ Further, an insurer who rescinds an insurance contract for fraud must rescind it in its entirety.²⁰¹

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Notes:

^[185] 1A Plitt, Couch on Insurance, N.19 supra, ...